Australian businesses are facing death by 1000 cuts as the oil crisis moves through the national economy.
In a fresh blow to businesses who were already under pressure, oil prices have surged again throughout the week.
The latest jump came as negotiations between the US and Iran fell apart, leading to US President Donald Trump declaring America the “guardian of the Strait”.
Oil prices quickly followed, reaching $81.77 a barrel by the end of the week, with no signs of subsiding.
US President Donald Trump took to Truth Social for an update about the US-Iran war this week. Picture: Truth Social
KPMG geopolitics lead Jon Berry says rising oil prices are hammering businesses as it extends beyond just the price of fuel.
“It is not one big impact that the company is feeling but it is like 1000 paper cuts,” he said.
“It is a little bit more on all the inputs, a little bit more on broader inflation, so all those little things businesses have to manage at a time when there’s fiscal pressures and less willingness for people to spend as we are living in an inflationary environment,” he said.
While most Australians focus on rising fuel costs or their latest energy bills Mr Berry points out oil impacts almost all parts of the economy.
“Constructions is a sector that has been hit and that is a sector that is already facing higher prices as any who has tried to build lately would know,” Mr Berry said.
“There was a big increase in construction material costs in 2022 after the Russian invasion of Ukraine and we hadn’t really seen prices come back into the normal range in the four years since.”
Brent Crude oil prices temporarily jumped to $US120 a barrel at the early stages of Ukraine war, a level that was reached four years later during the Middle East conflict.
Mr Berry said this oil price shock has compounded on top of already high prices.
“The price rises are across many different things from energy intensive items like steel or concrete right through PVC piping because that is made out of petro chemicals or anything with a microchip in it because helium supply has been impacted,” he said.
Mr Berry said the healthcare industry is also getting smashed by higher costs, as any item made by plastics are impacted by oil prices.
“Things like personal protective gear such as surgical gowns and equipment and all of those once use items the health system relies on,” he said.
“They are also exposed to specialised gases like helium which is especially used in medical images.”
Iran said it was ready to resume “full-scale offensive operations” if US strikes against it continue for another two or three days, a senior military adviser to Iran’s supreme leader warned on Friday.
“Iran will no longer limit itself to retaliatory, like-for-like responses … and no political border will be safe,” Major General Mohsen Rezaei said, according to the Iranian news agency IRIB.
US President Donald Trump earlier threatened to destroy infrastructure to pressure the regime into easing its chokehold on the strategic waterway – which remains all but stalled.
“Even in a best-case scenario, we just don’t know how much the oilfields, production and loading facilities have been damaged during the conflict,” Mr Berry said.
“It may be that oil supply out of the Persian Gulf never fully returns to what it was before because when you cap an oil well you can’t really just uncap it.
“Then we have all these export facilities and process facilities that have sustained some damage …. You are talking about a best-case scenario where they are repaired in a few months.”
Motorists warned of rising fuel costs
In a fresh blow for cash-strapped households, experts warn Australian motorists could be hit three times by the start of August.
Since April drivers have saved 32 cents a litre thanks to a temporary pausing of the fuel excise and giving back the GST windfalls.
On March 30, the fuel excise was halved for three months.
The federal government measure reduced the price of fuel by 26.3 per cent per litre, dropping the cost of filling a 50-litre tank by $13 and an 80-litre tank by $21.
The States later said they would return excessive GST revenue to motorists, saving them a total of 32c a litre.
From July 1, this was unwound, as motorists were slugged with a 16 cent per litre rise in fuel as the subsidy started to come off.
There will be a second cost from August 2 when the full excise returns.
This comes at the worst time for households, as, the price of Brent Crude oil has surged more than 15 per cent over the past week to surpass $US84 per barrel.
In total, this is predicted to lift the price of petrol from about $1.50 per litre towards the $2 mark.
AMP chief economist Shane Oliver told NewsWire oil prices had immediately repriced and were up about $US11 per barrel since strikes resumed between the US and Iran.
Every $US10 a barrel increase in fuel costs motorists about 10 cents per barrel.
“The longer the Strait of Hormuz stays effectively closed and the more the world economy runs down its oil reserves, that will become unsustainable and we could get a much bigger spike in oil prices,” he said.
Mr Oliver said the worst of the fears for motorists of oil prices jumping to $US150 a barrel was still unlikely as both the US and Iran would both individually be hammered by rising fuel costs.
He also noted Australia was in a much better position to deal with any potential crisis compared to the start of the conflict.
“We are certainly in a better spot than we were earlier this year because we managed to build up our reserves,” he said.
It is the second blow for household budgets in just the past few weeks as the government unwound its recent halving of the fuel excise.
The NRMA said fuel prices had jumped in the past week, with the cost of regular unleaded in Sydney soaring 17 cents per litre to 164.4. Diesel fuel rose 21.1 cents per litre to 182.2.
Extracted in full from: https://www.news.com.au/finance/economy/australian-economy/oil-price-surge-unleashes-death-by-1000-cuts-on-australian-businesses/news-story/b1fab7c3790aabf84b18cacdb5eb99a3
