For months Australians have been waiting for the Middle East oil crisis to end.

Perhaps we should begin considering another possibility.

What if it does not end soon?

The latest developments surrounding Iran, the Strait of Hormuz and Saudi Arabia increasingly suggest that Australia cannot base its energy security on an assumption that the old oil trading system will simply return.

Traffic through the Strait of Hormuz has again collapsed. Preliminary shipping data showed only four vessels transited the waterway on Tuesday, compared with a 10-day average of 18. None was a very large crude carrier or LNG tanker. Before the Iran war, the Strait handled about one-fifth of the world's oil and LNG supply.

That would be serious enough.

But another development may be even more significant.

Saudi Arabia has relied upon its East-West pipeline to move oil to the Red Sea and thereby bypass Hormuz. Drone attacks have damaged that pipeline, disrupting the alternative route and forcing Saudi Arabia to develop increasingly complicated arrangements, including offering crude to Asian customers through ship-to-ship transfers off Oman.

The significance is difficult to overstate.

The world's largest oil exporter has not simply been dealing with disruption to the Strait of Hormuz.

Its principal means of bypassing the Strait has also been attacked.

This is no longer merely a story about one vulnerable shipping lane.

It is becoming a story about the vulnerability of the Middle Eastern energy system itself.

Australia is thousands of kilometres away — but economically connected

Australians sometimes look at a map and reasonably ask why a war involving Iran should determine what they pay for diesel in Dubbo, petrol in Brisbane or freight to a supermarket in Melbourne.

The answer lies in Australia's dependence on the international refined-fuel market.

The Reserve Bank has estimated that almost 80 per cent of Australia's demand for refined petroleum products such as petrol, diesel and jet fuel is met by imports.

Much of that fuel comes from Asian refineries in countries including Singapore, South Korea and Malaysia.

Those refineries, in turn, have traditionally sourced substantial quantities of crude from the Middle East.

Australia therefore does not need to buy a particular tanker of Iranian or Saudi crude to be affected by events in Hormuz.

We participate in the same interconnected market.

When Middle Eastern crude becomes scarce, dangerous or expensive to transport, Asian refining costs rise.

Australian fuel prices eventually feel the consequences.

And the latest numbers are uncomfortable

The Australian Government's Fuel Plan showed Brent crude averaging US$107 a barrel in the week to September 9 — 47 per cent above its pre-conflict level.

The Singapore gasoil benchmark, particularly important for Australian diesel pricing, was US$168 a barrel — 89 per cent above its pre-conflict level.

That distinction matters.

Australians often watch the crude-oil price and assume it tells them what should be happening at the service station.

Increasingly it does not tell the whole story.

Australia imports enormous quantities of finished fuel.

What happens to the price and availability of diesel, petrol and jet fuel in Asian refining markets can therefore matter as much as the headline Brent price.

The ACCC reported last week that average petrol prices across Australia's five largest cities were 39 cents per litre above their pre-conflict level.

Diesel was 77 cents per litre higher.

Diesel is where the oil crisis escapes the service station and enters almost everything else.

Diesel is embedded in the Australian economy

A motorist sees the price displayed on a service-station sign.

The economy experiences it differently.

Diesel moves trucks.

It powers agricultural machinery.

It helps operate mines.

It powers construction equipment.

It moves food, building materials, machinery and consumer goods across a continent.

The Reserve Bank specifically identifies transport, mining and agriculture as major business users of fuel.

That means an oil shock does not remain an oil shock.

It becomes a freight cost.

A farming cost.

A mining cost.

A construction cost.

A supermarket cost.

Eventually it becomes a household cost.

And because energy is embedded throughout the economy, persistent high fuel prices create precisely the sort of inflationary pressure Australia has spent years trying to suppress.

Australia still has fuel

This distinction is important.

Australia is not presently running out of fuel.

Government figures show petrol stocks equivalent to about 41 days of normal consumption, diesel at 32 days and jet fuel at 30 days as at September 8.

At least 3.3 billion litres of crude oil and refined fuel were scheduled to arrive from overseas during the following four weeks, while domestic refineries continue producing approximately 20 per cent of national requirements.

That is reassuring.

But it also reveals something fundamental about Australia's position.

Our immediate problem is not necessarily that fuel will disappear.

It is that maintaining supply in a disrupted global market can become increasingly expensive.

A wealthy country can compete for scarce cargoes.

But it competes by paying.

Which raises an uncomfortable Australian question

For years Australia's energy debate has concentrated heavily on climate change and the transition away from fossil fuels.

There are substantial reasons for doing so.

Burning fossil fuels produces greenhouse-gas emissions. Australia has international emissions commitments. Renewable electricity, batteries, electric vehicles and other technologies can progressively reduce petroleum dependence.

Indeed, one of the strongest arguments for electrification has now become an energy-security argument: an electric vehicle powered substantially from Australian-generated electricity is less exposed to a tanker being attacked thousands of kilometres away.

But the present crisis exposes the other side of the transition.

An energy transition does not eliminate dependence on the old energy system merely because investment priorities have shifted towards the new one.

