A conflict in Iran has forced refineries and processing plants to scale back operations, leaving hundreds of tankers of crude oil and LNG stranded in Persian Gulf ports and threatening price increases of up to 30 percent for Australian businesses and consumers. About 20 percent of the world's oil and natural gas flows through the Strait of Hormuz, but most of it has not been moving, according to a report by the ABC.
Vinh Thai of RMIT University said the conflict in the Middle East has had a direct negative impact on petrochemicals. "Hundreds of tankers of crude oil and LNG are stuck in the ports in the Persian Gulf and they cannot go to their destination," Thai said. He explained that crude oil and LNG are fundamental to the production of petrochemicals, which are themselves fundamental to other manufactured items, creating a chain effect across industries. Oil and gas infrastructure has also been damaged in the war, and Asia relies on Middle Eastern exports to produce chemicals needed for global manufacturing.
Immediate Impact on Construction and Small Business
The disruption was already being felt at construction sites. Nathaniel Smith said the conflict has hit "the one material you need before you can pour a slab." Plumbers were struggling to get PVC pipes, which are made with petroleum resin. Ryan Aquilina, a plumber, said his supplier called last minute and said they didn't have half the order. "Cashflow's a big thing for a small business, I can't absorb 30 per cent increase. I'd have to have real hard conversations with my clients to say this is the price rise coming through and pass on those rates," Aquilina said. Some suppliers were warning their prices were about to climb by around 30 percent.
Nathaniel Smith, a former NSW Liberal MP who heads the peak body for the industry, said the supply disruption is just another thing that's going to slow contractors down and slow down the housing supply. Petrochemicals are used to make plastics, cosmetics, fertilisers and medicines, and most are manufactured abroad. Vinh Thai said Australia imports around 90 percent of its medicines from overseas. Suppliers are required to stockpile up to six months' worth of essential medications under rules introduced after COVID, and so far the Therapeutic Good Administration is not expecting shortages.
Dependence on Petrochemicals Across Sectors
Computer chips in many common electronics are made with petrochemicals. Matt Peterson of Harrison Manufacturing said, "We have built an economy and a chemical industry on petrochemicals. We are scrambling to source alternatives to the normal types of raw materials that we would use." Peterson is an industrial chemist at a manufacturing company in Sydney that makes grease and lubricants found in trucks, buses, cars, boats, and other machines around Australia. He said the next few months, maybe through the next six months towards the end of the year, are going to remain a challenging time to source the raw materials.
For the past few years, scientists at the company have been researching and developing petroleum-free versions of their greases and lubricants using plant-based materials such as vegetable oils. Peterson showed a product containing ester derived from canola oil. Some of the products are final products and the rest are in development. Even using eco-friendly alternatives like canola oil relies on the international market. Peterson said seed oils like canola that are grown in Australia are currently shipped overseas, and Australia then imports back refined vegetable oil.
Government Response and Long-Term Transition
Last year the Federal Government announced a $1.1 billion grants program to encourage businesses to produce alternatives to fossil fuels. Vinh Thai said, "We are on the quest to sustainability, we need to change, however it would take some time, if not decades I would say." The Prime Minister said the immediate priority is getting more fuel into Australia but he is open to finding new ways to produce diesel and petrol here. Anthony Albanese said, "We do not need to wait for this global crisis to be over, to learn its lessons. We can and we must act now to make the most of our resources and make more things here."
Until then, Australia remains dependent on others and prices do too. The standstill in the Strait of Hormuz is not just impacting fuel supply but has also disrupted the production of petrochemicals used to make everyday items.
Why This Matters:
The disruption in the Persian Gulf exposes the fragility of Australia's dependence on foreign petrochemical supply chains and the vulnerability of businesses and consumers to price shocks beyond their control. Small businesses like plumbing contractors face immediate cashflow pressures from a 30 percent price increase they cannot absorb, forcing difficult conversations with clients and threatening project timelines. The housing supply, already constrained, faces further delays. While the government's $1.1 billion grants program signals intent to diversify supply, the transition to alternatives may take decades, leaving Australia exposed in the interim. Even domestic alternatives like canola oil are shipped overseas for refining and reimported, illustrating the need for onshore processing capacity. The Prime Minister's openness to producing diesel and petrol locally reflects recognition that energy security and supply chain resilience require domestic production, not just subsidies for future alternatives. Until Australia builds that capacity, prices and availability remain hostage to foreign conflicts.