Beyond the Pump: How a Dragging War with Iran Could Reshape Australia’s Economy and Society, By James Reed
In early April 2026, the Mises Institute published a sobering piece titled "The Economic Destruction of Trump's War Goes Far Beyond High Gas Prices." Author Connor O'Keeffe argues that the US-Israeli strikes on Iran and Iran's blockade of the Strait of Hormuz are doing far more damage than headline oil prices suggest. By hammering higher-order goods — aluminium, helium, petrochemical plastics, sulphur, naphtha and fertiliser precursors — the conflict is physically destroying the inputs that underpin modern supply chains. The result isn't just inflation; it's locked-in shortages of everything from food and medical equipment to semiconductors and construction materials. Even after the shooting stops, rebuilding those facilities will take years.
While the Mises essay focuses on the United States, the same dynamics are already hitting Australia — harder than many realise. We don't pump much crude from the Persian Gulf ourselves, but we import roughly 90 % of our refined petrol, diesel and jet fuel from Asian refineries that do rely on Middle Eastern feedstock. Our strategic fuel reserves sit at about 25–30 days, or less — well below the International Energy Agency's 90-day minimum. If the war drags on, the economic and social fallout for everyday Australians will be deep, broad and persistent.
Economic Consequences: From Fuel Shock to Supply-Chain Meltdown1. Fuel prices, shortages and rationing risk Petrol has already jumped 30–70 cents a litre in parts of the country; diesel has climbed even more. In a prolonged scenario modelled by Oxford Economics, oil stays above US$150/barrel for months, refined-product shortages appear, and Australia faces outright fuel rationing. Transport, mining and agriculture — sectors that run on diesel — are hit first and hardest. Northern Star Resources, Australia's biggest gold miner, has already downgraded production twice because of diesel costs.
2. Inflation that the RBA can't easily tame Treasury modelling shows even a moderate oil spike could add 0.5–1.25 percentage points to headline inflation and shave 0.2–0.6 points off GDP growth. In Oxford's "prolonged war" case, underlying inflation could hit 6 % and headline figures could top 7.7 %. The Reserve Bank would almost certainly raise rates again, squeezing mortgage holders already under pressure.
3. Recession territory Oxford Economics forecasts quarterly GDP contractions of 0.3 % then 0.8 % — the sharpest falls outside the pandemic since the early 1990s. Manufacturing, logistics and construction slow as plastics, aluminium and asphalt become scarce and expensive. Retail and hospitality suffer as households cut discretionary spending.
4. The "higher-order goods" crunch (Mises in an Aussie context). The Mises article's central insight applies directly here. Australia doesn't just import petrol; we import the petrochemical building blocks that go into packaging, medical supplies, car parts, fertiliser and electronics. Sulphur (half the world's seaborne trade moves through Hormuz) is already tightening fertiliser markets. Urea, 64 % of which comes from the Gulf region, is critical for our autumn planting. Farmers are already rethinking crop sizes, which means higher food prices down the track. Helium shortages threaten MRI scanners and chip production; plastic shortages hit everything from IV bags to beer crates. These aren't short-term price blips — they're physical reductions in output that linger long after tankers resume sailing.
5. Mixed blessings for exporters Australia's LNG and coal exports may fetch higher prices, but most of the windfall goes to foreign owners. The net effect on the budget and the dollar is modest compared with the domestic cost-of-living pain.
Social Consequences: The Human Cost of StagflationHigher prices and slower growth don't stay abstract. They show up in household budgets, hospital waiting lists and community stress.
Cost-of-living squeeze on steroids. Families already stretched by rents and groceries will face another wave of price rises in fuel, food and freighted goods. Three in ten parents already report struggling with food, power or insurance. A fresh energy shock risks pushing more households into poverty, especially single-parent families, renters and regional communities far from public transport.
Health and mental-health fallout. Financial stress is strongly linked to anxiety, depression and family tension. Prolonged uncertainty can also reduce access to care: helium shortages limit MRIs, while plastic shortages affect syringes, catheters and hospital supplies. Rural and remote Australians, who drive longer distances and rely more on diesel, feel the pinch earliest.
Labour-market pain. Mining towns in Western Australia and Queensland, logistics hubs in Melbourne and Sydney, and agricultural regions could see layoffs or reduced hours. Youth unemployment, already a concern, may climb as casual and entry-level jobs in retail and hospitality dry up.
Social cohesion and politics. Panic buying, fuel queues and stories of profiteering erode trust. Politicians will face pressure to subsidise fuel or impose price caps — short-term relief that often creates longer-term distortions. Inequality widens: higher-income households can absorb the shock or even benefit from energy-export dividends; lower- and middle-income households cannot.
The Long ShadowEven if a ceasefire comes tomorrow, the economic scarring will last. Supply chains take months to restock and years to rebuild destroyed capacity. Australia's chronic under-investment in domestic refining and fuel stockpiles will be painfully obvious. Farmers who skip a planting season lose income for multiple years. Businesses that defer investment or lay off skilled workers take time to recover productivity.
The Mises essay is right: wars don't just raise the price of petrol — they destroy the quiet infrastructure of abundance. For Australia, an island trading nation with thin strategic reserves and heavy reliance on just-in-time Asian refining, a prolonged conflict in the Gulf is not a distant foreign-policy issue. It is a direct threat to living standards, economic stability and social resilience.
The best response isn't panic. It's realism: diversify fuel sources, rebuild domestic refining capacity where it makes sense, maintain larger strategic reserves, and recognise that the true cost of war is measured not just in dollars per barrel but in lost output, strained families and diminished opportunity for years to come.
If the war drags on, Australians won't just pay more at the bowser. We'll pay more for almost everything — and we'll pay for a very long time.
https://mises.org/mises-wire/economic-destruction-trumps-war-goes-far-beyond-high-gas-prices
