You might have noticed petrol prices are climbing rapidly in Australia. Some petrol stations are already charging more than $2 a litre. Believe it or not, it does have something to do with what’s happening in Russia. But that’s not the full story.
The Russia effect
Australia imports more than two-thirds of its oil from overseas. The countries we buy the most from are Singapore, Korea and Japan. We buy hardly any oil from Russia – 0.01% of our imports, in fact.
However, that doesn’t mean Russia can’t affect us.
Russia has alternatives, and it has actually been preparing for this for a while – last year the Russian Government began to reduce its use of U.S. dollars to sell oil.
However, sanctions from Western allies will still make it harder to sell oil, driving up the price of oil around the world, including in Australia.
The same is likely to be true for other things Russia exports, such as gas and wheat.
But it’s not just Russia
High petrol prices are not a new problem. They have been going up in Australia for the last couple of years.
A big reason (surprise!) is COVID. Oil prices fell at the beginning of the pandemic because people weren’t driving cars as much.
However, as the world started to recover and people wanted to drive again, large oil-producing countries refused to supply more oil, saying they were worried a new wave of COVID infections could hurt sales again.
In addition, a number of oil-producing countries have been constrained by Western sanctions – not just Russia, but also Iran and Venezuela. So with oil in shorter supply, prices began to climb. The new sanctions on Russia will fuel that climb.