Both Australia and New Zealand are facing acute economic distress due to the war in the Gulf. Both countries fully embraced globalisation, and benefited disproportionately from it due to being able to export resources into global markets. Both countries chose the economic efficiency of global wage arbitrage, allowing their manfacturing base to be offshored to places where wages were much lower, and then importing the value-added results. Unfortunately when economic efficiency is prioritised, under circumstances of relative global stability, resilience is sacrificed, and the cost of this is revealed when global stability comes to an end as it has done this year.
A just-in-time economy is a complex web of supply chains, fully dependent on enormous and constant flows of raw materials and goods. Energy is they key resource upon which maintaining all of this depends, and global energy supply is taking a major hit. The war has already made a great depression inevitable, and it shows no signs of ending any time soon. Those complex supply chains will fracture in ways far too complex to model accurately, and will likely never be reestablished due to permanent energy deficit.
When you benefit disproportionately from a comprehensive system, you also suffer disproportionately from its demise. Arguably the worst decision made by both Australia and New Zealand was to drastically reduce (Australia) or eliminate (New Zealand) their ability to refine oil in order to create the fuels that are the lifeblood of the economic system. New Zealand’s case is worse, since even with a refinery the country was critically dependent on imports of the heavy oil the refinery was designed to process. It was cheaper to import finished fuels from Asia, but the Asian supplers source their inputs of crude oil from the Gulf, and those inputs are no longer arriving. Exports of finished fuels are no longer available. Both Australia and New Zealand are about to be pitched into an unprecedented fuel crisis, but the populations are not being warned about what is coming.
Heavy oil (ie long chains of hydrocarbons) is essential for the production of diesel, bunker fuel and jet fuel. These cannot be made from lighter oils (ie short chain hydrocarbons). Diesel is particularly critical, and without it economies will grind to a halt across the board. Farming would not be possible, nor industry, mining, transport of goods, food distribution etc. The Gulf region exports heavy oil, as do Russia and Canada. Venezuela may eventually do so, once a great deal of capital has been deployed to create the necessary infrastructure. Oil from the Gulf has been reduced to a tiny trickle, and Russia’s energy infrastructure is being damaged deliberately due to NATO’s proxy war through Ukraine. Russia’s exports are also being blockaded and attacked by NATO. The US will absorb Canada’s supply, and Venezuelan tar won’t be available in quantity for years.
For any of those supplies to benefit Australia and New Zealand, they would have to find their way to our Asian suppliers, and they would have to be prepared to export it even as they’re experiencing shortages themselves. This is very unlikely. The result will be an acute and multifaceted crisis that no one is prepared for. Economic efficiency can be described as the straightest path to hell, as it means running a system with no margin for error – a system that has become extremely brittle. It’s the opposite of the resilience that can allow an economy to continue to function under pressure. Both countries are about to understand the consequences of having taken this path. A great simplification is coming, and it will be painful.
