Australia’s long-term inflation challenges are closely tied to its heavy dependence on imported oil rather than excessive domestic demand, according to a new analysis by Amandine Denis-Ryan, Chief Executive Officer of the Institute for Energy Economics and Financial Analysis (IEEFA) Australia. The report argues that accelerating transport electrification, expanding renewable energy, and modernizing the electricity grid are critical not only for decarbonization but also for improving economic resilience, stabilizing prices, and reducing exposure to volatile global fuel markets.
Oil Price Volatility Continues to Drive Inflation
Although Australia’s Consumer Price Index (CPI) eased to 4.0 percent in May 2026 from 4.6 percent in March 2026, the report says the improvement reflects lower global oil prices and temporary fuel excise relief rather than structural economic changes.
Since 2000, all six major inflation spikes in Australia have been linked to oil price increases.
Over the same period, global oil prices rose by an average of 6.9 percent annually, while Australia’s total oil expenditure increased even faster at 8.9 percent annually because of higher fuel consumption. By comparison, Australia’s long-term average CPI growth was only 2.8 percent, highlighting the significant inflationary impact of imported fossil fuels.
Australia Relies Heavily on Imported Petroleum
The report identifies Australia’s dependence on imported refined fuels as one of the country’s biggest economic vulnerabilities.
During the 2024-25 financial year, Australia imported:
90 percent of its diesel
80 percent of its jet fuel
68 percent of its petrol
Australia has also become one of the world’s largest refined fuel importers.
In 2025, the country accounted for:
10.1 percent of global seaborne diesel imports, making it the world’s largest importer.
8.3 percent of global seaborne jet fuel imports, ranking third globally.
6.7 percent of global seaborne petrol imports, also ranking third.
Approximately 96 percent of Australia’s refined fuel imports originate from Asia, while around 70 percent of the crude oil processed through its two largest supply chains comes from Gulf producers, increasing exposure to geopolitical tensions and supply disruptions.
Fuel Prices Affect the Entire Economy
According to IEEFA, rising oil prices impact inflation far beyond household fuel costs.
Transport expenditure alone contributed approximately one percentage point to Australia’s CPI in March 2026.
Oil also represents approximately 2.0 percent to 2.5 percent of domestic production costs, increasing expenses across freight, manufacturing, agriculture, logistics, and supply chains.
Businesses typically pass these higher operating costs on to consumers, reinforcing inflationary pressures across the broader economy.
Higher Interest Rates Cannot Solve Imported Inflation
The report argues that traditional monetary policy cannot effectively address inflation caused by international oil markets.
Although the Reserve Bank of Australia increased its cash rate by 0.25 percentage points in May 2026, higher borrowing costs cannot increase global oil production or lower imported fuel prices.
Instead, higher interest rates risk slowing investment in renewable energy, electric vehicles, electricity transmission, battery storage, and other clean energy infrastructure needed to reduce Australia’s long-term dependence on imported fossil fuels.
Transport Electrification Supports Sustainability and Energy Security
Transport remains Australia’s largest oil-consuming sector, accounting for nearly 75 percent of total national oil consumption.
Diesel use has increased by a factor of 2.5 since 2000, largely driven by mining operations and heavy road freight.
According to IEEFA, coordinated policy support could reduce road transport oil consumption by more than half by 2040 and almost eliminate it by 2050 through widespread adoption of electric vehicles powered by domestically generated renewable electricity.
Replacing imported petroleum with renewable electricity would improve energy security, reduce greenhouse gas emissions, and shield households and businesses from global fuel price volatility.
AUD 1.3 Trillion Needed for Australia’s Sustainable Energy Future
Electrifying Australia’s transport system will require major investment in clean energy infrastructure.
The report estimates that full road transport electrification would increase electricity demand by approximately 42 percent compared with current national consumption.
Meeting that demand will require expanded renewable energy generation, electricity transmission, distribution networks, battery storage, and smart charging infrastructure.
Overall, IEEFA estimates Australia will need approximately AUD 1.3 trillion in energy transition investment through 2050 to modernize its electricity system and support nationwide transport electrification.
Renewable Energy Investment Can Improve Economic Stability
To accelerate the transition, the report recommends maintaining incentives for passenger electric vehicles while expanding subsidies and charging infrastructure for heavy-duty freight.
It also proposes targeted refinancing programs through the Reserve Bank of Australia to support lower-interest financing for electric vehicles, renewable energy projects, and electricity infrastructure.
Additional recommendations include accelerating transmission network expansion and implementing nationwide managed charging standards with bidirectional charging capabilities to improve grid flexibility and maximize renewable energy integration.
Clean Energy Becomes an Economic as Well as Climate Strategy
According to IEEFA, Australia’s long-term inflation risks stem primarily from imported oil dependence rather than domestic demand.
With oil prices increasing by an average 6.9 percent annually since 2000, oil expenditure rising 8.9 percent annually, transport consuming nearly 75 percent of national oil demand, and Australia importing 90 percent of its diesel, 80 percent of its jet fuel, and 68 percent of its petrol, the report argues that renewable energy and transport electrification have become essential economic priorities. Investing approximately AUD 1.3 trillion through 2050 in renewable electricity, electric transport, battery storage, and modern grid infrastructure could strengthen Australia’s energy security, reduce greenhouse gas emissions, improve sustainability, and provide a long-term shield against recurring inflation driven by volatile global oil markets.
SHAFANA FAZAL
