Picture yourself pulling into a servo this week, doing the mental arithmetic as the number on the pump ticks past what felt painful just a fortnight ago. That queasy feeling is going to be a recurring theme for Australian households if the conflict engulfing the Middle East continues to escalate, and the Reserve Bank is taking very careful notes.
Speaking at the Australian Financial Review Business Summit in Sydney on Tuesday, Reserve Bank of Australia Governor Michele Bullock was candid about the uncertainty. "It's too early to say what the economic impact will be," she told the summit. "Events are moving rapidly and there are different ways this can play out." That measured language, though, sat alongside a more pointed signal: Bullock described the RBA's upcoming March board meeting as "live", and said the board would be "actively looking" at whether it needs to move more quickly on rates than most forecasters have assumed. Inflation is currently running at 3.8 per cent, well above the RBA's two-to-three per cent target band.
The most immediate hit for Australians is at the bowser. According to 9News, the average price for a litre of unleaded 91 in NSW climbed from 178.7 cents on Friday to 185.5 cents by Tuesday, with at least one station already charging 256.9 cents per litre according to state government data. The NRMA has noted it typically takes seven to ten days for movements in crude oil prices to flow through to forecourt prices, which means the worst may still be ahead.
Why the Strait of Hormuz Is the World's Most Expensive Bottleneck
The core issue is not simply Iran's own oil output. It is the Strait of Hormuz, a narrow channel between Iran and Oman through which roughly one-fifth of the world's seaborne oil supply ordinarily passes each day. Since US and Israeli strikes began over the weekend, Iran's Revolutionary Guards have threatened to fire on any vessel attempting transit. Shipping giants Maersk and Hapag-Lloyd have both suspended transits, and vessel tracking data shows traffic through the strait has fallen by approximately 70 per cent, according to Wikipedia's ongoing coverage of the 2026 Strait of Hormuz crisis. Hapag-Lloyd has also introduced a war-risk surcharge of $US1,500 per standard container on all new bookings, as reported by The Register.
Oil prices rose to around $US77.60 per barrel on Monday, up sharply from roughly $US60 at the start of the year. Analysts have flagged scenarios where prices reach $US100 or higher if disruptions persist, well short of the $US125 peak following Russia's invasion of Ukraine, but still substantial. Supply chain firm Flexport has warned that sea cargo between Asia and Europe faces transit-time blowouts of ten to fourteen days as vessels reroute around Africa's Cape of Good Hope.
Here is what this actually means for your hip pocket. AMP chief economist Shane Oliver, as reported by 9News, estimates that roughly every $US1 rise in the oil price adds about one cent per litre at the pump. A $US40 per barrel rise, pushing prices above $US100, would therefore add around 40 cents per litre, adding approximately $14 per week to a typical household's petrol bill and about 0.8 per cent to the Consumer Price Index. "In other words," Oliver said, "it will act as a tax on households."
The RBA's Dilemma: Inflation or Growth?
Bullock acknowledged the bind her board now faces. A short, sharp supply shock would typically push inflation higher but could be looked through as temporary. A prolonged conflict, however, could simultaneously stoke inflation and drag on global economic growth, creating the worst of both worlds. "With a supply shock occurring in a situation where we already have high inflation, I think there is a risk that inflation expectations may start to move," she said. That matters because expectations can become self-fulfilling: if workers and businesses start pricing in higher inflation, it takes more aggressive rate rises to bring it back down.
NAB economists have counselled patience, arguing the right approach for the RBA is to look through transitory supply shocks unless they visibly shift underlying inflation expectations. AMP's Oliver holds a broadly similar view but acknowledges the implications for the RBA are "ambiguous" given the simultaneous boost to inflation and drag on growth. There is a genuine argument, in other words, for the RBA to hold its nerve rather than respond to what could prove a short-lived shock.
Crucially, the RBA has some breathing room. With the cash rate already at 3.85 per cent following February's quarter-point hike, Bullock said the bank is "well positioned" to respond in either direction if conditions become clearer. The honest answer, as she all but admitted, is that nobody knows yet how this plays out.
The Broader Picture: Australians Caught in the Crisis
The economic story is unfolding alongside a humanitarian one. As 7News reports, an airbase in the UAE used by Australian Defence Force personnel was struck by Iranian drones, with Deputy Prime Minister Richard Marles confirming that all personnel at Al Minhad Air Base, about half an hour outside Dubai, were safe. More than 115,000 Australians are stranded across the region as airspace closures ground commercial flights, with Marles urging those affected to monitor Smartraveller for updates.
Australia's economic exposure to this crisis is real but not straightforward. As AMP's Oliver has noted, Australia is a net energy exporter and may actually benefit from higher prices for gas and coal. The economy is also less dependent on oil than many of its Asian trading partners, whose growth trajectories matter enormously for Australian exporters. A global slowdown driven by an energy shock would hurt Australian commodity demand as much as higher petrol prices would hurt household budgets.
That complexity is probably the most honest frame for where things stand. The Bullock who spoke in Sydney on Tuesday was careful not to panic, but she was equally careful not to offer comfort. Petrol prices are going up. The RBA is watching. And the rest, for now, depends on a conflict whose direction no central banker, economist, or government can reliably predict. Worth keeping an eye on the Australian Bureau of Statistics CPI releases in the coming months: they will be the clearest scoreboard for how much of this overseas turmoil has landed on Australian kitchen tables.