* Australia takes measures to ensure regional fuel

security

* Holds highest fuel stocks in over a decade

* To release petrol and diesel from domestic reserves

* Fuel strains hitting farmers, threaten iron ore sector

By Helen Clark

PERTH, March 13 (Reuters) - Australia, heavily reliant

on imported fuel and holding stockpiles far below global

standards, is rushing to ensure supply as the Iran war triggers

disruptions and raises the risk of panic buying and shortages

that could hit vital mining and agricultural industries.

The government on Friday announced it would release petrol

and diesel from domestic reserves to ease supply-chain

disruptions linked to shortages in rural areas.

Relaxing the baseline stock obligation for petrol and diesel

could free the equivalent of roughly 5 million barrels of oil,

it said. Australia consumes about 1 million barrels a day.

Energy Minister Chris Bowen said the government would also

temporarily loosen fuel quality standards for 60 days to allow

higher-sulphur fuels, unlocking about 100 million litres of

additional fuel a month.

"Because we've seen such high demand, we've seen real

pressure on the supply chain, and we have seen particularly

rural and regional Australia people not being able to get fuel,"

Bowen told ABC. Ships were still arriving to Australia, he said.

The International Energy Agency (IEA) requires members to

hold at least 90 days of fuel stocks, a target Australia has

missed for more than a decade.

Bowen said on March 3 the country's domestic reserves hold

36 days' worth of petrol, 34 days of diesel and 32 days of jet

fuel - the highest levels in more than 10 years but still well

short of the benchmark.

"Australia hasn't met the IEA requirements since 2012, and

lots of people have raised it as an issue," said Graeme Bethune,

fellow at the Oxford Energy Institute and former EnergyQuest

CEO.

LONG-TERM CHALLENGES

Market watchers and strategic think tanks have been calling

for a solution for a long time, including the Canberra-based

think tank Australian Strategic Policy Institute (ASPI).

Building larger fuel stocks has long been raised as an

option by analysts. But Bethune said, "companies aren't prepared

to bear the cost without increasing petrol prices. And I guess

politicians are concerned about that."

John Coyne of ASPI said the market alone would not deliver

resilience.

"Government needs to pull specific levers, and we need to

decide how much cost goes to companies, consumers or taxpayers."

In 2020 then-energy minister and now opposition leader Angus

Taylor secured access to the U.S. Strategic Petroleum Reserve

(SPR). Coyne said the stocks were released in 2022.

Australia profited given it bought low and sold high, but

the SPR did little to improve onshore stocks.

INDUSTRIES FEEL THE PINCH

Fuel shortages are hitting remote regions hardest.

"If I'm a beef producer in southwestern Queensland, I don't

have 28 or 35 days. I may have a week," Coyne said.

Farmers welcomed the releases, with the National Farmers'

Federation urging the government to consider measures to protect

specific sectors should fuel security worsen.

Australia's major iron ore miners rely on billions of litres

of diesel a year in Western Australia's Pilbara.

Companies have acknowledged that decarbonisation via

electrification or biofuels has been more difficult than

expected.

A spokesperson for the Chamber of Minerals and Energy said

supply is continuing to arrive in Western Australia.

REFINING DECLINE AND FALLING OUTPUT

Australia once had eight refineries but now operates only

Viva Energy's Geelong plant and Ampol's ( CTXAF ) Lytton facility. BP's

2021 shutdown of its Perth refinery removed the west coast's

last capacity. Exporters that once supplied crude, including

Vietnam, have recently halted shipments.

Both refiners declined to comment to Reuters.

Vitol, ExxonMobil ( XOM ) and BP all supply Australia under

term contracts.

National oil output fell nearly a third, or 2.3 million

barrels, to 5.2 million barrels for the quarter year-on-year,

EnergyQuest data shows.