TONY JONES, PRESENTER: Last night we brought you the story of how you could soon be paying more for petrol as the Government looks for ways to build or fund the rebuilding of the nation’s strategic oil reserve.

The idea was floated by the Industry Minister Ian Macfarlane when he released the white paper on energy yesterday.

Well that’s prompted a rebuke from the Foreign Minister today. Julie Bishop has effectively accused her cabinet colleague of exaggerating the size of the problem. She’s not happy with Mr Macfarlane’s suggestion that instead of raising taxes on fuel, Australia could walk away from its international agreement to maintain an oil reserve of 90 days’ supply.

That commitment was given some 40 years ago when the US and its Western allies formed the International Energy Agency.

IEA VIDEO (female voiceover): The IEA was born in the wake of the first great oil crisis. Following the 1973 Yom Kippur War in the Middle East, OPEC had unilaterally doubled the price of petroleum. Henry Kissinger, then President Nixon’s National Security Advisor, responded to the oil shock with characteristic energy. He proposed the creation within the Organisation for Economic Cooperation and Development in Paris, of what was quickly dubbed an “energy NATO”.

TONY JONES: Well since then, the International Energy Agency and member countries have deployed the strategic oil reserve a handful of times to keep prices stable, like when the US attacked Iraq in 1991 and after Hurricane Katrina.

So if it’s been working well, why has Australia let its reserve dwindle and what’s the Government going to do about it?

Our political correspondent Tom Iggulden has been taking a look.

TOM IGGULDEN, REPORTER: The International Energy Agency isn’t happy with Canberra. Australia’s the only country among the agency’s 29 members failing to keep its strategic oil reserve at agreed levels. The IEA wants to hear by it’s annual meeting in June what the Government’s going to do about it.

JULIE BISHOP, FOREIGN MINISTER: It’s important for security, it’s important for global security for Australia to meet our obligations and we’re working through a way that we can achieve that.

TOM IGGULDEN: The Industry Minister’s got a more nuanced view.

IAN MACFARLANE, INDUSTRY MINISTER: Do Australians want us to remain compliant, do they want us to actually be paying these billions and billions of dollars to be compliant with an international treaty? That’s part of the discussion we’ll be having.

TOM IGGULDEN: He’s warning motorists would foot the bill for those billions via a tax on fuel, but the Foreign Minister’s not embracing her cabinet colleague’s claims.

JULIE BISHOP: I don’t believe that the figures that are being put about at present are accurate. I think that much more work needs to be done to determine what it would actually cost in terms of our obligation to meet our treaty.

TOM IGGULDEN: But the minister’s top oil bureaucrats are sticking by their estimate that it would cost almost $7 billion to bring the strategic oil reserve up to scratch. They appeared today at a Senate inquiry into energy security.

GINO GRASSIA, INDUSTRY DEPARTMENT: The current size of the oil market in Australia or the stock volume is about 4,000 kilotonnes and the IEA compliance figure would be doubling that.

JOHN RYAN, INDUSTRY DEPARTMENT: The question that’s being asked is: how much are we prepared to pay for the membership of the IEA? That’s the question.

JOHN MADIGAN, INDEPENDENT SENATOR: How can we and the minister on behalf of the Australian Government, the people, even contemplate walking away from the IEA agreement? What is it that the department knows, the minister knows, the Government knows that the rest of the world doesn’t know?

TOM IGGULDEN: The Government says it’s confident the economy could survive an oil shock with the current strategic reserve.

JOHN RYAN: We go through our assessments of what we see in our national interest.

TOM IGGULDEN: And it’s suggesting the IEA stockpiling rules are outdated.

JOHN RYAN: When oil markets were different to what they are today and where the – and so those rules have a different purpose, if you like.

JOHN MADIGAN: Our government is not putting a price – is not prepared to pay a price for the security of our nation.

JOHN BLACKBURN, KOKODA FOUNDATION: Having spent 33 years in Defence, I don’t really rest easy with the idea of companies telling us, “Don’t you worry about that, we’ve got everything covered.”

TOM IGGULDEN: Retired Air Vice Marshall John Blackburn says the Government’s effectively outsourced fuel security to the oil industry and they’re not equipped to look at the social consequences of an oil shock.

JOHN BLACKBURN: Within a week, you wouldn’t get food that you need at the supermarket, you wouldn’t be able to get enough fuel to get your kids to school and a lot of businesses would start to close because the supply chains are so tight.

TOM IGGULDEN: Security experts liken the oil reserve to an economic insurance policy and say with China’s growing military might and its influence over global oil markets, it’s a policy needed now as much as ever.

Extracted in full from Lateline.