How the Iran war will hit our whole business model |
Regular readers of my column will know that for years I have argued that Australia runs a rather simple, but historically very effective, national business model:
We educate students.
Mining. Agriculture. Tourism. International education. That’s how we make money, that’s why we enjoy globally very high standards of living.
The four pillars of our economy aren’t particularly glamorous in a world obsessed with artificial intelligence, biotech and high-tech gadgets. But structurally, they are hard to displace.
The world will continue to need raw materials, food, holidays and degrees.
With this in mind, let’s think through how the war in Iran might impact Australia.
Obviously, we will enter the territory of speculation here, but we can make educated guesses to guide our thinking.
We can be pretty certain that the Middle East will be destabilised to a degree and that traffic through the Strait of Hormuz will be severely limited for a while.
We aren’t interested purely in the economic outcomes, but want to gain a more complex understanding.
I introduced Ken Wilber’s Four Quadrants in a previous column (have a read if you want to learn more) and also used the framework to explore what a “good migrant” might look like.
The Four Quadrants model views the world through four complementary lenses: Mind, behaviour, culture and systems.
Because geopolitics doesn’t just move oil prices. It moves people, psychology and systems.
1. The Exterior-Collective: Systems and structures
This is where most commentators start: The hard economic facts.
We must assume that the Iran war and its aftermath will disrupt energy flows, which will likely see the following developments:
Oil and gas prices spike
Shipping insurance premiums rise
Freight routes lengthen and freight costs go up
Air travel reroutes around unsafe airspace which leads to higher prices
Inflation ticks up as the stuff we buy goes up in price
Let’s see how Australia’s four economic pillars might be impacted by this:
Global LNG and coal prices may rise. In the short-term, that might work in our favour. That’s the stuff we sell! We might well see export revenue go up, assuming demand remains high and our ability to ship the commodities to our buyers stays intact.
Iron ore demand could soften if global manufacturing slows.
Freight volatility increases costs and uncertainty – logistics will likely get more complex.
Higher diesel and fertiliser costs squeeze margins for producers – we import diesel and fertiliser and will likely need to pay more money for these goods.
Shipping delays increase export frictions.
Global food price volatility rises – higher global food prices are terrible news for the bottom two billion people on the planet but might well work in our favour as a major food exporter.
Fewer convenient Europe-Australia routes via Gulf hubs.
Global travel confidence softens.
Airfares increase as fuel becomes more expensive. That’s bad news considering the biggest cost of a trip to Australia is the airfare. Higher costs might discourage tourists from coming to Australia altogether. On the flip side, access from Asia and the Americas remains open.
International education
Direct exposure limited.
There might be indirect risks if a global economic slowdown were to reduce families’ ability to pay our high university fees.
Airline pricing and connectivity shouldn’t matter too much for enrolments.
Structurally, Australia is less exposed than oil-importing economies like Japan or much of Europe.
We are a net energy exporter. Higher prices hurt households, but they also lift national income. That is the paradox of a commodity exporter in a geopolitical crisis.
2. The Exterior-Individual: Measurable behaviour
Our individual behaviour might also be impacted.
Petrol prices at the bowser will likely be higher. We spend more money, which is inflationary in nature. Consequently, the Reserve Bank won’t be able to cut interest rates and might well have to raise them.
Airfares climb. We either travel less (which is no fun) or we spend more money (which is inflationary).
As travel times to Europe lengthen, we Aussies might holiday within the region (or go to Chile, which is a convenient direct flight away).
As investors, we might double down on energy related opportunities. When things look risky, Australians traditionally gravitate towards property.
The poorer households will cut discretionary spending – a very uncomfortable tightening of the belt. This can’t possibly be good news to the big established parties and might well benefit parties on the fringe.
When oil spikes, our behaviour changes. I’ll keep an eye on the data trail.
3. The Interior-Individual: Psychology
This is the invisible (but often the most powerful) quadrant in the model.
Reading about global instability might make us more anxious about the future in general.
We feel less secure about our jobs and incomes and wonder if our lifestyles might need to be cut back.
As travellers we hesitate.
As investors we become risk averse and spend money on the boring and safe stuff.
Australia can still tell itself a comforting story: We are far away, therefore we are safe.
But in our globally interconnected world psychological impacts might weigh heavier than economic impacts.
A shock in Hormuz shows up in Melbourne within days – first at the petrol pump, then in sentiment surveys, eventually even in mental health data.
Our sentiments matter as they shape our spending, investment and hiring decisions.
4. The Interior-Collective: Culture and narrative
Wars reshape national stories.
Public debate intensifies around defence spending and alliances. We might develop strong feelings in favour of or against the war. This can lead to societal conflict and worsening of social cohesion within Australia – the war in Gaza is a prime example.
Energy security might well become a stronger cultural and political talking point. Australian voters might strongly demand lower gas prices and parties might feel the pressure to tax the gas industry more aggressively. So far this argument has been made more strongly by the political left (The Australia Institute, Gary’s Economics, and Punter’s Politics) – I wouldn’t be surprised if more centrist and more right-wing stakeholders will also make this point more strongly.
Supply chain resilience re-enters policy discourse. Will we see some sort of hoarding behaviour? Might local businesses hoard more stuff in their warehouses to ensure shelves remain stacked?
Immigration and geopolitical positioning are debated through a new lens. How much should we support the US? Does the war in Iran create refugee flows? If so, what’s our role in the mix?
Collective narratives influence policy settings – which in turn shape the economy; which in turn shapes our lives.
If Australians collectively decide resilience matters more than efficiency, supply chains will shorten. Energy policy will tilt. Defence budgets will grow. Culture drives structure over time.
Conclusion: Is our national business model threatened?
In relative terms, Australia is not among the most vulnerable nations in an escalating Gulf conflict.
We are not a major oil importer.
We are not geographically proximate.
We export some types of energy rather than being fully dependent on imports.
Oil-importing Asia and Europe face sharper inflation shocks and growth risks. Middle Eastern economies face direct physical and fiscal risks.
Australia faces something subtler:
Sentiment volatility
Most importantly though, our four pillars remain structurally in demand. The world will still need iron ore, wheat, LNG, holidays and degrees.
But volatility reminds us of something important.
Our business model is simple and relatively safe, but it is still deeply plugged into global systems. In a globalised world, even a distant war can move all four quadrants of the Australian economy:
The story we tell ourselves about who we are in the world.
That is the subtle and more complex integral view.
And it is a useful reminder that geopolitics doesn’t just impact the region in question but also bowser prices in Brisbane, freight rates in Fremantle, and consumer confidence in Melbourne.
Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. His podcast, Demographics Decoded, explores the world through the demographic lens. Follow Simon on Twitter (X), Facebook, or LinkedIn.
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