The Islamabad Memorandum has not fixed Australia's fuel problem — It has just hidden it

Theekshana Manujaya

Image sourced from Enguerrand Photography via Unsplash

After more than one hundred days of the Iran-US war, the Islamabad Memorandum of Understanding (Memorandum) between the United States and Iran has done what diplomacy is supposed to do: it stopped the shooting, reopened the Strait of Hormuz, and bought sixty days for negotiators to sort out everything that still cannot be agreed on. For Australian households watching petrol prices fall back from their wartime highs, that probably feels like the end of the story. It is not. The Strait of Hormuz crisis exposed a structural weakness in Australia's energy security. The memorandum itself suggests the ceasefire, however welcome, may not hold beyond the sixty days following. If it does, Australia will be right back where it started only now, with less excuse for being unprepared.

The Memorandum, signed at Versailles in June, is deliberately thin. Of its fourteen points, only two carry immediate weight: the reopening of the Strait of Hormuz to commercial shipping, tariff-free, for sixty days, and a partial, conditional unwinding of sanctions and frozen assets. So much that mattered to the war's origins, Iran's uranium stockpile, the enrichment dispute, and the missile program have been deferred to a "final deal" that does not yet exist. Vice President JD Vance called it “laying a foundation rather than building a house memorandum”. Even that may be generous: within days of signing, Iran briefly closed the strait again. For Australia, however, the Memorandum’s significance lies less in what it achieved diplomatically than in what the crisis revealed about the country’s own fuel security vulnerabilities.

This is the part Australian coverage has tended to skip past. The Strait of Hormuz carries roughly a fifth of the world's seaborne oil and a similar share of liquefied natural gas trade on an ordinary day. When Iran effectively closed it in early March, transits collapsed by more than ninety per cent and Brent crude briefly cleared US$100 a barrel. Australia, an island continent that imports almost all its refined fuel, felt that shock directly, with petrol and diesel prices spiked, the federal government temporarily halved fuel excise, and a long-dormant debate about strategic reserves was suddenly urgent again.

That debate exposed something uncomfortable. Australia was, until this year, one of only two International Energy Agency members, alongside New Zealand, without a government-owned strategic fuel reserve at all. Private stockholding obligations covered roughly a month of diesel and petrol, well short of the International Energy Agency's ninety-day benchmark that most developed economies meet. The 2026-27 Budget responded with a A$3.2 billion Australian Fuel Security Reserve, intended to lift diesel and jet fuel reserves to fifty days, alongside continued support for the country's two remaining refineries. It is a genuine improvement. It is also, by the government's own numbers, still short of the international standard, and it was announced under the pressure of an active war rather than as considered, pre-emptive planning.

The risk is that of treating the Memorandum as closure. The ceasefire eased the immediate crisis, but the policy debate has begun to lose urgency, exactly as it did after the Strait of Hormuz tensions flared in 2019 and again in 2025. Analysts at the Australian Strategic Policy Institute have warned that Australia's fuel vulnerability extends beyond the Strait of Hormuz. Even if Gulf crude flows freely again, the refined fuel Australia imports must still pass through the Indonesian straits of Malacca, Lombok and Sunda before reaching Australian ports. Hormuz was only the first link in that chain to break this year. There is no guarantee it will be the last, and no guarantee the next disruption will arrive on a sixty-day notice period.

The Memorandum's own terms make a relapse plausible rather than remote. Its sequencing logic, in which the hardest issues are negotiated only after the easier ones are implemented, gives both sides an incentive to stall once the convenient parts are banked. Iran's Supreme Leader endorsed the deal only with open reservations, and Israel's prime minister has separately pledged to prevent an Iranian weapon regardless of what Washington and Tehran agree between themselves. None of that suggests settled peace. It suggests a pause that could end the moment a single working group on enrichment or missiles breaks down.

For Australian policymakers, the lesson is not that this ceasefire will fail. It is that fuel security cannot be built and then shelved according to the news cycle out of the Gulf. The A$3.2 billion reserve and the renewed Minimum Stockholding Obligation are useful first steps, but they were legislated as crisis response, and crisis-response funding has a habit of stalling once the crisis recedes from the headlines. A serious reserve reaches the ninety-day IEA benchmark. It needs to be locked in as standing policy, not revisited only when tankers stop moving through a strait most Australians had never had reason to think about. The next disruption, wherever it originates, will not wait for politicians to remember why they cared.

Manujaya Thennakon holds a bachelor’s degree in industrial Statistics and Mathematical

Finance from the University of Colombo, Sri Lanka, and worked for almost four years as a Data and AI Consultant before relocating to Australia.

He is currently pursuing a master’s degree at CQUniversity Melbourne, and write on global affairs, economics and policy developments across several platforms, including his own blog.

Disclaimer: The views and opinions expressed in this article are those of the author, and do not necessarily reflect the views and opinions of Young Australians in International Affairs. AI tools were used by this author for grammatical adjustments only. All content is original, and no plagiarism has been used in the preparation of this article.