Suppliers are warning of a 30 percent price increase for essential petrochemical-derived materials, a cost directly borne by small businesses and passed onto clients, as global capital flows are disrupted by conflict in the Middle East.
Refineries and processing plants have scaled back operations due to the conflict in Iran, according to an ABC report. Hundreds of tankers carrying crude oil and liquefied natural gas (LNG) are currently stuck in ports in the Persian Gulf, unable to reach their destinations.
Vinh Thai of RMIT University stated that crude oil and LNG are fundamental to petrochemical production, which in turn is fundamental to other manufactured items, creating a chain effect across industries. Approximately 20 percent of the world’s oil and natural gas typically flows through the Strait of Hormuz, but much of it is currently not moving.
Asia relies on Middle Eastern exports to produce chemicals necessary for global manufacturing. The conflict has also resulted in damage to oil and gas infrastructure.
Who Bears the Cost
The impact of these disruptions is already being felt at construction sites in Australia. Nathaniel Smith, described as a former NSW Liberal MP who heads the peak body for the industry, noted that this situation will further slow contractors and housing supply.
Plumbers are struggling to acquire PVC pipes, which are manufactured using petroleum resin. Plumber Ryan Aquilina reported that a supplier canceled half of an order last minute. Aquilina stated that cashflow is a significant concern for a small business, and he cannot absorb a 30 percent increase, necessitating "real hard conversations" with clients to pass on these rising rates.
Petrochemicals are essential inputs for a wide range of products, including plastics, cosmetics, fertilizers, and medicines, with most of these items manufactured abroad. Australia imports approximately 90 percent of its medicines from overseas.
Despite this reliance, the Therapeutic Goods Administration is not currently anticipating shortages, as suppliers are mandated to stockpile up to six months' worth of essential medications under regulations introduced after COVID.
Capital's Global Architecture
Computer chips used in many common electronic devices also rely on petrochemicals. Matt Peterson, an industrial chemist at Harrison Manufacturing in Sydney, stated that the economy and chemical industry have been built on petrochemicals. His company, which produces grease and lubricants for vehicles across Australia, is now "scrambling to source alternatives to the normal types of raw materials."
Peterson anticipates that the next few months, potentially through the end of the year, will remain challenging for sourcing raw materials. For the past few years, scientists at Harrison Manufacturing have been developing petroleum-free greases and lubricants using plant-based materials, such as vegetable oils derived from canola.
However, even the use of eco-friendly alternatives like canola oil remains dependent on the international market. Peterson explained that seed oils like canola, grown in Australia, are largely shipped overseas, with refined vegetable oil then imported back into Australia, illustrating a global structure of surplus extraction.
The State's Role
Last year, the Federal Government announced a $1.1 billion grants program intended to encourage businesses to develop alternatives to fossil fuels. Vinh Thai stated that while there is a quest for sustainability and a need for change, this process would take "some time, if not decades."
Prime Minister Anthony Albanese affirmed that the immediate priority is to increase fuel supply into Australia. He expressed openness to exploring new methods for producing diesel and petrol domestically. Albanese stated, “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.”
The report concluded that until domestic production capabilities are significantly expanded, Australia's economy and prices will remain dependent on global supply chains and the geopolitical forces that disrupt them, with the standstill in the Strait of Hormuz impacting not only fuel but also the production of everyday petrochemical-derived items.