Hormuz is thousands of kilometres away — but Australian farmers are paying attention

A narrow stretch of water between Iran and Oman might appear to have little connection with a wheat farm in Western Australia, a cattle property in Queensland or a cropping operation in New South Wales.

The connection is diesel.

It is also fertiliser, freight, agricultural chemicals, machinery costs and ultimately the price of producing food.

The continuing disruption around the Strait of Hormuz is demonstrating how closely Australian agriculture remains connected to the global energy system.

Saudi Arabia and other Middle Eastern producers are increasingly finding alternative ways of moving oil around the troubled waterway.

For Australian farmers, that is not simply a geopolitical development.

It matters to the cost and availability of some of the most fundamental inputs required to run a farm.

Australia produces energy — but imports fuel

There is an apparent contradiction in Australia's energy position.

Australia is a major producer and exporter of coal and natural gas.

Yet we remain heavily dependent upon overseas refineries for the fuels that keep much of the country moving.

The Reserve Bank says almost 80 per cent of Australian demand for refined petroleum products including diesel, petrol and aviation fuel is supplied by imports.

Much of that fuel comes from Asian refineries.

Those refineries, in turn, commonly depend upon crude oil from the Middle East.

The supply chain therefore looks something like this:

Middle Eastern oilfield → tanker → Asian refinery → fuel tanker → Australian terminal → regional distributor → farm fuel tank.

Interrupt one part of that chain and consequences can eventually appear thousands of kilometres away.

Agriculture runs on diesel

Australian agriculture remains enormously dependent upon diesel.

Tractors need it.

Harvesters need it.

Trucks need it.

Irrigation equipment can require it.

Earthmoving machinery needs it.

Generators need it.

Livestock and produce need to be transported.

Inputs have to reach farms and finished products have to leave them.

There are alternatives emerging for some applications, but there is presently no practical rapid replacement for diesel across much of Australian agriculture.

That makes fuel security agricultural security.

We have already seen what can happen

This is not a theoretical argument.

Earlier in the present Middle Eastern conflict, Australian farmers and miners experienced diesel supply pressure as international petroleum markets were disrupted.

Regional areas can be particularly vulnerable because enormous distances separate ports, terminals, depots, farms and customers.

A shortage at the national level does not necessarily affect every location equally.

A farmer does not need Australia to run completely out of diesel to have a serious problem.

The local distributor simply needs to be unable to supply enough fuel at the time it is required.

Agriculture operates to seasons rather than shipping schedules.

Harvest cannot always wait several weeks for international fuel markets to settle.

Neither can planting.

Fertiliser provides another connection

Fuel is only part of the story.

Global energy markets are closely connected with fertiliser production.

Natural gas is particularly important in the manufacture of nitrogen fertilisers such as urea.

Oil and gas prices also influence manufacturing, transport and shipping costs.

Australia has already had to respond.

The Federal Government established a $7.5 billion Fuel and Fertiliser Security Facility as supply disruption intensified.

By June, government-supported arrangements had secured approximately 240,000 tonnes of fertiliser.

Additional diesel cargoes have also been secured.

That intervention demonstrates the importance of these inputs.

Without fertiliser, agricultural yields can decline.

Without diesel, machinery stops.

These are not discretionary purchases.

Saudi Arabia's pipeline suddenly matters to Australian agriculture

Saudi Arabia possesses a strategic advantage that has become increasingly important during the Hormuz disruption.

Its East–West Pipeline allows oil produced near the Persian Gulf to travel across Saudi Arabia to Yanbu on the Red Sea.

That means some Saudi crude can avoid Hormuz altogether.

Saudi Arabia has increasingly used alternative export arrangements as conventional Gulf shipping has become more difficult.

Saudi Aramco is now also reportedly offering some Asian refiners crude through arrangements outside Hormuz.

For Australian agriculture, the important point is not precisely where each tanker is loaded.

It is that maintaining the flow of Middle Eastern crude into Asian refineries helps maintain the broader petroleum supply chain upon which Australia depends.

Hormuz is not functioning normally

Recent shipping figures illustrate the seriousness of the situation.

Before the war, more than 130 vessels could transit the Strait of Hormuz each day.

Following recent tanker attacks, commodity vessel movements have fallen dramatically.

That does not mean oil has stopped flowing completely.

Producers, traders and shipping companies are adapting.

