War in Ukraine could trigger “highest fuel prices on record”

A trip to the bowser in Australia’s most popular vehicle could soon cost as much as $176, a local expert has claimed.

Russia’s increasingly provocative incursion into Ukraine could displace tens of thousands of civilians, disrupt stock markets, destabilise European supply chains – and, according to energy experts, drive global fuel prices to unprecedented highs.

Over the past month Russian armed forces have been stationed on and around the Ukrainian border, tendering an ominous threat of invasion. Since the beginning of this week, the 200,000-strong military has begun encroaching into the internationally-recognised sovereign state.

President Vladimir Putin may yet back off following the annexing of pro-Moscow regions to the east or roll the dice on a full-scale land invasion, however either move would likely have significant ramifications on the international fuel trade and lead to price hikes for ordinary Australians at the bowser.

Russia is the currently the world’s third-largest producer of crude oil – the primary raw ingredient used to make petrol and diesel – behind only the USA and Saudi Arabia, and approximately 2.5 per cent of its total output is transported via Ukrainian pipelines.

While this might not sound like a significant portion, any destabilisation of the region could threaten that supply and spook foreign markets.

Further, the recent implementation of Western economic sanctions on Russia and Putin-allied oligarchs – including Gennady Timchenko (below), the multi-billionaire owner of petrochemical giant Sibur Holding – may lead to retaliatory policy measures designed to hit foreign countries at the hip pocket.

The cost of fuel is already climbing across the globe due to to a wide and complex range of factors. In Australia, 95 octane petrol has an average price of $1.79 nationally (as of 23 February 2022).

At that level, filling up a Volkswagen Polo city car from empty costs $71.60, filling up a Mazda CX-30 SUV costs $91.29, and filling up a petrol Toyota HiLux ute – currently Australia’s most popular vehicle – costs $143.20.

However, due to recent events, analysts expect those numbers to increase by between 10 and 20 per cent in the coming weeks and months.

“The Ukraine situation is likely going to lead to even higher fuel prices in Australia,” Vlado Vivoda – a senior lecturer in strategic studies and an expert on international energy relations at Deakin University – told Drive.

“The extent of price increases will depend on the scale of the invasion or conflict, as well as the international community’s reaction to it – including the extent of sanctions, and Russian responses, particularly as these relate to its oil and gas exports.”

Last week, investment firm JP Morgan predicted oil prices could spike to $120 per barrel if Russian exports appear to falter. Currently, the price of oil sits at approximately $91.

“My estimate is that [the increases predicted by JP Morgan] would translate to an average of at least $2.00 per litre [for petrol] across Australian capital cities … the highest fuel prices on record,” Mr Vivoda noted.

At $2.00 per litre, filling up a Volkswagen Polo city car from empty would cost $78.00, filling up a Mazda CX-30 SUV would cost $102.00, and filling up a petrol Toyota HiLux ute would cost $160.00.

Mr Vivoda added, in a worst-case scenario, a full-scale Russian invasion and the subsequent economic sanctions could send prices at high as $2.20 per litre for standard unleaded petrol in Australia. However, he considers this unlikely unless circumstances change dramatically.

“Alternatives to Russian oil are scarce in a tight market and prices would have to increase … Any sizeable disruption would have a severe impact on prices.

“Only about 250,000 barrels of of Russian oil are transported via pipelines in the Ukraine, however it would be difficult for European refiners to find alternatives to this medium sour crude blend in the short term.”

At a high of $2.20 per litre in Australia, filling up a Volkswagen Polo city car from empty would cost $88.00, filling up a Mazda CX-30 SUV would cost $112.20, and filling up a petrol Toyota HiLux ute (shown below) would cost $176.00.

Despite the bold prediction, Mr Vivoda claimed it is unlikely the fluctuations will significantly affect consumer behaviour and prompt car buyers to consider smaller engines or electric models.

“Long-term petrol prices at or above $2.50 per litre would probably be sufficient to cross the tolerance threshold among many consumers, and make alternatives increasingly attractive.

“There are several factors which may lead to a change in buying habits with regards to car choices. First, and most importantly, this needs to be encouraged by changes in government policy towards alternative fuels and technologies in the transportation sector, along with public messaging, financial incentives which encourage switching to electric vehicles, and car fuel standards regulations.”

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