Oil crisis three times as bad as 1979 Iranian revolution shock, AMP’s chief economist Shane Oliver predicts

The current oil crisis is three times as bad as the 1979 oil crisis and can cause further price rises that will rattle global markets, a leading economist has warned.

Massive fuel prices have plagued Australians after Iran blocked the Strait of Hormuz, where 20 per cent of the world’s oil is transported.

Unleaded is selling for about $2.20 per litre in Sydney while Diesel is up to about $2.50 per litre.

AMP chief economist Shane Oliver delivered a dire warning that this fuel crisis could be one of the worst in history.

He said humans consume about 100 million barrels of oil a day and estimated about 15 per cent of this is impacted.

“Something like 20 per cent of world oil and gas supplies flow through (the Strait of Hormuz) on a daily basis,” Mr Oliver told Sky News.

“Globally, we consume about 100 million barrels of oil a day – so you’re potentially taking out 20 million barrels.

“It’s probably not that bad because you can divert some of that oil through pipelines that the UAE and Saudi Arabia have. Let’s call it 15 per cent of global supply or 15 million barrels per day.”

Reducing the world’s oil supply by 15 per cent is three times as bad as the oil shock the world experienced during the Iranian Revolution.

“The 1979 shock that occurred with the Iranian revolution, that basically took out about 5 per cent of global supply,” Mr Oliver said.

“This time at present we’re knocking out about 15 per cent. So it’s an order of magnitude three times what it was back then.”

Oil prices globally rose threefold at the time, sparking concerns Australians could be in for a much larger shock if the Strait remains closed for an elongated period of time.

The price of oil has risen from about US$65 per barrel to US$95 per barrel.

In an attempt to mitigate massive fuel prices rises escalating, Energy Minister Chris Bowen temporarily lowered Australia’s fuel quality standards.

The government will allow higher sulphur petrol to be sold domestically for 60 days – a move intended to redirect fuel that would normally be exported back into the local market.

“This will allow around 100 million litres a month of new petrol supply that would otherwise have been exported to be blended instead into Australian domestic supply,” the Energy Minister said.

Mr Bowen also announced Australia will adjust minimum fuel stock obligation for diesel and petrol.

The minimum stock obligation guarantees a baseline level of domestic fuel stocks, increasing Australia’s capacity to respond to potential fuel supply disruptions. 

The obligation for diesel will be reduced from 2.7 billion litres to 2.2 billion litres and for petrol from 1 billion litres to 700 million litres.