But adaptation costs money.

Alternative routes can be longer.

Insurance becomes more expensive.

Tankers become more difficult to position.

Storage becomes more valuable.

Security costs increase.

Those costs eventually work their way through the energy system.

The farm feels the price twice

Farmers can be particularly exposed because energy costs affect both sides of the business.

There is the obvious direct cost.

Diesel becomes more expensive.

Then come the indirect costs.

Freight companies pay more for fuel.

Suppliers pay more to transport fertiliser.

Agricultural chemicals can become more expensive.

Contractors face higher operating expenses.

Machinery and spare parts cost more to transport.

Processors and distributors encounter higher energy and freight bills.

Some of those costs eventually return to the farmer.

A higher international oil price therefore does considerably more than increase the number displayed at the service station.

The consumer eventually joins the chain

Agricultural costs cannot continually increase without consequences somewhere in the food supply chain.

A farmer may initially absorb higher diesel or fertiliser costs through a reduced margin.

Processors may absorb some increases.

Wholesalers and retailers may absorb others.

Eventually, however, sustained increases tend to find their way into prices.

That means the economic journey can ultimately become:

Hormuz disruption → higher energy costs → higher farm inputs → higher freight and processing costs → pressure on supermarket prices.

The connection is indirect.

But it is real.

Australian agriculture has a resilience question of its own

The Middle East is now confronting a question that Australian agriculture should also consider.

How much redundancy is worth paying for?

Saudi Arabia invested in a pipeline capable of moving oil across the Arabian Peninsula.

During normal times, unused pipeline capacity can look inefficient.

During a crisis, it looks like insurance.

Australian farmers understand that principle instinctively.

A spare pump may sit unused.

A generator may operate only occasionally.

Fuel stored on-farm ties up capital.

A second supplier may not always offer the cheapest price.

But redundancy becomes valuable when the primary system fails.

The same principle applies nationally.

Fuel reserves matter differently in rural Australia

Australia maintains petroleum stocks, but geography creates an additional problem.

National supply figures do not necessarily describe conditions in regional communities.

Fuel must still be transported from terminals to depots and then across considerable distances.

Australia's agricultural regions are vast.

A national supply shortage can therefore become a regional logistics problem before it becomes an absolute shortage.

The resilience question is consequently not simply:

How much diesel does Australia have?

It is also:

Where is it, and how quickly can it reach the people who need it?

That distinction matters enormously during planting and harvest.

Farmers cannot control Hormuz

There is very little an Australian farmer can do about events in Iran, Saudi Arabia or the Persian Gulf.

But agricultural businesses can manage exposure.

Fuel purchasing arrangements can be reviewed.

Storage capacity can be considered where economically and legally appropriate.

Supplier relationships can be diversified.

Forward input requirements can be examined.

Contractors can be consulted about their own fuel preparedness.

Fertiliser requirements can be planned earlier where possible.

None of those measures eliminates geopolitical risk.

They can, however, reduce the consequences of being surprised by it.

There is a national lesson as well

Australia's experience raises a broader policy question.

A country capable of producing enormous quantities of energy remains reliant upon international supply chains for much of the diesel required to operate farms, mines and freight networks.

That dependence deserves continuing scrutiny.

The solution is not necessarily attempting to produce every litre of fuel domestically.

International trade brings enormous economic benefits.

But efficiency and resilience have to coexist.

The Middle East is learning precisely that lesson.

Australia should be learning it too.

The Rural Times View

The Strait of Hormuz is a long way from an Australian paddock.

Economically, it can be remarkably close.

Modern farming depends upon international supply chains extending far beyond the farm gate.

Diesel arrives through one of them.

Fertiliser arrives through another.

Machinery, chemicals and spare parts have their own.

The current Middle Eastern conflict has exposed the risks created when critical commodities depend heavily upon particular countries, refineries and shipping routes.

Saudi Arabia's response is instructive.

Its alternative pipeline to the Red Sea was expensive infrastructure long before the current crisis.

Today it represents strategic resilience.

Australian agriculture operates on a vastly different scale, but the principle is identical.

Efficiency matters.

Price matters.

But the cheapest supply chain is of limited value if the product does not arrive when it is needed.

For Australian farmers, energy security is therefore not an abstract debate about the Middle East.

It is part of the cost — and increasingly the security — of producing Australia's food.