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South China Sea Conflicts Threaten 90% Of Australian Liquid Fuel Imports

Australian Liquid Fuel Imports

According to the Liquid Fuel Security Review of the Australian Government published in 2019, almost 90% of the refined fuel in Australia was secured through imports. A shortage in these imports was spurred by the global Covid-19 pandemic, and now a new threat is emerging. Prolonged maritime supply chain disruptions are anticipated due to the China-Taiwan conflict in the South China Sea.

The new threat comes as no surprise given how geopolitically important but conflict-ridden the South China Sea is. The region is one of economic interest for Australia and an important gateway to East Asian counties, primarily Japan and South Korea. The country has always promoted freedom of trade and navigation in the sea. In the last 18 months, tensions have escalated between Australia and China, but the former claims to exercise its right to passage despite the latter’s opposition.

Liquid Fuel Imports

The importance of South China Sea trade routes to Australia

The growing presence of the Chinese navy and air force in the South China Sea has made China increasingly influential in affecting critical shipping lanes for Australian exports and imports. The most important shipping routes in this region are for liquid fuels. The surge of these imports over the last several decades has resulted in almost a complete dependence and shutting down of local refineries. Only two such refineries remain in the country now.

In 2018, 93% of the fuel imports were made up by just five Asian countries – South Korea (27%), Singapore (26%), Japan (15%), Malaysia (10%), Taiwan (9%), and India (6%). A majority, if not all, of these imports, travel through the Nine-Dash Line to reach the Australian shores.

Maritime vulnerabilities for Australia in the South China Sea

New research has found that a major conflict between Australia and China has the potential to threaten maritime trade routes in the South China Sea as well as the East China Sea. These significant trade routes are the ones that bring in imports of liquid fuel from South Korea, Japan, Malaysia, Singapore, Taiwan, Vietnam, and Brunei to the Australian ports.

Moreover, this is a two-way problem. While the trade routes from some of these exporting countries do not fall under the Chinese-controlled regions (essentially around the Paracel and Spratly Islands), the maritime routes of these same countries through which they bring in fuel from the Middle East run through these regions. So, the imports from South Korea and Japan can avoid the South China Sea, but their own crude oil imports will have to enter the Indo-Pacific through the narrow Malacca Strait and pass the Nine-Dash Line. It means that there is a threat to imports of crude oil to the countries that export refined petroleum products to other countries, including Australia.

Planning a way ahead

Fuel is important for any economy to run. The lack of energy security that has resulted from minimal fuel market regulations can no longer work in the face of a trade route conflict. Examples can be taken from other countries that manage fuel security as an important domain within their broader strategic capabilities.

The Australian government will have to come up with an effective strategy to address the emerging threat of dwindling imports due to supply chain disruptions. If the South China Sea has to be avoided, it will come at the cost of higher freight transportation costs and tanker shortages, but the long-term result would be a more secure maritime route.

Supply chain solutions have to be found that are resilient in the face of geopolitical tensions, and alternative safer routes could be decided upon as well. Global unrest is inevitable, one day it could be a pandemic or another day a war, but economies have to run nonetheless. Supply chains are the building blocks of any economy, and it is important to create a safe, strong, and dynamic supply chain management system.