Demand-side fuel management in supply shock

A Supply Shock We Cannot Control

Australia is in the grip of an energy crisis not of its own making.

The US-Israel conflict with Iran has effectively closed the Strait of Hormuz, a shipping chokepoint through which roughly one-fifth of the world's oil supply passes¹. The result has been a sharp spike in global oil prices, disrupted tanker routes, and fuel shortages cascading through economies that depend heavily on imported refined product.

Australia sits near the top of that vulnerability list. Reports suggest, we import roughly 90 per cent of our refined fuel, sourced primarily from refineries in South Korea, Singapore, Malaysia and Taiwan who are themselves reliant on Middle Eastern crude. We have just two domestic refineries left. And we are the only IEA member nation that has persistently failed to meet the 90-day minimum fuel reserve requirement - non-compliant since 2012. 

  The government has responded with a suite of emergency supply-side measures:   

• Drawing down the strategic reserve (up to 762 million litres),
• Temporarily relaxing fuel quality standards to unlock an estimated 100 million litres per month,
• Releasing IEA-coordinated emergency stocks; and
• The Prime Minister personally working diplomatic channels to secure additional shipments.

These are the right first instincts. 

Having said that, supply-side tools alone have limits in a global shock of this magnitude. This note argues that the second lever - managing demand – also needs to be pulled more deliberately, more fairly, and more effectively than it has been so far.

  Why Demand Management Is the Second-Best Option  

It is important to be clear-eyed about what demand-side interventions can and cannot achieve. They do not fix the underlying problem. Fuel is short because a critical global shipping corridor is closed, not because Australians are inherently consuming too much.

Demand management is a bridging mechanism which extends the life of existing reserves while supply chains stabilise. It does not replace the need to secure additional supply or, over the longer term, to build genuine fuel sovereignty through domestic refining capacity, strategic stockpiles that meet IEA standards, and accelerated electrification of our vehicle fleet.

That said, when reserves are constrained, every litre saved matters and how those litres are allocated matters even more.

    Step One: Get the Communication Right     

The most immediately damaging demand problem Australia has faced in this crisis has not been structural - it has been behavioural. Panic buying. Fuel sales roughly doubled in the first ten days of March in some markets; overwhelming distribution networks designed for normal consumption patterns². It was not a supply collapse that put over 107 NSW fuel stations out of diesel - it was a demand spike driven by anxiety³.

We have seen this before. During COVID-19, supermarket shelves were stripped of toilet paper, hand sanitiser, baby formulas and pasta, not because supply had disappeared, but because the fear of scarcity created the very scarcity people feared. The dynamics are identical here. Motorists filling jerry cans 'just in case' are collectively draining the system faster than it can be replenished, and the people left without fuel are often the ones who cannot afford to stockpile: regional communities, farmers, small business operators with thin cash buffers.

The lesson from COVID was clear, and it applies again now: early, honest, specific communication from government significantly reduces panic-driven hoarding. People stockpile when they feel uncertain. The antidote to uncertainty is credible information delivered consistently. This means:

• Daily or near-daily public updates from the Energy Minister or a dedicated Fuel Supply Taskforce spokesperson, using plain language, not bureaucratic reassurance,  about reserve levels, expected shipments, and where shortages are concentrated.
• Specific, localised information: where are stations running low, and where are supplies stable? Vague national statements ('supplies are secure') are counterproductive when people in Moora, Dubbo or Broken Hill are watching local stations go dry.
• A clear, repeatable public message that mirrors the COVID-era social contract: 'Take what you need today, so there is enough for everyone tomorrow.' People responded to that framing in 2020. It can work again.
• Coordinated messaging through media, social channels, and community networks,  especially in regional areas, to reach people before they join the panic queue.

The cost of getting this right is near zero. The cost of getting it wrong, in terms of accelerated reserve drawdown, price spikes, and genuine shortages in critical sectors, is substantial.

    Step Two: Prioritise Essential Users If Voluntary Measures Fall Short      

If clear communication reduces panic buying, formal rationing may never be necessary. But if it does not, or if the conflict extends well beyond mid-April as some fear, the government needs a fair and transparent prioritisation framework ready to implement quickly.

The principle is straightforward: fuel should flow first to those whose need is most economically and socially critical. The hierarchy should not be first-come-first-served at the bowser. It should reflect what the economy cannot function without.

