As war in the Middle East threatens global oil supplies, Energy Minister Chris Bowen announced on Thursday he would temporarily lower Australia's fuel quality standards to increase new petrol stocks.
Fuel will be allowed to enter the domestic supply with higher levels of sulphur for the next 60 days.
"While this is a relaxation, our fuel quality will remain very high by international standards," he told parliament on Thursday.
"This is a practical measure providing 100 million litres of extra fuel each month, which will be prioritised for regional Australia, with a particular emphasis on Queensland."
Mr Bowen said fuel consumption had not changed, but the measure would help relieve pressure on distribution chains disrupted by elevated demand.
The conflict has sent benchmark oil prices bouncing between the low $US80s a barrel and almost $US120 a barrel as traders try to make sense of the impact of the closure of the Strait of Hormuz and what US President Donald Trump will do next.
Prime Minister Anthony Albanese said the strait's closure would impact inflation.
"If that shipping route remains effectively closed, then that will have ongoing consequences for fuel prices, production, supply chains and, of course, an inflationary impact right around the world," he said.
Brent crude settled just under $US100 a barrel on Thursday afternoon after the International Energy Agency called on its 32 member countries, including Australia, to voluntarily release 400 million barrels of oil from their strategic reserves.
But CBA commodities analyst Vivek Dhar believes energy markets are not fully pricing in the disruption posed by the conflict.
"Our expectation that this crisis could last for months instead of weeks likely means that markets are underestimating the disruption to global energy markets," he said in a research note on Thursday.
Brent prices could surge as high as $US150 a barrel to force down demand among developing countries once supply shortfalls trickled through the pipeline, he said.
As a rule of thumb, every $US1 rise in the price of crude oil causes petrol prices to rise by about 1c/litre at the bowser, AMP chief economist Shane Oliver said.
That means a $US50 increase in the Brent crude price to $US150 a barrel would translate to a 50c/l rise in unleaded petrol.
But it could rise even higher if advanced economies needed to lift prices to reduce demand.
LNG price spikes could also exceed those seen during the outbreak of the Ukraine war, which could flow through to higher energy prices in Australia.
"If the conflict is not resolved, oil and refined product prices are at risk of rising to levels not seen in history," Mr Dhar said.
He said the prospect could be intolerable for world governments and likely explained why markets were reluctant to countenance an extended closure of the Strait of Hormuz.
The passage accounts for about 20 per cent of global oil and liquefied natural gas shipments.
But it was also difficult to see the US leaving without achieving its strategic goals, he said.
"This is yet another example of geopolitics clashing with economics in this new era," Mr Dhar said.
"This adds a wildcard element to the outlook."
ANZ commodities analysts Daniel Hynes and Soni Kumari agreed markets were underestimating how long the conflict could last.
They said a critical risk not priced in was the prospect of wells being shut in by interrupted power supply, insufficient staffing or unstable water access, which could turn temporary disruptions into long-term supply losses even if the conflict was resolved.
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