Australia still consumes enormous quantities of liquid fuel.

Trucks still require diesel.

Aircraft still require aviation fuel.

Farm machinery still requires fuel.

Mining and construction still require large quantities of petroleum products.

Millions of Australian vehicles still have internal-combustion engines.

The transition may be underway.

The dependency remains.

Have we confused future demand with present security?

This deserves examination without turning it into an argument against action on climate change.

Environmental groups have campaigned against new fossil-fuel developments, while Australian governments have progressively strengthened environmental and climate considerations surrounding energy projects.

The current Commonwealth environmental framework continues to permit oil and gas developments subject to approvals, although recent EPBC reforms specifically exclude fossil-fuel projects from a new fast-track assessment pathway available to qualifying projects. They remain able to use the other approval pathways.

It would therefore be inaccurate to say Australia has simply prohibited oil production.

It has not.

Nor would increasing Australian crude production automatically solve the present problem.

Australian refineries cannot necessarily process every type of locally produced crude, and Australia's vulnerability is substantially a refining problem as well as a production problem.

But the Middle East crisis makes one policy question increasingly difficult to avoid:

While planning the energy system Australia hopes to have in 20 or 30 years, did we devote enough attention to securing the fuel system Australia still needs today?

That is not a climate-change question.

It is an energy-security question.

Australia possesses extraordinary energy resources

There is an irony here.

Australia is one of the world's great energy-producing countries.

We export coal and LNG and possess substantial renewable-energy resources.

Yet the Reserve Bank describes Australia as a net importer of oil and particularly of refined petroleum products.

We can therefore be an energy superpower in one sense and simultaneously vulnerable in another.

A disruption thousands of kilometres away can still increase the cost of moving a truck from Sydney to Melbourne.

That should tell policymakers something.

Energy abundance and energy security are not necessarily the same thing.

Climate policy and energy security do not have to be enemies

The lesson from the Iran crisis should not necessarily be that Australia must choose between fossil fuels and renewable energy.

That is an unnecessarily narrow argument.

The more useful question is whether Australia has sufficient resilience during the transition.

That could include domestic refining capacity, appropriate strategic reserves, diversified international suppliers, more efficient transport, electrification where technically and economically practical, alternative fuels and sensible consideration of domestic petroleum resources.

The International Energy Agency says the present period of geopolitical disruption has pushed energy security back towards the centre of government policy internationally, alongside sustainability and affordability.

Those objectives need not be mutually exclusive.

Australia can reduce emissions while also recognising that petroleum remains economically essential today.

The mistake would be pretending one reality cancels the other.

There may be no cheap return to normal

For much of this crisis the underlying assumption has been temporary disruption.

War.

Hormuz closure.

Price spike.

Diplomacy.

Reopening.

Normality.

That sequence now looks considerably less certain.

The June Resources and Energy Quarterly used a near-term resolution of Middle Eastern disruption as its central scenario, while explicitly modelling a second scenario in which disruption persisted for months and energy prices remained higher for longer.

Events since then demonstrate why the alternative mattered.

Ships have been attacked.

Hormuz traffic remains severely constrained.

Saudi Arabia's bypass infrastructure has been damaged.

Alternative shipping arrangements are becoming increasingly elaborate.

And diplomacy has repeatedly failed to produce a durable return to the old trading environment.

The question facing Australia therefore changes.

It is no longer simply:

When will petrol become cheaper again?

It becomes:

How should Australia operate if expensive and geopolitically vulnerable oil becomes part of the economic landscape for years rather than months?

The consequences reach far beyond motorists

If the answer is persistently expensive fuel, Australians will encounter the consequences in places where they may not immediately recognise an oil price.

Airfares.

Groceries.

Building costs.

Farm production.

Freight.

Mining.

Regional transport.

Business margins.

Government infrastructure.

Eventually wages, inflation and interest rates can enter the equation as businesses and households attempt to absorb the higher cost structure.

That is why the Iran war is no longer merely foreign news.

It is an Australian cost-of-living story.

And increasingly, an Australian energy-policy story.

The Times View

Australia cannot control Iran.

It cannot guarantee safe passage through the Strait of Hormuz.

It cannot protect every Saudi pipeline or tanker carrying oil towards Asia.

But Australia can decide how vulnerable it wishes to remain to all of them.

Climate change remains a legitimate long-term policy challenge. So does the transition towards lower-emissions energy.

The Middle East crisis has added another requirement that deserves equal seriousness: energy security during the transition.

There is little value in arguing retrospectively that Australia should simply have produced more oil, just as there is little value in pretending that petroleum has already ceased to matter.

Neither proposition reflects the economy Australians actually live in.

The country must manage two realities simultaneously.

We need to build the energy system of the future.

And until that system can actually replace the one we have, we must secure the energy system of the present.

The events now unfolding from Iran to Hormuz, Saudi Arabia and the Red Sea are demonstrating the price of failing to distinguish between those two tasks.

For Australians already paying more for diesel, petrol, freight and almost everything those fuels help deliver, that distinction is no longer theoretical.

It is arriving in the household budget.