From Dubai: The regional dynamics at play are more complex than the headlines suggest, but the energy market arithmetic is brutally straightforward. The Strait of Hormuz, the 33-kilometre-wide bottleneck linking the Persian Gulf to the open ocean, has effectively ceased functioning as a global oil corridor. For Australians already contending with cost-of-living pressures, the consequences could be severe and fast-moving.
On 28 February, the United States and Israel launched a coordinated military operation against Iran, codenamed "Roaring Lion" by Israel and "Operation Epic Fury" by the Pentagon. The strikes killed Supreme Leader Ayatollah Ali Khamenei, the 86-year-old cleric who had governed the Islamic Republic for 36 years, along with a broad sweep of Iran's senior security and military leadership. The Reserve Bank of Australia is now among the institutions watching the fallout closely, given the potential inflationary implications for the domestic economy.
7News reports that energy analyst Saul Kavonic has issued a stark warning, estimating petrol price rises of between 20 and 40 per cent are possible in coming weeks if Iran succeeds in disrupting passage through the strait. "If things go badly in the Middle East, we could see our worst oil shock since the 1970s," Kavonic said. That assessment aligns with modelling from AMP chief economist Shane Oliver, who told the Australian Associated Press that petrol could rise by 25 cents per litre if oil climbs past $100 a barrel, a threshold analysts at Barclays and Rystad Energy now consider plausible. Australian Bureau of Statistics data shows fuel costs already feed directly into the consumer price index, meaning any sustained spike would rekindle the inflationary pressures the RBA has spent two years trying to suppress.
The mechanism by which a conflict thousands of kilometres away reaches the Australian bowser is the Strait of Hormuz itself. According to the US Energy Information Administration, approximately 20 million barrels of crude oil passed through the strait each day in 2024, representing roughly one-fifth of global supply and an annual trade value of around $500 billion. Saudi Arabia, Iraq, the UAE, Kuwait and Qatar all depend on the passage to reach world markets. Australia does not import oil directly from Iran, sourcing most of its crude and refined products from South Korea, Malaysia, the UAE and Singapore, but global oil prices are set by global supply. A squeeze anywhere in that system hits consumers everywhere.
Iran's Revolutionary Guard moved swiftly to weaponise that geography. An official from the European Union's naval mission Aspides told Reuters that vessels in the region had received radio transmissions from Iranian forces stating that "no ship is allowed to pass the Strait of Hormuz". Iran has not formally confirmed the order, but the practical effect has been immediate: oil and gas shipping through the waterway has largely paused, tankers are diverting or waiting at anchor, and ship insurance premiums have surged sharply. Ali Vaez, director of the Iran Project at the International Crisis Group, warned that closure of the strait "would disrupt roughly a fifth of globally traded oil overnight" and that prices would not merely spike but "gap violently upward on fear alone".
The human cost of the strikes extends beyond Khamenei's compound. Wikipedia's running account of the conflict, drawing on multiple verified sources, puts casualties from the Minab school airstrike in southern Iran at 148 deaths. Iran has declared 40 days of national mourning and launched retaliatory missile strikes against Israel and what Tehran claims were 27 US bases across the region, including facilities in Qatar, Kuwait, Bahrain, Saudi Arabia, Jordan and the UAE. Explosions were reported near the Port of Jebel Ali in Dubai, a finding with direct relevance to Australian trade given the UAE's role as a regional freight hub.
A Leadership Vacuum and Its Unknowns
Beyond the immediate military exchange, the killing of Khamenei creates a succession problem with no clear answer. Khamenei held power since 1989, when he was chosen by Iran's Assembly of Experts to succeed the revolutionary founder Ayatollah Ruhollah Khomeini. That process took a single day. Iran's National Security Advisor Ali Larajani has convened the Interim Leadership Council to identify a successor, but analysts note that Khamenei was the last figure capable of commanding authority across Iran's competing power centres: the clerical establishment, the Revolutionary Guard, and the elected government. 7News reports that Khamenei's son, who survived the bombing, is among the candidates being considered. Iranian President Masoud Pezeshkian has vowed to avenge his leader's death, declaring the killing "a great crime" that would not go unanswered.
What Western coverage frequently misses is the internal complexity of Iranian society's response. Reports from Tehran described some residents celebrating the news, with witnesses telling the Associated Press that cheers could be heard from apartment windows. That reaction reflects deep wells of discontent with a regime that brutally suppressed protest movements in 2009, 2019 and 2022. For Iran's younger generation, which has lived its entire adult life under a supreme leader it did not choose, the moment carries ambiguity that simple narratives of grief or triumph cannot contain.
Canberra's Alignment and Its Costs
Prime Minister Anthony Albanese confirmed Australia's support for the joint operation, describing it in terms consistent with the country's alliance obligations under the Australia-US alliance framework. Australia's alignment with its AUKUS and Five Eyes partners is consistent with long-standing foreign policy posture, and few serious analysts would argue the case for distancing Canberra from Washington at this moment. Khamenei's Iran was, as NPR's reporting has documented, a state that bankrolled proxy militias across the region, developed a ballistic missile programme as strategic deterrence, and oversaw the violent suppression of its own citizens.
The counterargument, however, deserves honest consideration. Iran's Foreign Minister Abbas Araghchi called the attack "unprovoked, illegal and absolutely illegitimate", a view shared by the UN Security Council's more critical members and by many within Australia's legal community who question whether the strikes had the congressional or parliamentary authorisation that democratic norms require. Democrats in the US Congress decried Trump's decision to act without legislative approval, a concern that transcends partisan politics. The precedent of a sitting US president authorising the assassination of a sitting foreign head of state carries implications for international law that will be debated long after the immediate crisis subsides.
For Australia's energy sector, this signals a period of acute uncertainty. Shane Oliver warned the RBA would be "inclined to wait before cutting interest rates again" if oil climbed to $100 to $150 a barrel, a scenario that is no longer hypothetical. Treasurer Jim Chalmers has acknowledged the government is monitoring the situation, but monitoring is not a policy. Australian families facing elevated mortgage costs who were counting on further rate relief may find the geopolitical ambitions of great powers arriving at their budget in a very direct way.
The conflict has not yet reached its most dangerous inflection point. Whether Iran sustains its effective blockade of the Strait of Hormuz, or whether US naval power forces the passage to reopen, will determine whether this becomes an acute crisis or a catastrophic one. Reasonable people, including serious strategic thinkers, disagree about whether the operation removes a long-term threat or creates a short-term catastrophe. Both possibilities are live. What is beyond reasonable dispute is that a narrow waterway off the coast of Iran now holds extraordinary power over Australia's economic wellbeing, and Canberra's room to manoeuvre is constrained by alliances it has no intention of abandoning. The task for policymakers is to be honest with the public about what that alignment costs, even as they defend why it is worth it.