The price of oil has dominated discussion about the economic consequences of the Iran war.

But another price is now demanding attention.

The price of moving it.

The cost of shipping Gulf oil to Asia has reportedly climbed to about US$15.22 a barrel, the highest on record, as the effective disruption of the Strait of Hormuz collides with broader pressures across international shipping.

Meanwhile, Brent crude remains around US$89 a barrel.

That apparent contradiction tells Australians something important.

The international oil price no longer provides a complete picture of the energy crisis.

Oil may be available.

But if it costs considerably more to insure, transport and deliver it to the refineries that need it, the final product can remain expensive even without another spectacular surge in crude.

For Australia, the implications extend beyond petrol and diesel.

This is increasingly becoming a freight story.

And Australia imports an enormous amount of what it consumes.

The world found another way

The global response to the disruption of the Strait of Hormuz has been remarkable.

Middle Eastern oil supplies have been severely constrained.

Ships have been attacked.

Commercial traffic through Hormuz has collapsed.

Yet the world has not stopped.

Asian refiners have turned increasingly towards crude from the United States and West Africa.

Alternative shipping arrangements have developed.

Inventories have been drawn down.

Governments have strengthened fuel-security arrangements.

Markets have adapted.

That adaptability has prevented the Iran conflict from becoming the catastrophic energy shortage that might otherwise have occurred.

But there is an important distinction.

Finding another way does not mean finding another way at the same price.

The replacement barrel is a more expensive barrel

Before the war, an Asian refinery might obtain much of its crude relatively efficiently from the Middle East.

Geography helped.

The Middle East and Asia have developed an enormous energy-trading relationship around that proximity.

When Hormuz becomes effectively unusable, the refinery still needs crude.

It can buy from somewhere else.

Perhaps the United States.

Perhaps West Africa.

Perhaps another producer capable of increasing exports.

But the replacement cargo may have to travel much further.

A tanker occupies more time completing the voyage.

More fuel is consumed.

Shipping capacity is tied up for longer.

Insurance has to be paid.

And if many refiners are chasing the same replacement barrels, the crude itself can attract a premium.

The oil has been found.

The economics have changed.

Asia is already paying those premiums

This is not theoretical.

Asian refiners have been increasing purchases of American and West African crude as normal Middle Eastern supplies remain constrained.

US crude exports to Asia reached a record 2.35 million barrels a day in July.

Some Asian refiners have reportedly paid premiums exceeding US$10 a barrel to secure replacement supplies.

That is the market doing precisely what markets are supposed to do.

A shortage appears.

Prices rise.

Alternative supply becomes commercially viable.

Cargoes change direction.

The shortage is reduced.

But the higher price required to produce that adjustment does not disappear afterwards.

Somebody pays it.

Australia is downstream of the transaction

This is where Australia enters the story.

Australia imports most of the refined petroleum it consumes.

Much of that petrol, diesel and aviation fuel comes from Asian refining centres.

Those refineries need crude oil.

If they have to pay more for crude, more to transport it and more to insure its passage, those additional costs become part of the economics of refining.

Australia then purchases the finished products.

The precise relationship is complicated.

Exchange rates matter.

Refining margins matter.

Competition matters.

Taxes matter.

Inventories matter.

There can be significant delays between international movements and Australian retail prices.

But Australia cannot permanently separate itself from the cost structure of its international suppliers.

If the Asian refinery pays substantially more to produce the litre, the Australian importer cannot indefinitely expect to purchase that litre as though nothing happened.

The Strait itself remains barely functional

There is little evidence yet that normal commercial shipping through Hormuz is returning.

Recent ship-tracking data showed only five commodity vessels crossing on Saturday and none on Sunday.

Before the war, more than 130 vessels passed through the waterway each day.

Some vessels may travel without transmitting normal tracking signals, so the observable numbers should not be treated as a perfect physical count.

But the collapse in commercial traffic is beyond dispute.

This matters because the most efficient solution to the problem remains obvious:

Restore safe passage through Hormuz.

Until that happens, the global energy system has to continue constructing more expensive alternatives.

Shipping capacity is finite

There is another economic consequence.

A tanker is not simply a container floating on water.

It is a capital asset capable of carrying a particular amount of cargo over a particular period.

If a voyage takes substantially longer, the same tanker completes fewer voyages in a year.

That effectively reduces available shipping capacity even if not a single vessel has physically disappeared.

Imagine a truck that normally completes two deliveries each day suddenly having to take a route twice as long.

The truck still exists.

But its productive capacity has fallen.

The same principle applies at sea.

Longer voyages can tighten tanker markets and push freight costs higher.

Then insurance enters the calculation

Ships have been attacked during the Iran conflict.

That changes risk.

Insurance companies exist to price risk.

When the probability of damage increases, premiums generally have to reflect it.

War-risk insurance can therefore become another cost embedded in international trade.

