Australians are bracing for potential financial strain as tensions between the United States and Israel against Iran threaten to disrupt global trade. The conflict is poised to have a ripple effect on the international stage, particularly affecting oil prices.

Oil prices have surged to their highest in four years amid rising tensions, especially as Iran issues threats to the Strait of Hormuz. This critical shipping lane, located on Iran’s southern border, sees the passage of approximately 20 million barrels of oil daily. Such instability could lead to increased petrol prices, impacting the cost of goods and services across Australia if the conflict persists.

Social Services Minister Tanya Plibersek expressed concerns about the domestic economic repercussions of the escalating situation in the Middle East. Speaking on Channel Seven’s Sunrise program, Plibersek drew parallels to the economic impact felt worldwide, including in Australia, following Russia’s invasion of Ukraine. “Our global oil and petrol supply is ultimately affected by what is happening in the Middle East,” she noted.

The ongoing conflict has already disrupted crucial sea and air trade routes throughout the Middle East, further complicating international commerce and heightening economic uncertainty.

“There was an economic impact of Russia’s invasion of Ukraine that affected the whole world and that includes Australia,” Plibersek told Channel Seven’s Sunrise program on Monday. “Our global oil and petrol ultimately is impacted by what is being produced in the Middle East.”

International shock waves

Sea and air trade routes in the Middle East have been significantly impacted by the conflict in the region.

Air travel across the region has been disrupted, with thousands of flights cancelled and airspace above Iran, Iraq, Israel, Saudi Arabia, Kuwait, and the United Arab Emirates shut.

The Strait of Hormuz, a 33km-wide pinch point through which approximately 20 to 25 per cent of all seaborne oil and liquefied natural gas travels, is “practically closed”, Iranian state media has said. At least three tankers were damaged off ‌the Gulf coast and one seafarer was killed during Iranian retaliatory attacks.

Danish shipping giant Maersk announced on Sunday that it would be halting transport through both the Strait and the Suez Canal bordering Egypt to ensure the “safety of our crews”.

They join several international shipping groups avoiding the region as Iran exchanges missile fire with Israel and has launched aerial attacks on neighbouring nations.

Maersk has said it will reroute ships around the Cape of Good Hope, adding thousands of kilometres to trade journeys.

Hapag-Lloyd and the French shipping group CMA CGM have said they will apply a “war risk surcharge” on cargo travelling from large parts of the Middle East and North-Eastern Africa.

What impact will it have at the petrol pump?

The price of Brent crude jumped 8.8 per cent on Monday while US crude climbed by 8 per cent, putting Brent at US$79.34 ($111.67) a barrel and US at US72.38 ($101.87).

A widely accepted rule of thumb is that every US$10 ($14) increase in the price of a barrel adds 10c to the fuel pump in Australia.

“If it goes to, say, US$95 ($135), well, you’re looking at maybe 25 to 28 cents extra a litre, which is putting you pretty close to, I think, $2 a litre, depending on where you are”, Saul Eslake, independent economist and vice-chancellor’s fellow at the University of Tasmania, told SBS News.

NRMA spokesperson Peter Khoury told reporters on Monday he expects prices at the pump to increase by around 10 per cent.

“The message to Australian drivers today is this: Please do not panic, in the first instance. Whatever happens overseas takes about seven to 10 days to flow on here at home,” Khoury told journalists in Sydney.

“So we should not see an impact on the bowser immediately and only then if things are sustained over a period of time and we don’t see that jump stabilise and prices come back again.”

Already, queues around petrol stations in some locations have been reported as people attempt to fill their vehicles ahead of the anticipated climb.

“The other message we have is to the oil companies: Do not use this as an excuse to jack up your prices and charge Australians more than they should be paying,” Khoury said.

“Our hope is that the prices will stabilise, but if things don’t de-escalate, then we could see those prices flow onto the Australian market.”

Time is of the essence

US President Donald Trump has suggested the war could go on for four weeks.

“It’s always been a four-week process. We figured it will be four weeks or so. It’s always been about a four-week process so — as strong as it is, it’s a big country, it’ll take four weeks — or less,” British newspaper The Daily Mail quoted Trump as saying.

“Nobody knows how long this conflict will last,” Eslake said. “If the conflict escalates, or if Iran succeeds in doing a lot of sustained damage to oil production in Arab states on the other side of the Gulf, then it’s possible that fuel prices could go to $2.20 or even higher, but it’s a bit of a leap at this stage.”

In a video posted to Truth Social on Monday, Trump said that combat operations in the region would continue until “all of our objectives are achieved”, without outlining exactly what those objectives were. Trump has encouraged Iranians to “seize this moment” and take control of the government and has previously spoken of completely destroying all nuclear enrichment sites in the country.

OPEC+ nations agreed on Sunday to boost oil production slightly by 206,000 barrels a day for April, with its leader Saudi Arabia already having increased production ahead of the conflict in preparation.

Eslake says the intervention means oil prices shouldn’t rise in the same way that they did in 2022.

While the Reserve Bank of Australia doesn’t factor in volatile goods like fuel and air fares — often rising with petrol — if the conflict drags on for “two to three months”, higher petroleum costs will start to impact domestic transportation, the cost of plastic, and consumer goods.

“If that were to come to pass, if the Reserve Bank were to find itself revising up materially its forecasts for the underlying inflation rate — which excludes these volatile items — then almost certainly they would have to contemplate additional increases in interest rates.”

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