War in the Middle East will likely increase global energy prices and presents significant implications for Australians and the Australian economy. This paper finds that Australian Government choices will determine how hard this price spike hits Australian households, how huge gas export company profits are and how much tax revenue Australia will collect.

Russia’s invasion of Ukraine in 2022 provides a guide for what is likely to occur in relation to Australia’s energy markets under current government policy. This paper finds several impacts are all-but-certain:

• global energy prices will increase, including gas prices
• gas, electricity and petrol prices paid by Australian households will rise
• multinational gas companies exporting Australian gas will profit from the price increase
• Australian Governments will raise barely any extra revenue.

The paper concludes that Australian Governments have failed to prepare for this moment, both diplomatically and domestically. However, there are simple policy changes that could see Australians protected from some of the war’s main economic impacts.

Key findings

• The war’s most direct impact on the Australian economy will likely be to push up petrol and diesel prices.
• The conflict has already spilled across borders and is effectively closing the Strait of Hormuz, through which about a fifth of global crude oil trade is shipped.
• Global energy prices spiked following Russia’s invasion of Ukraine in late February 2022.
• Because Australia has no real restrictions on gas exports, gas prices paid by Australians closely follow world prices.

Key recommendations

• Divert ‘uncontracted’ gas away from the export market and towards Australian domestic use.
• Ensure none of Australia’s gas is given away for free by imposing a 25% export tax on all gas exported from Commonwealth waters.