Even before two oil tankers were attacked in the Gulf of Oman this week, retired major-general and reluctant outgoing senator, Jim Molan, was raising concerns about Australia’s fuel reserves.

Since 2012, Australia has been in breach of its international obligations because we hold 55 days worth of fuel imports as opposed to the 90-day minimum set by the International Energy Agency (IEA).

The Australian government is in the middle of a Fuel Security Review, with a final report due in the second half of this year but there are growing calls for urgent action.

“There is no point in having 12 fantastic submarines and 75 F-35s if you’ve got no bloody fuel for them,” warns Molan.

“This latest attack emphasises the need for us to take liquid fuels resilience seriously.”

Inadequate reserves of petrol, diesel and aviation fuel, alarm those like Molan, who argue Australia lacks an overall national security strategy. He has been attempting to draw attention to the shortfall for years but economic considerations have tended to trump security concerns. There has been a lack of consensus among policymakers about whether and how to boost reserves. Those in charge of the purse strings in Canberra have adopted a market-oriented approach, arguing that oil is fungible, any disaster leading to a disruption in supply would be well signposted and the government could act if and when needed.

Australia is the only one of the International Energy Agency’s 30 member states not meeting its obligations.

However, new data released by the Lowy Institute has highlighted Australia’s vulnerabilities at a time when geopolitical tensions are on the rise. In recent weeks, the US and China have come to an impasse in their trade war and Washington has been building up its troop presence in the Gulf to prepare for a possible conflict with Iran.

On Thursday, US Secretary of State Mike Pomeo blamed Iran for an attack on two crude tankers in the Gulf of Oman that triggered a jump in the oil price. The tankers were attacked close to the Strait of Hormuz, one of the world’s busiest shipping routes that takes crude exports out of the oil-rich region.

Bottom of the class

In the Lowy Institute Asia Power Index, Australia was ranked 15th out of 25 countries in fuel security, measured by the deficit of refined petroleum as a percentage of gross domestic product. And it was ranked last in the region on its trade balance in refined fuels.

“Australia’s net imports of refined petroleum hit $US13.8 billion in 2017, up from $US10.3 billion in 2016 – and higher than any other country in Asia,” points out Herve Lemahieu, the director of Lowy’s Asian Power and Diplomacy Program.

The IEA, which was set up following the oil shocks of the 1970s, requires its members to maintain strategic petroleum reserves of at least 90-days’ worth of fuel imports. These can be called upon in the event of an energy disruption such as a major conflict, earthquake or flood to maintain supply.

At the moment, Australia has 55 days of reserves. Only three days worth is  in public hands, the rest is held by industry players. Japan, by contrast, has 183 days’ worth of fuel reserves, the majority of which (110 days) is government held. Australia is the only one of the IEA’s 30 member states  not meeting its obligations.

The push for a more strategic approach

“We have to prepare for an age where economic interdependence becomes increasingly weaponised for geopolitical gain,” says Lemahieu. “So we need to ramp up our focus not only on conventional security, but also on the concept of geoeconomic security. We need to do more to build resilience against potential measures by other states on our economic activity. As part of that, we need to think about secure access to energy resources that are essential to the functioning of the economy.”

This more strategic approach to resources can be seen in the move by US defence chiefs to enlist Australia’s help in securing supply of rare earths minerals, a sector that is currently dominated by China and is critical for the manufacture of everything from head phones and fridges to advanced weapons systems.

It can also be seen in Beijing’s vast infrastructure program, the Belt and Road Initiative, which is in part aimed at developing new maritime routes so that China is less reliant on the Strait of Malacca, through which most of its energy imports travel.

While the Morrison government works on its fuel security review, there are increasing calls for Canberra to come up with a plan to boost reserves.

Why we can no longer rely on the US to keep seas safe

“For the last 75 years our very powerful friend the United States has been able to control all the sea lines of communication throughout the world but since 1989 and the end of the cold war, American military power has been reduced incredibly significantly which is something that we don’t talk about enough,” says Molan.

“The US had just under 600 navy ships in 1989. It’s got a fair few ships under 300 in 2019. It can no longer control the world’s sea lanes. America’s influence drops and we suddenly have the rise of four nations: China, Russia, Iran and North Korea.”

Australia’s fuel security became an issue in the recent election campaign. Labor pledged to set up a government-owned National Fuel Reserve to boost fuel stocks, an initiative that was slammed by the government, which claimed it would cost more than $10 billion.

In a written response to questions from AFR Weekend, Federal Energy Minister Angus Taylor said: “The government’s approach to fuel security seeks to balance our international commitments and avoid additional cost to consumers while ensuring fuel is available when it is required.”

“The government is committed to addressing fuel security issues and will continue to engage with stakeholders and intelligence and national security agencies to understand the implications of potential international disruptions to fuel supply.”

Molan says the government has responded “very well” since being made aware last year of the urgency of the problem.

However, Christian Downie from the Australian National University’s School of regulation and global governance says the government doesn’t have a “consensus position” on the issue of fuel reserves.

“Australia has traditionally taken a market-oriented approach,” he says. This is based on the view the country has sufficient fuel reserves and any additional fuel can be acquired on liquid oil markets if, and when, the need arises.

Many in Canberra also dispute the way fuel reserves are measured and note that at any one time there are roughly 45 oil tankers en route to Australia. Together, these ships together carry over two weeks of additional supply but they are not included in the IEA calculations.

Downie says those looking at the issue through a national security lense, are “more worried that, should there be a conflict or natural disaster, our capacity to maintain ships and planes would be seriously undermined.”

He says the government needs to do more to reduce Australia’s dependency on oil.

Extracted from AFR