War exposes the shocking truth about the oil beneath our feet - and how Australia sleepwalked into a fuel crisis

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Australia's fuel security weaknesses have been laid bare by the Middle East war, with experts warning that decades of refinery closures have left the nation dangerously dependent on foreign supplies.

Former defence and energy adviser John Blackburn said a series of policy decisions over the past two decades had effectively dismantled Australia's fuel resilience, forcing the country to rely on overseas refineries, foreign tankers and fragile international shipping routes at a time of rising geopolitical risk.

The vulnerability has now become clear as conflict in the Middle East disrupts the vital Strait of Hormuz, pushing fuel prices higher and triggering supply strains in parts of regional Australia.

Mr Blackburn said Australia still produces crude oil and has significant energy resources, but lacks the refining capacity to turn much of it into usable fuel.

'We export all of that because we can't process it even though we knew this was going to happen,' he said.

'And so we import 90 per cent of all our fuels, most of which comes to us from the Asian refineries.'

He said about 94 per cent of Australia's crude oil is shipped overseas, while most imported fuel is refined in countries such as South Korea, Japan and China - nations that are themselves heavily reliant on oil flowing through the Strait of Hormuz.

'When they run out of oil stocks that's going to give them a big problem,' he said.

'We've seen China saying, well in about a month we're not going to sell anything - we need it for ourselves.'

Australia's refining sector has been dismantled over the past 15 year, bleeding money, too small to compete with massive Asian plants and facing eye‑watering upgrade costs that owners said simply weren't worth it.

Port Stanvac closed in 2009, Clyde in 2012, Kurnell and Bulwer Island in 2014, and BP's Kwinana and ExxonMobil's Altona refineries finally shut in 2021.

Today only Ampol's Lytton plant in Brisbane and Viva Energy's Geelong refinery remain, supplying just a fraction of the nation's fuel needs.

Macquarie Business School lecturer Dr Lurion De Mello said the shutdown of Australia's refineries has left the country dangerously exposed. 

'For Australia, the consequences are particularly acute,' he said.

'If the crisis at Hormuz continues for weeks or spreads further, genuine shortages become plausible. This is not a theoretical scenario. It is a foreseeable consequence of failing to build resilience.' 

Mr Blackburn warned the strain on fuel supply chains would become visible within two months. 

'If the war continues, we're going to have to readjust how much fuel we're using,' he said.

Australia's exposure has also been worsened by the loss of its domestic fuel shipping fleet, leaving supply chains dependent on foreign-flagged vessels.

'All that supply chain is run on foreign flagships, more than half Chinese owned,' Mr Blackburn said.

'Monty Python couldn't have written this. It is that dumb. Everywhere there's a point of failure.'

Mr Blackburn said Australia is now confronting the consequences of years of wilful political blindness from both major parties, arguing that anything not seen as an immediate election issue was routinely ignored.

'What a dumb way to run a country,' he said.

'We could have actually prepared for this, not unaffordably, there's things we could have done, but neither side of politics was prepared to do it.

'We've gone from producing 40 per cent of our own fuels down to 10. We've gone from seven refineries to two. It doesn't take a genius to see the whole system has got worse while the politicians fiddle around the fire.

'That will require controlled rationing but that's still some months away.' 

Australia produces only modest volumes of oil, and output has been trending downward for years as ageing fields decline and new discoveries fail to keep pace.

According to global energy data, the country's proven reserves amount to just 4.3 times its annual oil consumption. 

At current usage rates, and without factoring in net exports, that leaves Australia with the equivalent of about four years' worth of oil. 

Yet Australia's long-term oil potential is far greater than current reserve figures suggest.

American geologists have estimated there could be around 2.6 billion barrels of undiscovered oil spread across Western Australia and the Northern Territory -in basins including the Perth Basin, the North West Shelf, the Browse Basin, the Bonaparte Gulf, the Canning Basin and the Beetaloo Sub-basin in the NT. 

At current consumption rates, that would theoretically cover Australia's entire fuel needs for more than six years.

But finding oil and getting it out of the ground are two very different things.

About half of that 2.6 billion barrels is conventional oil - the kind that flows relatively freely once you drill a well. 

The other half is locked in dense, impermeable rock and can only be released using hydraulic fracturing, or fracking - an expensive, water-intensive process that is particularly challenging in the remote, arid regions where much of Australia's potential oil sits.

The challenge is even greater for a further 13.4 billion barrels identified by Geoscience Australia in oil shale deposits. 

Unlike drillable oil, oil shale is a solid material embedded in rock that must first be mined, then crushed and superheated to extract usable fuel. 

It is costly, carbon-intensive and technically demanding, with only a handful of countries who do it at commercial scale anywhere in the world, and no one does it in Australia.

At current oil prices and with existing technology, most of Australia's harder-to-reach resources are not economically viable to extract, though that calculation could change if prices rise, technology improves, or governments choose to invest in developing the capability.