Shipowners may also require greater compensation for entering dangerous areas.

Crews have to be protected.

Cargo owners have to assess the risk of losing or delaying valuable shipments.

None of those costs appears in the Brent crude price.

All can ultimately influence the delivered cost of fuel.

This is why US$89 oil can still hurt

Australians became accustomed during the early stages of the conflict to watching whether Brent would exceed US$100 or move even higher.

That remains relevant.

But it is increasingly inadequate.

Suppose the underlying crude costs US$89.

Then add a historically expensive freight bill.

Add insurance.

Add refinery margins.

Add the premium necessary to obtain a particular grade of replacement crude.

Add the cost of moving the refined product onwards to Australia.

The relevant question is no longer simply:

What does the barrel cost?

It is:

What does it cost to put the finished litre where Australia needs it?

That is a much more important economic calculation.

And freight is not confined to petroleum

There is a broader Australian vulnerability.

Australia imports enormous quantities of goods.

Machinery.

Vehicles.

Electronics.

Clothing.

Furniture.

Industrial components.

Construction materials.

Consumer products.

Chemicals.

Medical products.

Manufacturing inputs.

Much of that trade arrives by sea.

The Iran conflict does not automatically increase the freight cost of every container sailing to Australia.

Different shipping markets operate differently, and container vessels are not oil tankers.

But disruption in global shipping can spread.

Routes change.

Bunker fuel costs change.

Insurance changes.

Port congestion can change.

Available vessels shift between markets.

Surcharges appear.

International logistics is an interconnected system.

Australia sits at the end of it.

Geography has always been Australia's advantage and disadvantage

Australia's isolation has protected it from many geopolitical conflicts.

Economically, isolation has a price.

Almost everything imported into Australia has to travel a considerable distance.

That means transport efficiency matters enormously.

When global shipping works smoothly, modern logistics makes that distance seem remarkably insignificant.

A product manufactured thousands of kilometres away appears on an Australian shelf almost routinely.

Disrupt the shipping system and geography suddenly becomes visible again.

Distance starts appearing in the price.

The supermarket can eventually feel a shipping crisis

Consider an imported food product.

It has to be manufactured.

Packaged.

Transported to a port.

Loaded onto a ship.

Carried to Australia.

Unloaded.

Transported to a distribution centre.

Then delivered to a supermarket.

Shipping represents only one component of the final price.

But if transport, fuel and insurance costs increase simultaneously, businesses throughout that chain face additional costs.

Some absorb them.

Others pass them on.

Eventually the consumer can pay more.

That is how a geopolitical crisis thousands of kilometres away can appear in an Australian shopping trolley.

Australian manufacturers are exposed too

Higher freight does not merely affect imported finished products.

Australian manufacturers import components and raw materials.

A product carrying a "Made in Australia" label may still contain imported machinery, chemicals, electronics, packaging or components.

When those inputs become more expensive, domestic production costs rise.

Manufacturers then face the same uncomfortable choice confronting businesses throughout an inflationary economy.

Absorb the cost and reduce margins.

Increase prices.

Find another supplier.

Or become more efficient.

There are limits to each.

Exporters can pay as well

Australia is also a major exporter.

Agriculture.

Mining.

Energy.

Manufactured products.

Food.

Wine.

Other commodities and specialist products.

Exporters need ships too.

Higher international freight costs can reduce competitiveness, particularly for products where transport represents a significant proportion of the delivered price.

A shipping crisis can therefore affect Australia in both directions.

Imports become more expensive.

Exports can become less competitive.

Diesel makes the problem circular

There is another complication.

Higher shipping costs can make imported diesel more expensive.

More expensive diesel then makes domestic freight more expensive.

The international freight shock arrives at an Australian port.

Then another truck has to move the product from the port.

The first transport cost becomes part of the second.

That creates a chain of compounding pressures.

Australia's enormous internal distances make the effect particularly important.

Regional Australia carries more kilometres

A container arriving in Sydney, Melbourne, Brisbane, Fremantle or another major port has not necessarily reached its customer.

Products may still travel hundreds or thousands of kilometres.

Cairns.

Darwin.

Regional Queensland.

Western New South Wales.

Rural Victoria.

Remote Western Australia.

Tasmania presents its own maritime logistics.

When both international and domestic freight become more expensive, regional communities can experience the combined effect.

Distance becomes an inflation multiplier.

Aviation is part of the same story

Jet fuel remains another major exposure.

The International Energy Agency has already identified substantial disruption to global seaborne jet-fuel trade.

Australia depends heavily upon aviation.

Tourism depends upon it.

Regional communities depend upon it.

Business depends upon it.

Air freight depends upon it.

If obtaining aviation fuel becomes more expensive while international shipping costs are simultaneously elevated, Australia can experience transport inflation through both sea and air.

For an island continent, that matters.

The inflation risk is changing shape

The first Iran-related inflation story was easy to understand.

