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With tensions continuing to flare in the Red Sea, political and media commentators have transformed into shipping experts overnight, warning of Australia’s over-reliance on overseas imports. But the inverse is also true. Australian prosperity also rests on an undiversified economy and resources exports. A tap that could be turned off in any conflict, writes Liam Garman.
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Increased media and political scrutiny on the relationship between shipping and conflict is truly a welcomed phenomenon in modern political discourse. Fundamentally, it acknowledges the fragility of the global economy and particularly that even remote foreign conflicts can snowball into substantial economic crises.
It also demonstrates how economic prosperity and power projection are two sides of the same coin: we have often heard the adage that the US dollar is backed by the might of the US military, and in protecting global shipping lanes, we see just how close the relationship between the two really is.
Every nation is reliant on global shipping in one way or another. Take the Malacca Strait as an example. Running between Indonesia and Malaysia, 80 per cent of Japanese oil imports and 70 to 85 per cent of Chinese oil imports pass through the 800-kilometre stretch. It’s easy to understand how naval dominance over a small stretch of the earth’s surface can control the destiny of nations.
During the Suez blockage in 2021, Allianz predicted that the backlog could cost global trade between $6 billion to $10 billion a week. The only difference, though, is that the blockage was non-nefarious and saw nations collaborate to remove the obstacle. The exact opposite of what would happen during wartime.
The late Jim Molan warned Australians time and time again of the risks that we face as an island nation, in a hotly contested region, with a relatively undiversified economy. Australians have no choice but to listen.
“We are a nation that imports and exports, mainly by ship, most things that we need to keep the nation going and to be prosperous,” former senator Molan wrote at the height of the COVID-19 pandemic in 2020.
“The examples I use most often are 90 per cent of our petrol, diesel and aviation fuels, 90 per cent of our pharmaceuticals, and 90 per cent of our fertilisers. We also import one-third by value of every manufactured item that we consume, and most of these are the more sophisticated manufactured items.
“In the event of regional tension or, worse still, conflict or war, ships will stop sailing in and out of Australia. Aircraft will not be able to replace the tonnages carried by ships, and as tension or conflict increases, aircraft will stop flying as we see in COVID.”
While disruptions to global shipping will devastate the Australian economy and decimate our ability to prosecute war, the inverse is also true.
Australia’s economic prosperity is dependent on exporting commodities. According to data released by the Reserve Bank of Australia, resources make up 61 per cent of all Australian exports, with “rural” exports estimated at an additional 11 per cent.
Research for the Australian Parliament House illustrated that $267 billion of Australia’s export revenue was generated from iron, coal and natural gas exports alone in 2021, with the industry contributing $43.2 billion in company tax and royalties between 2020 and 2021.
This equates to some 30 per cent of all company tax, not to mention the countless numbers of jobs and income being generated solely due to Australia’s mineral wealth.
Australia owes a lot to its resources industry. However, a mature nation must also acknowledge how fickle the global competition between states can be.
Whether it is transnational crime that makes our resources uncompetitive, economic coercion from large trading partners, or intense maritime conflict – there is no shortage of feasible scenarios that can slam the brakes on our resources industry and Australia as a whole.
As we embark upon an ambitious national security program that earmarks 0.15 per cent of the nation’s gross domestic product (GDP) solely on nuclear-powered submarines, replete with a swathe of program cuts across Defence, any significant contraction of Australia’s GDP will put our ability to modernise the Australian Defence Force at risk.
Liam Garman
Editor – Defence and Security, Momentum Media
