Australian motorists are feeling the pinch as fuel prices climb, driven by the ongoing conflict in Iran. Despite Prime Minister Anthony Albanese’s move to temporarily reduce the fuel excise, petrol remains one of the most heavily taxed commodities in the country.

The oil crisis shows no signs of abating, as Iran announced over the weekend that it plans to shut down the crucial Strait of Hormuz shipping lane in response to U.S. port blockades.

In an effort to provide some relief, the Albanese government has implemented a halving of the fuel excise, effective until June 30, making petrol 26.3 cents per litre cheaper. However, economists caution that the repercussions of the Middle East conflict may persist for at least another six months.

Fuel is one of three major products in Australia subjected to excise taxes, alongside tobacco and alcohol. While the taxes on tobacco and alcohol are intended to curb excessive consumption and generate government revenue, the fuel excise serves a different purpose.

Originally introduced in 1929, the fuel excise was designed to fund road infrastructure, effectively acting as a user charge for road use, according to documents from the Parliamentary Budget Office.

In today’s context, the excise also serves as a disincentive for fossil fuel usage, with electric vehicles being exempt from this charge.

But the excise isn’t the only tax applied to fuel purchases. There is also the GST, with that 10 per cent hit applied to the cost inclusive of the excise – a tax on a tax.

Technically, fuel in Australia is taxed an astonishing five times before motorists drive off with it in their vehicle.

Prime Minister Anthony Albanese (above) has boasted about cutting the fuel excise

Detailed data from 2023 (above) showed tax made up 31 per cent of the price per litre of fuel

About 90 per cent of Australia’s fuel supply is imported and when it arrives at the border it is subject to an excise equivalent customs duty (tax one) and the goods and services tax (tax two), both of which the importer pays .

The importer’s taxes are then passed on in the fuel price at the pump, so a driver pays an excise (tax three) but this repays the importer so they’re not out of pocket. 

It’s done this way because its easier for the government to deal with a handful of importers than millions of motorists.

The driver also pays a GST at the pump (tax four). 

Finally there is also another round of GST when it’s bought by a service station from the importer (tax five), but servos are able to claim that tax back, so it doesn’t count.

Taxes one, two and five are recouped, so what’s left is the excise and GST the driver pays at the pump, which accounts for more than one-third of the price.

For example, let’s say an importer is bringing 100L of fuel into Australia valued at $1 per litre.

As that fuel crosses into Australia it is subject to customs duty equivalent to the fuel excise, which has been lowered to 20.6c per litre from 52.6c, and an estimated GST of 10 per cent. So the $1 litre of fuel now costs $1.33.

Imported fuel is subject to customs duty and GST at the border, as well as the fuel excise and GST paid by customers at the pump

Data for 2025 (above) showed the cost of tax was almost equivalent to the cost of producing fuel

Then when a customer puts that fuel in their tank, they pay to cover the cost of fuel excise and another 10 per cent in GST.

This doesn’t factor in the markup from suppliers and service stations to turn a profit.

And with fuel not prices at $1 per litre these days, it’s easy to see why Albanese’s temporary price-cut isn’t all that impressive.

‘Up until the first of April, 52.6 cents of every litre of fuel was excise,’ Rowan Lee, the Chief Executive Officer of The Australasian Convenience and Petroleum Marketers Association, told Daily Mail.

He said it’s an issue the Australian Institute of Petroleum has been flagging for years, but Aussies have only recently started paying attention.

Data collected throughout 2025 found that the amount of tax Australians paid per litre of unleaded petrol was more than half of its production cost. 

Detailed analysis from 2023 found 31 per cent of the cost per litre of fuel was government tax, compared to 57 per cent for production cost and 11 per cent operational costs.

‘It’s pretty well been swept under the carpet until now,’ Mr Lee said. ‘People just accepted it (expensive fuel) as a fact of life and resigned themselves to it.’

Excise in Australia is an additional tax only applied to three goods: fuel, alcohol and tobacco

The effects of the fuel crunch are expected to peak next month as the drop in supply reaches the market.

Albanese has been jetting off to Asian neighbours such as Brunei and Malaysia to shore up Australia’s imported supply.

Domestically, the country only has two working oil refineries, one of which at Geelong suffered a major fire just a few days ago that will likely stunt it’s supply for months.

That refinery supplies about 50 per cent of Victoria’s fuel.

The strategic Strait of Hormuz was again closed on Sunday in the stand-off between Iran and the US, with Iran’s powerful parliament speaker signalling a peace deal remained ‘far’ off despite some movement in negotiations.

As mediation efforts continued following high-level talks in Pakistan that failed to reach a deal, Iran said it will not allow the crucial maritime trade passage to re-open until the United States ends a blockade of Iranian ports.

Mohammad Bagher Ghalibaf, speaker of the Iranian parliament, said in a televised address on Saturday night that there had been ‘progress’ with Washington ‘but there are many gaps and some fundamental points remain’.

‘We are still far from the final discussion,’ said Ghalibaf, one of Tehran’s negotiators in the talks aimed at ending the war launched by Israel and the United States against the Islamic republic.

A two-week ceasefire is set to end on Wednesday unless it is renewed.

US President Donald Trump said ‘very good conversations’ were going on with Iran but warned Tehran against trying to ‘blackmail’ the United States.