Exxon’s decision to convert a small refinery near Melbourne into an import terminal has sparked more anguish in Australia about the progressive closure of the country’s refineries and growing reliance on imported fuels.
Like many other countries, Australia’s government views the maintenance of domestic refining capacity as a way to safeguard the supply of critical transport fuels in the event of an armed conflict or blockade.
But maintaining a few old, small and relatively inefficient refineries likely adds little to the country’s energy security (“Australia faces fuel security challenge as refineries close”, Financial Times, Feb. 10).
WORLD WAR LESSONS
In most oil-importing countries, the desire to protect domestic refining capacity stems from fears that a naval blockade or attacks on shipping could disrupt the supply of imported fuels such as gasoline and diesel.
Even before the Second World War, governments had become increasingly concerned about the potential impact of blockades or attacks on shipping (“Oil: a study of war-time policy and administration”, U.K. Official History of the Second World War, Payton-Smith, 1971).
Pre-war British planning focused on how to maintain fuel supplies for the armed forces, industry and domestic transport in the event conflict with Germany or Japan led to attacks on tanker shipping.
In the event, between 1940 and 1942, German submarine attacks on British and allied tankers succeeded in reducing oil imports and helped create severe fuel shortages at home as well as in other parts of the British Empire.
And in 1941, the U.S. decision to impose an embargo on crude and fuel sales to Japan was one of the factors that accelerated the outbreak of armed conflict between the two countries later in the year.
Fears about fuel supplies are therefore understandable, but future conflicts are likely to be fought differently, which makes lessons from the Second World War less relevant.
The Second World War was fought in relatively slow motion with limited explosive power, mostly by slow-flying, limited-range bombers carrying small payloads, slow-moving ships and large slow-moving ground armies.
In a slow-moving conflict, there is more time for an embargo or blockade to exhaust pre-conflict fuel inventories and undermine the willingness and ability of the belligerents to keep fighting.
Since 1945, however, the speed of armed conflicts has accelerated and the available explosive power has risen by several orders of magnitude.
The development of long-range heavy bombers, short-range and inter-continental missiles, and nuclear weapons has fundamentally altered the speed and destructive power of conflicts.
In a much faster-moving conflict, with much more explosive power, a slow-acting embargo or blockade is unlikely to be an effective strategy.
In the last two decades, the United States and its allies have employed partial embargoes and blockades against North Korea, Venezuela, Yemen and to some extent Iran, with limited success.
But in a major inter-state conflict it is unlikely a fuel embargo would play a significant role because it would be highly escalatory while failing to be decisive, worsening rather than resolving a conflict.
In a major inter-state conflict, any state subject to embargo or blockade would likely regard it as an existential attack justifying an all-out response to break the stranglehold before fuel stocks ran low.
Implementing an embargo or blockade would likely provoke a response with missiles designed to destroy blockading vessels and possibly spread the conflict to the homeland of the blockader.
In most scenarios, an embargo or blockade would probably escalate into attacks on the fuel supply system of all belligerents, including tankers, refineries, pipelines, tank farms and electricity systems.
Attempts to blockade fuel supplies might even escalate into a broader conflict involving other industrial and economic targets, cyber-attacks on critical systems, or even the threat to use nuclear weapons.
It is very difficult to envisage a scenario in which a blockade is serious enough to force one of the belligerents to concede, but not so serious as to spill over into total war (“On escalation”, Kahn, 1965).
REFINERIES AS TARGETS
Even in the event of a successful blockade, domestic refineries are unlikely to be much help in maintaining domestic fuel supplies.
In most countries outside OPEC and Russia, domestic refineries rely on imported crude, which would be impacted by a blockade as well – except in an implausible scenario in which fuel is blockaded, but not crude.
Australia, for example, produced 0.5 million barrels per day of crude domestically in 2019. But the country consumed 1.1 million barrels per day of refined products, leaving it relying on imported crude and fuels to make up the shortfall.
Finally, in any major conflict between states, the refineries of all belligerents would be large, hard-to-defend targets, highly vulnerable to missile attack, so having domestic refineries would not protect fuel supplies.
For an oil refinery to be a strategic asset we have to assume a scenario in which there is a blockade serious enough to threaten the economy, but not so serious it provokes all-out conflict; a blockade that targets imported fuels, but not crude; and a blockade that does not provoke attacks on the refineries of all belligerents.
It is just about possible to envisage such a contorted scenario, but it is very unlikely – so most countries should probably stop treating oil refineries as strategic assets.
John Kemp is a Reuters market analyst. The views expressed are his own.