When you fill up at a servo, the price you pay is the end result of a supply chain that stretches across oceans. The single largest component is the cost of crude oil, which typically accounts for around 30 to 40 per cent of the final retail price in Australia. Crude is priced on international commodity markets — primarily Brent crude (the global benchmark) and West Texas Intermediate (WTI, the US benchmark). When these benchmarks move, pump prices follow within a week or two.

Refining costs are the next major factor. Crude oil is useless as a vehicle fuel until it's been processed at a refinery into petrol, diesel, or jet fuel. Australia has limited domestic refining capacity, so the country relies heavily on refined product imports, particularly from refineries in Singapore and South Korea. The cost of refining fluctuates with demand, refinery maintenance schedules, and regional disruptions.

Taxes and excise add a significant fixed cost. The Australian fuel excise is currently around 50 cents per litre, plus GST on top. These government charges mean that even if crude oil were free, you'd still be paying a substantial amount at the pump.

Retail margins — the profit that service stations and fuel companies take — make up a relatively small share, typically between 5 and 15 cents per litre, though this varies by location and competition. Regional and rural areas often face higher margins due to less competition and greater transport costs.

Two other factors matter enormously for Australian motorists. The AUD/USD exchange rate is critical because oil is priced in US dollars. When the Australian dollar weakens against the greenback, imported fuel effectively becomes more expensive even if the crude oil price hasn't moved. And transport and distribution costs — shipping fuel from overseas refineries, storing it in terminals, and trucking it to individual stations — add another layer of cost that varies by geography.

The Strait of Hormuz is a narrow waterway between Iran to the north and Oman and the United Arab Emirates to the south. At its narrowest point, the shipping lane is only about 3 kilometres wide in each direction. Despite its modest size, this passage is arguably the most strategically important chokepoint in the global energy system.

Roughly 20 to 21 per cent of the world's total oil consumption passes through the Strait of Hormuz every day — approximately 20 million barrels. The vast majority of crude oil exports from Saudi Arabia, Iraq, Kuwait, the UAE, and Qatar must transit this waterway to reach markets in Asia, Europe, and beyond. There is no practical alternative route for most of this oil. While Saudi Arabia has a limited pipeline bypass to the Red Sea, its capacity is far short of what flows through the strait daily.

This concentration of supply through a single narrow channel makes it a perennial flashpoint. Iran has repeatedly threatened to close the strait during periods of heightened tension, particularly when facing international sanctions or military confrontation. The Iranian military maintains a significant presence along the northern shore, including fast-attack boats, anti-ship missiles, and naval mines. In 2019, a series of attacks on tankers in and around the strait — widely attributed to Iran — sent oil prices spiking and reminded markets just how vulnerable this corridor is.

If the Strait of Hormuz were actually closed, even briefly, the consequences would be immediate and severe. Oil prices would likely surge by tens of dollars per barrel within hours. Insurance costs for tanker operators would skyrocket, further inflating prices. Strategic petroleum reserves held by nations like the United States, Japan, and Australia would be tapped, but these reserves are designed to cover weeks, not months. A prolonged closure would trigger a global energy crisis far exceeding anything seen in recent decades.

For Australia, a Hormuz disruption wouldn't just mean pricier petrol. It would strain the entire refined fuel supply chain, given that much of the crude processed in Asian refineries — which supply Australia — originates from Gulf states that rely on the strait. Military planners and energy security analysts regularly cite the Strait of Hormuz as one of Australia's most significant indirect vulnerabilities, despite being over 10,000 kilometres away.

The Organisation of the Petroleum Exporting Countries (OPEC) is a cartel of oil-producing nations that coordinates production levels to influence global oil prices. Founded in 1960 by five countries — Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela — OPEC has since expanded. In recent years, the group has operated as OPEC+, a broader alliance that includes non-member producers such as Russia, Mexico, and Kazakhstan, giving the group control over roughly 40 per cent of the world's crude oil output.

OPEC+ operates through production quotas — agreed limits on how many barrels each member country can pump per day. When the group cuts production, it reduces global supply, which tends to push prices higher. When it increases output, prices typically ease. These decisions are made at regular ministerial meetings and are closely watched by financial markets, governments, and fuel retailers worldwide.

The politics within OPEC+ are complex. Saudi Arabia, the group's de facto leader and largest producer, often drives decision-making. But tensions frequently arise between members who want higher prices (to fund government budgets) and those who want to maintain market share by pumping more. Russia's involvement adds another layer of geopolitical calculation.

Recent OPEC history illustrates the group's power. In 2020, a brief price war between Saudi Arabia and Russia flooded the market with oil just as COVID-19 was destroying demand, contributing to the historic crash that saw US oil prices briefly turn negative. The subsequent coordinated cuts helped stabilise and eventually raise prices. Through 2022 and 2023, OPEC+ maintained relatively tight supply despite calls from consuming nations to pump more, keeping prices elevated. These decisions directly filter through to what Australian motorists pay at the bowser, usually with a lag of one to three weeks.

