Oil shocks from the Iran conflict have spurred the biggest scramble in decades to shore up sovereign capability, with sources from multiple departments saying supply disruptions have driven home just how catastrophic a Chinese move on Taiwan would be for Australia.
Publicly, the Albanese government has brushed off questions about a potential invasion of Taiwan amid heightened supply chain concerns, with Foreign Minister Penny Wong last week refusing to “engage in those hypotheticals”.
But behind closed doors, public servants from across departments are brainstorming ways to bolster resilience and cushion future economic blows, including if warnings of an “imminent threat” to the democratically self-ruling island manifest.
“I think we all are well aware of the vulnerabilities and have been for some time,” one source told NewsWire, pointing to the Covid-19 pandemic as “the first wake-up call”.
They said the latest disruptions and “other variables”, such as a second Trump presidency, had shown an “undeniable need” for a “more independent Australia”.
But simmering tensions in the Taiwan Strait posed the most “acute risk” because Australia would feel the economic fallout almost instantly and there would be no way to soften it under “current settings”.
Another source described the recent disruptions to fuel as a “test run” that “sort of gives us a road map”.
“We have a clearer idea of what to expect,” they said, adding that the government needed to “operate under the assumption” that Beijing “will do what they say they will”.
China is Australia’s top trading partner, with two-way trade worth more than $300bn in 2024.
Two-way trade with Taiwan was worth $30.6bn in that same year, including $20.4bn in exports.
But fuel led the $9.4bn of goods Australia imported, with Taiwan accounting for 12 per cent of diesel imports.
Freight and Trade Alliance director Paul Zalai told NewsWire the risks to Australian businesses were both immediate and far-reaching.
“Rising tensions in the Taiwan Strait threaten the flow of goods to and from Australia,” Mr Zalai said.
“Beyond our critical trade relationships with both China and Taiwan, any escalation could trigger delays, higher freight costs, and widespread supply chain disruption across the region.
“Taiwan is not only a major export market, but also a critical supplier of refined petroleum and high-value manufactured goods, including telecommunications equipment and computer components.
“Any instability has direct consequences for Australian industry and consumers.”
A conflict would likely shut down vital shipping lanes to the rest of Asia, including routes to Japan and South Korea – Australia’s third and fourth largest trading partners.
Exporters would also be at the mercy of surcharges levied by foreign shipping firms.
“Recent events in the Middle East have shown that foreign-owned shipping lines are quick to impose emergency surcharges without notice, even on cargo already in transit,” Mr Zalai said.
“With insurance typically excluding war-related risks, Australian importers and exporters may be forced to absorb substantial unbudgeted costs.”
He said planning alone was “not enough” and called on the government to be “proactive”.
“Contingency planning is essential, but it is not enough on its own,” Mr Zalai said. “Australian exporters and importers cannot be left to carry the full cost of global instability.
“With nearly half of our trade exposed to this region, proactive government support is critical to safeguard supply chains and maintain international competitiveness.”
Chinese President Xi Jinping has vowed to reunite mainland China and Taiwan within his lifetime and has overseen massive war-games simulating invasions.
Many observers have tipped reunification as a legacy item for the ageing autocrat, now 72.
But Nathan Attrill, a Chinese foreign policy expert with the Australian Strategic Policy Institute, disagreed with Trump administration assessments of impending military action.
“That framing overstates intent and compresses the timeline,” Dr Attrill told NewsWire.
“China is building capability and signalling pressure, but its preferred strategy remains coercion short of war.”
He said a major crisis in the Taiwan Strait would “impose severe costs on China”, threatening “trade and access to advanced semiconductors”.
“Risk is clearly rising, but escalation is not the baseline. The trajectory depends more on deterrence dynamics than any fixed deadline,” he said.
While he disagreed with an imminent threat to Taiwan, Dr Attrill said the current supply chain pressures brought on by the Middle East conflict would pale in comparison.
“Chokepoint crises transmit shock immediately,” he said.
“Even limited disruption in Hormuz has shifted prices, insurance and shipping behaviour.
“The Taiwan Strait would be far more consequential, carrying a larger share of global trade and critical technology flows.
“Iran shows you do not need a full blockade. Harassment, inspections or selective interference can still have major economic effects. China is more likely to use that graduated, grey-zone approach.”