Priority Tier 1: Agriculture and Food Production

This is not simply about farmers, it is about the food security of every Australian household. If farmers cannot get diesel, they cannot plant, harvest, or move produce. The National Farmers' Federation has warned food prices could rise by as much as 50 per cent under a prolonged diesel shortage⁴. That is not hypothetical: fertiliser deliveries, refrigerated transport, grain handling equipment, irrigation pumps, all run on diesel. A one-week fuel shortage during peak harvest can cause supply disruptions that ripple through the food system for months. Farms must be at the front of the queue⁵.

Priority Tier 2: Health, Emergency, and Essential Services

Ambulances, hospitals, aged care facilities, freight carrying medical supplies, and emergency services cannot be left to queue. These users are already implicitly prioritised in most emergency frameworks, but the current crisis has exposed the gap between policy intent and on-the-ground reality, particularly for independent regional distributors who are being deprioritised by major suppliers honouring metropolitan contracts first.

Priority Tier 3: Small Businesses and Regional Communities

Small businesses, particularly in transport, construction, and manufacturing, operate on thin margins with minimal fuel buffers. A week without diesel can be an existential event for a sole trader or a small regional logistics firm. These operators deserve explicit recognition in any rationing framework, ahead of discretionary passenger use.

Lower Priority: Non-Essential Passenger Commuting    

This is where voluntary WFH arrangements and reduced non-essential travel can make a genuine difference. The IEA estimates that a sustained increase in remote working among eligible workers can reduce transport fuel demand meaningfully within weeks. Energy Minister Chris Bowen has framed this correctly, as a voluntary contribution rather than a mandate, but the message needs to be more direct: if you have the privilege of working from home, using it right now is a concrete act of solidarity with the farmers, truckers, and medical workers who cannot.

  The Inflation Stakes: Why Getting This Right Matters for Every Household    

This is not just a logistics problem. It is an inflation problem and potentially a monetary policy problem. Diesel shortages that crimp agricultural output and food distribution will push grocery prices higher. Freight cost increases of 20 to 30 per cent, already being reported by logistics operators, flow directly into the price of goods on supermarket shelves. Experts warn supermarkets could face supply gaps within days if diesel shortages in regional distribution networks are not addressed.

Higher food prices feed into headline inflation at a moment when the RBA has already raised rates twice in early 2026. If fuel-driven inflation becomes entrenched in food, in transport, in input costs across manufacturing and construction, the RBA faces an increasingly uncomfortable trade-off between sustaining activity and keeping prices anchored. A demand-management framework that protects the agricultural and logistics supply chain is, in this sense, also a contribution to price stability.

It is worth remembering that inflation hurts most those with the least capacity to absorb it - low-income households, people in regional areas already paying more for essentials, renters squeezed by rising costs on every front. Panic buying by those who can afford to stockpile is not a neutral act. It transfers scarcity onto those who cannot.

  In Summary: A Smarter Demand Response    

Australia's fuel crisis is, at its root, a supply problem and supply-side solutions must remain the primary policy lever. But in the interim, a smarter demand response can meaningfully extend our reserves and protect the economic functions that matter most. The priorities are straightforward:

• Communicate clearly and constantly.
• Frame public behaviour as a social contract, not a personal sacrifice.
• Draw on the COVID-era lesson: honest, specific information prevents hoarding far better than generalised reassurance.
• Protect agricultural, medical, and essential freight supply chains first.
• Invite, firmly, those with the flexibility to do so to reduce non-essential fuel use.
• Have a formal prioritisation framework ready to activate quickly if voluntary measures prove insufficient.

Demand management will not resolve the Strait of Hormuz crisis. But deployed well, it buys time, protects the most vulnerable parts of our economy, and prevents a supply shock from becoming something worse - an inflation spiral, a food security event, or a formal rationing regime that nobody wants.

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¹ SBS News. Strait of Hormuz carries ~20% of global seaborne oil supply.

² DiscoveryAlert. Fuel sales doubled in early March, straining supply.

³ DiscoveryAlert. 107+ NSW stations faced diesel shortages.

⁴ NFF (Macquarie Univ.). Fuel shortages risk national food supply.

⁵ Nationals WA. Fuel shortages threaten WA agriculture.