Energy Security After Iran War: Refining, Electrification, or Both?

The closure of the Strait of Hormuz following the US-Israel launched Iran war has forced energy-importing nations to confront a familiar question: how to secure fuel supplies without creating new vulnerabilities. The waterway previously carried nearly a fifth of global crude, refined products, and LNG, and its closure marks the second major energy crisis in four years, following Russia's 2022 invasion of Ukraine.

The debate is often split along political lines. Progressives argue the conflict accelerates the case for renewables and electric vehicles, while conservatives point to the need for more fossil fuel production outside the Middle East. The reality, as Australia's situation shows, is more complex.

Australia, the world's leading diesel importer, relies on imports for about 80% of its liquid fuel needs. Its refinery count has fallen from eight at the start of the century to just two small plants. The government recently announced a A$4 million pre-feasibility study for a new refinery in Western Australia, which would be the first such plant in 60 years. The proposed facility, backed by fertilizer maker Perdaman, would supply the mining and agricultural sectors.

However, the economics are daunting. A modern, viable refinery needs at least 300,000 barrels per day of capacity and would cost billions—likely more in Australia due to higher labour and land costs. It would also require substantial storage and import infrastructure. Crucially, such a plant would not eliminate import dependence; it would simply shift reliance from refined products to crude oil.

An alternative path is electrification. Fortescue Metals Group, Australia's third-biggest iron ore miner, reports a net annual benefit of A$1.2 billion from using electric mining vehicles and renewable power instead of diesel and gas. Consumer behaviour is also shifting: EV, plug-in hybrid, and mild hybrid sales approached half of all new car sales in July, with EV sales more than tripling year-on-year.

A hybrid approach may be the most pragmatic answer. Building a refinery offers some protection against refined fuel supply shocks, while electrification reduces long-term dependence. This dual strategy acknowledges that fossil fuels will remain part of the mix for decades, but also works to lower their share over time.

Other Asian nations are pursuing similar diversification. Vietnam is boosting EV and electric scooter adoption, Indonesia targets an all-electric bus fleet by 2045, and Thailand offers subsidies for EV purchases while building charging infrastructure.

The path to energy security will differ by nation, but the common thread is diversification—both in sources of energy and in the types consumed.