Australia is unusually exposed to global fuel supply disruptions. The country imports approximately 90 per cent of its refined fuel, making it one of the most import-dependent developed nations for transport energy. Domestic refining capacity has declined sharply — from eight refineries in the early 2000s to just two operational facilities today (Lytton in Brisbane and Altona in Melbourne). This means that any disruption to international supply chains is felt quickly and directly at Australian pumps.

The Singapore refining hub is central to Australia's fuel supply. A large share of Australia's refined petrol and diesel imports come from refineries in Singapore, one of the world's largest refining centres. If crude oil supply to Singapore is disrupted — whether by a Hormuz closure, OPEC cuts, or regional conflict — the flow-on effect reaches Australian fuel terminals within weeks.

The AUD/USD exchange rate acts as an amplifier. Because crude oil and refined products are priced in US dollars, a falling Australian dollar makes fuel imports more expensive even if the underlying commodity price stays flat. In periods where the Australian dollar weakens alongside rising oil prices — as happened during parts of 2022 — the double effect can be punishing for motorists.

Government intervention provides some buffer. The fuel excise is a fixed charge, meaning it doesn't increase when oil prices rise (though GST, calculated as a percentage, does). In 2022, the Australian Government temporarily halved the fuel excise to provide relief during a price spike, demonstrating that policy levers exist but are expensive to pull. Australia also maintains a strategic fuel reserve, though it has historically fallen short of the 90-day minimum recommended by the International Energy Agency.

The bottom line is that events in the Persian Gulf, decisions made in Vienna by OPEC ministers, and currency movements on foreign exchange markets all have a tangible, measurable impact on what you pay to fill your car in Sydney, Perth, or Cairns.

Understanding past oil crises helps put current price movements in context. The global economy has been rocked by supply disruptions and price spikes repeatedly over the past half-century, and each event has shaped energy policy and consumer behaviour in lasting ways.

The 1973 Arab oil embargo was the first major shock. In response to Western support for Israel during the Yom Kippur War, Arab OPEC members imposed an embargo on the United States and other nations. Oil prices quadrupled in a matter of months, triggering fuel rationing, long queues at petrol stations, and a global recession. The crisis fundamentally changed how governments thought about energy security.

The 1979 Iranian Revolution caused a second major disruption. The overthrow of the Shah and the subsequent turmoil reduced Iranian oil exports dramatically. Combined with panic buying and speculative stockpiling, crude prices doubled. This shock deepened the economic malaise of the late 1970s and accelerated the push towards fuel efficiency standards and alternative energy research.

Iraq's 1990 invasion of Kuwait removed both countries' oil production from the market virtually overnight, causing prices to spike sharply. The subsequent Gulf War restored Kuwaiti production but reinforced the fragility of Middle Eastern supply.

The 2008 oil price peak was driven less by a single event and more by a combination of surging demand from China and India, constrained supply, and financial speculation. Crude hit an all-time high of nearly US$150 per barrel in July 2008 before collapsing as the Global Financial Crisis destroyed demand.

In April 2020, the world witnessed something previously thought impossible: negative oil prices. As COVID-19 lockdowns obliterated fuel demand worldwide, storage facilities filled to capacity and traders holding futures contracts literally paid others to take oil off their hands. WTI crude briefly traded at minus US$37 per barrel.

Most recently, Russia's 2022 invasion of Ukraine sent energy markets into turmoil. Western sanctions on Russian oil and gas, combined with supply uncertainty, pushed Brent crude above US$120 per barrel and triggered a global cost-of-living crisis. Australian petrol prices hit record highs, prompting the temporary fuel excise cut mentioned earlier.

While individual motorists can't influence OPEC policy or resolve geopolitical tensions, there are practical steps you can take to reduce the impact of volatile fuel prices on your household budget.

Use FuelAlert to find the cheapest fuel near you. Prices can vary by 20 cents a litre or more between stations in the same suburb. Checking current prices and availability before you drive saves both money and time — especially during supply disruptions when some stations may be running dry while others still have stock.

Fill up early when disruptions loom. When news breaks about a potential supply issue — whether it's a refinery outage, a geopolitical escalation, or a natural disaster threatening supply lines — prices tend to rise within days. If you know a price spike is coming, topping up your tank sooner rather than later can save you money. Just avoid panic buying, which worsens shortages for everyone.

Understand fuel price cycles. In many Australian capital cities, petrol prices follow a regular cycle — typically rising sharply and then gradually declining over a period of one to several weeks. In cities like Sydney and Melbourne, buying at the bottom of the cycle can save you 15 to 25 cents per litre compared to buying at the peak. FuelAlert and government fuel price comparison sites can help you identify where your local market sits in the cycle.

Drive more efficiently. Simple habits make a measurable difference: maintaining correct tyre pressure, avoiding aggressive acceleration and braking, removing unnecessary weight from your vehicle, and using cruise control on highways. These adjustments can improve fuel economy by 10 to 15 per cent without any change in vehicle.

Consider your longer-term options. If you're in the market for a new car, fuel efficiency ratings and the total cost of ownership over five years should factor into your decision. Electric vehicles and plug-in hybrids are becoming increasingly affordable in Australia and eliminate or greatly reduce exposure to petrol price volatility. Even short of buying a new vehicle, using public transport, cycling, or carpooling for regular commutes reduces your fuel spend and your vulnerability to price shocks.