The strategic implications of the US-Israel military campaign against Iran are now being measured not only in geopolitical terms but in cents per litre at the petrol bowser. As air strikes continued over the weekend and Iran's Islamic Revolutionary Guard Corps declared the Strait of Hormuz effectively closed to shipping traffic, economists and energy analysts are warning Australians to brace for a sharp and potentially sustained rise in fuel prices.
Australia's petrol market, directly tied to international crude benchmarks, has already absorbed early shocks. International benchmark Brent crude closed at a seven-month high of $US72.87 ($A102.56) on Friday. Then, as Sunday trading opened in Asia, Brent crude prices jumped 10% to about $80 a barrel over the counter, oil traders told Reuters. The move came after the IRGC issued warnings to vessels in the strait and Iran launched retaliatory strikes across the region.
For Australian consumers, the transmission mechanism from the Persian Gulf to the suburban service station is well understood but rarely this stark. Multiple outlets report AMP chief economist Shane Oliver warns petrol prices could jump by as much as 40 cents a litre if violence continues to escalate. He said petrol would rise by 25 cents per litre in the likely event oil prices skyrocketed to more than $100 a barrel, and that an increase in petrol costs could push up inflation, flowing on to other parts of the economy.
The Hormuz Choke Point
At the heart of the crisis sits a strip of water barely 33 kilometres wide at its narrowest point. According to the US Energy Information Administration, about 20 million barrels of oil, worth about $500 billion in annual global energy trade, transited through the Strait of Hormuz each day in 2024. The EIA estimated that 84 per cent of crude oil and condensate shipments transiting the strait headed to Asian markets in 2024, and a similar pattern appears in the gas trade, with 83 per cent of LNG volumes moving through the Strait of Hormuz destined for Asian destinations. Australia, deeply integrated into Asian energy supply chains, sits squarely in the path of any sustained disruption.
Hundreds of tankers carrying oil and liquid natural gas have dropped anchor or remain stationary near the Strait of Hormuz, according to shipping data compiled by Reuters, after tanker owners, oil majors and trading houses suspended shipments via the strait as a precautionary move. Shipping giant Maersk said it is suspending all vessel crossings through the strait until further notice. Even without a formal blockade, the commercial reaction alone is sufficient to tighten global supply and accelerate price rises.
The worst-case projections are sobering. One analyst warned this scenario could be "three times the severity of the Arab oil embargo and Iranian revolution in the 1970s, and drive oil prices into the triple digits, while LNG prices retest the record highs of 2022." Bob McNally of Rapidan Energy, a former White House energy adviser, was characteristically direct: "A prolonged closure of the Strait of Hormuz is a guaranteed global recession."
Australia's Exposure Is Real, But Not Without Limits
It is worth placing the risk in context. Treasurer Jim Chalmers has noted that a 10 per cent increase in oil prices sustained over a year could add approximately 0.4 percentage points to Australia's inflation rate. With the Reserve Bank of Australia having only recently resumed a rate-cutting cycle, any renewed inflationary pressure from energy costs could force policymakers to pause. Oliver warned that if oil prices went to $100 to $150 a barrel with a much bigger boost to inflation, the RBA "would be inclined to wait before cutting interest rates again."
The impact would not be confined to the petrol pump. Rising crude prices flow through to aviation fuel, affecting airfares. They add to the cost of petrochemical-derived products including plastics, synthetic textiles like polyester, and materials used in everyday items from bin liners to cosmetics packaging. Rising petrol prices, higher energy prices, increased shipping costs and loss of revenue for air transport could have "a harmful effect on growth", said economist Eric Dor from the IESEG School of Management in Paris.
On the ASX, the picture is mixed. The S&P/ASX 200 Energy Index is approaching a critical technical resistance zone after an extended consolidation phase, increasing the probability of a structural breakout. Energy producers including Woodside benefit directly from higher crude prices, but Consumer Discretionary and Industrials sectors are most likely to suffer should there be a protracted period of higher oil prices, with airline operator Qantas sitting among those most exposed.
OPEC's Limited Cushion
OPEC and its allies said early Sunday it would raise its daily output by 206,000 barrels a day after pausing incremental production increases earlier in the year. The move was intended to signal market stability, but analysts were sceptical it would be enough. The OPEC+ group "stopped short of a more forceful increase, underscoring the tightrope it is walking between responding to near-term geopolitical risk and avoiding oversupply later this year," according to Rystad Energy analyst Jorge Leon.
RBC Capital Markets analysts pointed to a more structural constraint: OPEC+ producers' flexibility to quickly make up for supply shortfalls is limited, with analysis concluding that "all of this is taking place against a backdrop of minimal OPEC shock absorbers" and that "every OPEC+ producer is essentially maxed out with the sole exception of Saudi Arabia." Saudi Arabia does have pipeline capacity to route some oil to the Red Sea, bypassing the strait, but only a small fraction of the crude that passes through the strait could realistically be redirected.
The Case for Measured Vigilance
There are legitimate voices urging caution before accepting the most alarming forecasts. Norbert Rucker of Julius Baer noted that "Iran tensions should prove temporary and once the attention span exhausts, the focus should return on the supply glut and the lasting pressure on prices." Iran's own foreign minister stated on Sunday that the country had "no intention of closing the Strait of Hormuz at present, nor has any plans to do anything that would disrupt navigation in it." Iran has repeatedly threatened to close the strait over the past two decades but has never done so completely; geopolitical brinkmanship and actual closure are two different things.
The International Energy Agency said it is "actively monitoring events in the Middle East and the potential implications for global oil and gas markets and trade flows," with executive director Fatih Birol noting he is "in contact with Ministers from major producers in the region" and that "markets have been well supplied to date."
For Australian households already carrying the weight of a two-year cost-of-living squeeze, the uncertainty itself is the problem. Whether or not Hormuz is formally closed, the threat alone has injected a significant risk premium into oil markets. Middle East tensions in mid-2025 caused Brent crude to surge over 11% in just three trading days, with Australian retail fuel prices following closely behind with a lag of approximately 10 to 14 days. That pattern is now repeating at a potentially larger scale.
Fiscally prudent policy would demand that the Albanese government use this moment to clarify Australia's energy security strategy and the state of its strategic petroleum reserves, which remain thin by international standards. The ACCC's fuel monitoring role will also face renewed scrutiny: Treasurer Chalmers has previously written to the competition regulator urging it to ensure service stations do not exploit volatility to widen retail margins beyond wholesale movements. Both impulses, protecting consumers and reinforcing long-term energy security, are reasonable responses to a crisis whose duration and severity remain genuinely unknowable.