Oil rose.

Petrol rose.

Consumers paid more.

The next stage is less visible.

Oil may stabilise.

But freight remains expensive.

Diesel remains expensive.

Jet fuel remains tight.

Insurance remains elevated.

Replacement supply chains remain longer.

Those costs gradually appear elsewhere.

The inflation becomes less obviously connected to Iran even though the original disruption helped create it.

That makes the problem more difficult to recognise.

The Reserve Bank cannot make shipping cheaper

The Reserve Bank faces the same fundamental problem it has faced throughout the energy shock.

Interest rates cannot reopen Hormuz.

They cannot manufacture tankers.

They cannot reduce war-risk insurance.

They cannot shorten the voyage between Texas and an Asian refinery.

But if higher transport costs become embedded in Australian prices, the RBA has to consider the resulting inflation.

That is how an international freight crisis can eventually become an Australian interest-rate problem.

Not directly.

Through inflation.

Businesses should examine freight assumptions now

Australian businesses importing goods or components should not simply assume today's abnormal freight environment will disappear next month.

That does not mean businesses should panic-buy inventory.

That can create its own cash-flow problems.

It means understanding exposure.

Where do products originate?

Which shipping routes do suppliers depend upon?

Are freight charges fixed or variable?

Are war-risk or fuel surcharges being applied?

How long are quotes valid?

Could alternative suppliers reduce transport exposure?

How much additional working capital would be required if landed inventory costs rise?

These are now ordinary business questions created by extraordinary international circumstances.

There is a danger in celebrating adaptation too early

The global trading system deserves considerable credit.

The effective closure of a major energy artery has not stopped the world economy.

Oil has been redirected.

Refineries have found suppliers.

Ships have found alternative routes.

Governments have drawn on reserves.

Markets have done their job.

But successful adaptation can hide the cost of adaptation.

A product arriving successfully does not mean the supply problem has disappeared.

It may simply mean somebody paid enough to overcome it.

That distinction is central to understanding what is happening now.

Australia needs to think beyond fuel security

The Iran crisis initially revived the debate about Australian fuel security.

That debate remains essential.

But the emerging freight problem raises a broader question.

Supply-chain security.

Where do Australia's essential imports originate?

How many alternative suppliers exist?

How dependent are those suppliers on vulnerable shipping routes?

How much inventory is held domestically?

Which industries would be most exposed to a prolonged maritime disruption?

What products genuinely need strategic reserves?

Australia cannot stockpile everything.

Nor should it attempt complete economic self-sufficiency.

International trade has delivered enormous benefits.

But resilience requires knowing where dependence becomes vulnerability.

Hormuz reopening remains the cheapest solution

There is an irony in all of this.

The global economy can find increasingly ingenious ways around the Strait of Hormuz.

But the most economically efficient solution remains the simplest.

Use the Strait of Hormuz.

Safely.

A genuine reopening would shorten routes.

Increase tanker availability.

Reduce pressure on alternative crude supplies.

Help normalise insurance.

Improve Asian refinery access.

Allow inventories to rebuild.

Eventually, some of those savings could flow through to Australia.

That is why shipping movements remain more important than diplomatic announcements.

A shipping agreement is useful.

Ships actually sailing through it are better.

What Australians should watch now

Brent remains relevant.

But it should no longer be viewed in isolation.

The more revealing indicators are becoming:

actual Hormuz vessel traffic;

tanker freight rates;

war-risk insurance;

Asian crude premiums;

diesel and jet-fuel prices;

Asian refinery margins;

Australian wholesale fuel prices;

and international freight surcharges.

Those numbers will tell us whether the physical energy and shipping systems are genuinely healing.

The Times View

The world has demonstrated that it can work around the Strait of Hormuz.

That is reassuring.

What is less reassuring is the price being paid to do it.

The reported cost of transporting Gulf oil to Asia has reached approximately US$15.22 a barrel — a record.

Asian refiners are buying replacement crude from much further away.

Shipping capacity is being consumed by longer voyages.

Insurance reflects increased risk.

And the Strait itself remains barely functional.

Australia is downstream of this extraordinary rearrangement of global trade.

We import most of the refined petroleum we consume.

We import enormous quantities of manufactured products and components.

And after those goods reach an Australian port, many must travel enormous distances again before reaching their final destination.

That means the Iran war is evolving into something larger than an oil-price crisis.

It is becoming a transport-cost crisis.

The world has found the oil.

It has found alternative ships and alternative routes.

The shelves remain stocked and the trucks continue moving.

But none of that means the economic damage has disappeared.

It means the global economy is paying to overcome it.

And Australia, sitting at the end of some of the world's longest supply chains, will inevitably import part of that bill.

The next inflation shock may not have “Iran” written anywhere on the invoice.

But follow the freight cost backwards far enough, and the Strait of Hormuz may still be there.