Australia’s dependence on imported fuel is no longer merely a question of what motorists pay at the service station.

It is now large enough to alter the country’s trade position, weaken the terms of trade and contribute to a current account deficit of $27.2 billion.

New Australian Bureau of Statistics figures show imports of fuels and lubricants surged by 42.5 per cent during the June quarter as the conflict in the Middle East pushed up the price of crude oil and refined petroleum products.

Australia also imported additional diesel supplies as the Federal Government attempted to protect the country from shortages.

The result is an economic warning that reaches far beyond petrol prices.

Australia exports vast quantities of coal, gas and minerals to the world, yet remains heavily reliant on other countries to refine and supply the liquid fuels required by its trucks, farms, mines, construction equipment, aircraft and private vehicles.

The country may be rich in energy resources, but it is not self-sufficient in the forms of energy that keep much of the economy moving.

The deficit widened sharply

The current account recorded a seasonally adjusted deficit of $27.2 billion in the June quarter, according to the Australian Bureau of Statistics.

It was Australia’s second consecutive quarterly deficit in trade in goods and services.

Imports of goods and services increased by 4 per cent, including a 6.9 per cent rise in goods imports. Fuel was the most consequential part of that increase.

Higher prices for crude oil and refined petroleum products drove the 42.5 per cent rise in fuel and lubricant imports. Diesel volumes also increased as the Government secured additional shipments during a period of restricted global supply.

Passenger vehicle imports rose strongly as well. Imports classified as non-industrial transport equipment increased by 38.1 per cent, reaching a record value as electric and plug-in hybrid vehicles arrived in greater numbers.

Australia was therefore spending more to import both the fuel on which it remains dependent and the vehicles intended to reduce that dependence.

This is not the federal budget deficit

The current account deficit should not be confused with the Federal Government’s budget position.

It measures Australia’s financial transactions with the rest of the world, including trade in goods and services and income flowing between Australian and overseas investors.

A deficit means more money was flowing out through those channels than was flowing in.

The largest component was a $21.9 billion net primary income deficit. This largely reflects income earned by foreign investors from their Australian assets, offset by income Australians earn on investments overseas.

The deterioration in trade added to that continuing income outflow.

The ABS expects the current account deficit to represent its largest share of nominal gross domestic product since the June quarter of 2016.

Fuel has become an imported economic shock

The Middle East conflict did not need to interrupt every tanker bound for Australia to damage the Australian economy.

It only had to make oil and refined products significantly more expensive.

Australia buys fuel in international markets where prices are influenced by crude oil values, refinery availability, shipping costs, insurance premiums, exchange rates and geopolitical risk.

When those costs increase, Australia must pay more for essentially the same economic necessity.

The consequences spread quickly:

• Transport companies face higher operating expenses.
• Farmers and miners pay more to operate machinery.
• Airlines encounter higher aviation fuel costs.
• Construction and freight become more expensive.
• Businesses pass part of the increase to customers.
• Households have less money available for other purchases.

This is why fuel inflation is so damaging. It acts like a charge imposed across almost every stage of the economy.

Higher export prices can provide some compensation. The ABS reported stronger prices for thermal coal, lithium and other mineral fuels during the quarter. Disruption to global liquefied natural gas supplies increased demand for alternative energy sources, including Australian coal.

But the benefit is uneven. Export producers may earn more while households and fuel-dependent businesses pay more.

Australia’s terms of trade fell

Australia’s terms of trade—the relationship between the prices received for exports and those paid for imports—declined by 1.6 per cent during the quarter.

That decline matters because favourable terms of trade allow Australia to buy more imports from a given quantity of exports.

When imported necessities become more expensive faster than export earnings increase, the country’s purchasing power is weakened.

Australia can export more coal or minerals, but if it must pay dramatically higher prices for diesel, petrol, machinery and transport, part of the benefit is surrendered.

This is the economic contradiction at the heart of Australia’s energy position: the country is a major energy exporter but remains exposed to shortages and price shocks in refined liquid fuels.

Electric vehicles are becoming part of the response

Record electric and plug-in hybrid vehicle imports suggest Australians are reacting to fuel insecurity as well as environmental and running-cost considerations.

An electric car cannot replace diesel required for heavy freight, agricultural machinery, mining equipment or many remote-area operations. Nor does electrification eliminate the need for aviation and maritime fuels.

Nevertheless, every vehicle capable of replacing imported petrol with domestically generated electricity reduces one small part of the country’s exposure.

That does not make the transition costless. Australia still imports the vehicles, batteries and much of the associated technology. Electricity networks, charging facilities and generating capacity must also keep pace.

Electrification changes the nature of the dependency; it does not automatically remove it.

The strategic advantage is that Australia can produce additional electricity from domestic coal, gas, hydro, solar, wind and storage systems. It cannot manufacture additional crude oil merely because the international price has risen.

Fewer Australians travelled overseas

There was one unexpected offset in the figures.

Service imports fell by 4.1 per cent as fewer Australians travelled overseas, particularly to Europe and North America. It was the first June-quarter decline in overseas Australian traveller numbers since the COVID-19 period.

Australians instead showed a greater preference for destinations in Asia and the Pacific.

The change may reflect airfares, fuel costs, household financial pressure and broader uncertainty. Whatever the combination, it suggests expensive energy is influencing not only what Australians drive but where they travel.

Domestic tourism operators may benefit if more Australians holiday closer to home. However, the same operators also face higher fuel, transport and supply costs.

What happens next?

The June-quarter national accounts are due to be released on Wednesday.

The ABS estimates that the improvement in inflation-adjusted net trade will contribute 0.1 percentage points to quarterly economic growth. That is possible even while the dollar value of the current account deteriorates because the two measures answer different questions.

GDP calculations focus on the volume of goods and services produced and traded. The current account figures also reveal the prices Australia paid and received.

This distinction will be important when the economic growth figures arrive. A positive contribution from net trade will not mean Australia escaped the fuel shock. It may instead show that export volumes held up while the country paid considerably more for critical imports.

The Reserve Bank will also be watching the consequences.

Oil-driven inflation places it in a difficult position. Higher interest rates cannot reopen a shipping route, produce diesel or reduce the world price of crude oil. Yet the Bank must respond if expensive fuel spreads into freight, food, services and inflation expectations.

Australia could therefore experience the particularly damaging combination of high fuel costs, weaker household spending and continuing pressure on interest rates.

The Times View

The $27.2 billion current account deficit is not proof that the Australian economy is failing. It is evidence that an external energy shock is exposing a weakness Australia has allowed to develop over decades.

We extract and export enormous quantities of energy resources, but depend on international markets and overseas refineries for much of the fuel essential to daily life.

Emergency shipments can prevent an immediate shortage. Temporary tax relief can reduce the price displayed at the pump. Neither solves the underlying vulnerability.

Australia needs a realistic fuel-security policy that recognises the continuing importance of diesel, petrol and aviation fuel while steadily expanding domestically produced alternatives.

That means adequate reserves, diversified suppliers, resilient ports, viable refining capacity where practicable, stronger freight contingency planning and an energy transition capable of operating in the real world.

The latest trade figures have put a national price on dependence. Australia is not simply importing fuel—it is importing the economic consequences of every major disruption occurring thousands of kilometres away.