Oil shock is one of your supply chain risks

Roger OakdenSupply Chains & Supply NetworksLeave a Comment

It only takes one supertanker.

Does your supply chain strategy consider a scenario of less oil? Economies operate the way they do because of the availability of oil, but if countries in which you operate are not oil producers, what are their risks concerning supply?

As an extreme risk, a Middle East jihadist group has requested its affiliates to sink oil tankers at two shipping ‘choke points’: the Gulf of Hormuz in the Persian Gulf and the Straits of Malacca between the Malay peninsula and the Indonesian island of Sumatra.

Fuel supply is one of the sovereign risks for countries. It is also an element of strategic risk assessment for supply chain professionals. Have counties in which your company does business identified the potential risks, the likelihood of ‘choke point’ closure and articulated the consequences for their economy?

As a starting point, the International Energy Agency (IEA) has, since 1974, advised member countries to hold 90 days usage as emergency stocks in case of significant oil supply disruption – this is in addition to defence force stocks.

Fuel risk for a country

As an example of the actual situation in a country, Australia currently imports more than 90 percent of its fuel needs – up from 60 percent in 2000. It could soon be 100 percent imports, with the majority provided from refineries in Singapore.

But, Australia has the lowest stock holding of IEA member countries and all inventory of fuels in the country is held by commercial businesses; the government holds no emergency stocks and provides no emergency capacity. It does not mandate minimum fuel inventories or where they are to be held; if purchased FOB, a proportion of oil stocks could actually be in tankers at sea.

Due to improvements in logistics operations, minimum inventories are held in supply chains within the country. If diesel fuel was not available, supermarket shelves and hospital supply stores would be empty within a few days.

Questions within your supply chain risk assessment concerning fuel risk for a country should address:

  • Does the government mandate regulations concerning emergency fuel stocks, or does it take responsibility for the cost of establishing and stocking emergency fuel supplies?
  • Does the government actively promote fuel security by the:
    • Development of alternative and renewable energy sources and infrastructure
    • Support the research and commercialisation of renewable energy and fuels
    • Removal of obstacles to the use of fuel efficient, high productivity commercial vehicles

The answers will influence your assessment of the consequences from an ‘oil shock’ and therefore your company’s business plans for accommodating and responding to the potential change in an economy.


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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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