Australian Drivers Grapple with Surging Fuel Costs Amid Iran Conflict
Australian motorists are confronting escalating fuel prices, driven by the ongoing Iran War, yet fuel remains one of the most heavily taxed purchases in the country. Prime Minister Anthony Albanese's temporary halving of the fuel excise has provided some relief, but economists warn the crisis could persist for at least six months.
Iran War Escalates, Threatening Global Oil Supply
The oil crisis shows no signs of abating, with Iran announcing this weekend it will close the Strait of Hormuz, a major shipping route, as long as the United States blockades its ports. This move exacerbates supply chain disruptions, contributing to higher prices at Australian pumps.
Complex Tax Structure Adds to Fuel Costs
Fuel is one of three primary products subject to excise in Australia, alongside tobacco and alcohol. The excise on tobacco and alcohol serves as a deterrent to over-consumption and a revenue stream for the government. Introduced in 1929 to finance road funding, the fuel excise now also functions as a fossil fuel disincentive, with electric vehicles exempt.
However, the excise is not the only tax applied to fuel purchases. The Goods and Services Tax (GST) adds another 10 per cent, applied to the cost inclusive of excise—effectively a tax on a tax. Technically, fuel in Australia is taxed five times before reaching motorists, though some taxes are recouped.
- Tax One: Excise equivalent customs duty at the border.
- Tax Two: GST on imported fuel.
- Tax Three: Excise paid by drivers at the pump.
- Tax Four: GST paid by drivers at the pump.
- Tax Five: GST when service stations buy from importers, which is claimable.
After recouping taxes one, two, and five, the remaining excise and GST paid by drivers account for more than one-third of the fuel price. For example, if an importer brings in 100 litres of fuel valued at $1 per litre, customs duty and GST raise the cost to $1.33. Drivers then pay additional excise and GST, not including markups from suppliers and service stations.
Albanese's Temporary Measure Falls Short
Prime Minister Anthony Albanese has boasted about cutting the fuel excise from 52.6 cents to 20.6 cents per litre until June 30, making fuel 26.3 cents per litre cheaper. However, with current fuel prices far above $1 per litre, this temporary reduction is seen as insufficient. Rowan Lee, CEO of The Australasian Convenience and Petroleum Marketers Association, noted that the high tax burden has been an issue flagged for years by the Australian Institute of Petroleum, but Australians have only recently started paying attention.
Data from 2023 revealed that 31 per cent of the cost per litre of fuel was government tax, compared to 57 per cent for production costs and 11 per cent for operational costs. In 2025, tax per litre was almost equivalent to production costs, highlighting the significant impact of taxation.
Domestic and International Challenges Compound Crisis
About 90 per cent of Australia's fuel supply is imported, making it vulnerable to global disruptions. Domestically, Australia has only two working oil refineries, one in Geelong that recently suffered a major fire, likely stunting supply for months and affecting 50 per cent of Victoria's fuel. Albanese has been traveling to Asian neighbours like Brunei and Malaysia to secure imported supplies, but the situation remains precarious.
The Strait of Hormuz closure on Sunday intensifies the stand-off between Iran and the US. Iranian parliament speaker Mohammad Bagher Ghalibaf stated that despite some progress in negotiations, a peace deal remains "far" off. US President Donald Trump warned against Iranian "blackmail," as a two-week ceasefire is set to end unless renewed.
Long-Term Outlook and Public Response
The effects of the fuel crunch are expected to peak next month as reduced supply reaches the market. Mr. Lee remarked that expensive fuel has long been accepted as a fact of life, but rising prices are now drawing public scrutiny. With taxes accounting for a substantial portion of fuel costs and global tensions unresolved, Australian drivers face ongoing financial pressure at the pump.
