From Singapore: Five days into a conflict that has reshaped the Middle East overnight, the question dominating boardrooms from Dubai to Sydney is not whether the war between the United States, Israel, and Iran will cause economic pain. It already is. The question is how long it lasts, and how much worse it gets.
Australia's strategic relationship with the Middle East has rarely felt more consequential. Beginning on 28 February 2026, Israel and the United States launched coordinated joint attacks on sites across Iran, codenamed Operation Roaring Lion by Israel and Operation Epic Fury by the United States, targeting key Iranian officials, military commanders, and facilities with the stated aim of regime change. On 28 February, Khamenei was assassinated in a series of airstrikes; his death was confirmed by the Iranian Supreme National Security Council and by state media the following day.
According to exclusive reporting by Iran International, Iran's Assembly of Experts, under pressure from the Islamic Revolutionary Guard Corps, chose Mojtaba Khamenei as the next Supreme Leader on Tuesday. The decision has not been made public and is expected to be announced after Ali Khamenei is buried. The second son of Khamenei, Mojtaba is known to wield significant influence behind the scenes and has strong links with the IRGC as well as its Basij volunteer paramilitary force. Prediction markets reflect broad expectations of his ascension: on Polymarket, the implied probability of Mojtaba Khamenei becoming the next Supreme Leader sits at roughly 69 per cent.
The IRGC needed two things simultaneously: control and legitimacy. Control means keeping the chain of command intact, preventing splits at the top, keeping security forces coordinated, and stopping a scramble for power. But father-to-son succession is frowned upon in the Shiite Muslim clerical establishment, and particularly in a revolutionary Iran that came about after toppling a widely reviled monarchy. The tension between military expediency and theological tradition could yet destabilise the transition.
The military campaign has not been surgical in its effects. US and Israeli bombardment has continued, with strikes hitting a hotel near Beirut and the building of the Assembly of Experts in Qom, as the death toll surpassed 800 in both Iran and Lebanon. Six US service members had been killed in action as of Monday, according to US Central Command, with an additional 18 seriously wounded since the strikes began. Iran has retaliated across the region, targeting Washington's consulate in Dubai and a port in Fujairah in the United Arab Emirates.
The Hormuz Chokepoint
For Australian exporters and consumers, the signal is arriving via the one route that cannot be easily rerouted: the Strait of Hormuz. Shipping through the strait, which carries one-fifth of the oil consumed globally as well as large quantities of gas, has ground to a near halt amid Iranian attacks on oil tankers in the region. The US Energy Information Administration estimated that in 2024, 84 per cent of crude oil shipments transiting the strait headed to Asian markets, while 83 per cent of LNG volumes moving through Hormuz were destined for Asian destinations. When this corridor stalls, the pressure falls hardest on the same economies that buy Australian iron ore, coal, and gas.
Qatar, one of the world's largest providers of LNG, halted production after Iranian drones hit its facilities at Ras Laffan Industrial City and Mesaieed Industrial City. Alan Gelder, a consultant for Refining, Chemicals and Oil Markets at Wood Mackenzie, warned that the closure threatens 15 per cent of global oil supply and 20 per cent of global LNG supply, with oil prices potentially exceeding $US100 a barrel if tanker flows are not quickly restored. JPMorgan analysts put the worst-case scenario higher still: Brent crude could hit $US120 per barrel if the disruption forces Gulf states to shut down production entirely.
The Australian Hit
The cost is already materialising at home. Australians could be paying $1 a litre more for petrol if the Strait of Hormuz remains closed for up to three months, according to Australian economists. Westpac estimates a one-month disruption would lift Australia's Consumer Price Index by around one percentage point, with GDP growth about 0.2 percentage points lower. A three-month disruption could see the CPI temporarily spike by around 1.5 percentage points at its peak, with GDP 0.5 percentage points lower by the end of 2026.
Shares in Qantas slumped 5.4 per cent at the open on Monday to $9.41 as Iranian strikes on Dubai Airport and across key transport hubs triggered global travel chaos. Flight Centre dropped 5.7 per cent and Web Travel Group lost 6.5 per cent. On Wall Street, the losses have been equally severe. The Dow Jones Industrial Average fell more than 1,000 points, or 2.1 per cent, heading for its worst trading day since April 2025. 9News reports that Wall Street analysts are beginning to speculate about whether Trump will be pushed toward a negotiated outcome, with the US Studies Centre's Jared Mondschein noting the president has historically been sensitive to both market deterioration and Republican dissent.
Counterarguments Worth Weighing
The case for the military campaign is not without force. The White House contends that Iran had ignored warnings to abandon its nuclear programme after US strikes in 2025 and was developing ballistic missile capabilities designed to shield that programme from future pressure. Pentagon briefers did, however, acknowledge to congressional staff that Iran was not planning to strike US forces unless Israel attacked Iran first, undercutting the administration's claim of an imminent threat as the legal basis for launching strikes. That admission complicates the administration's legal and strategic narrative.
Critics on the left argue the strikes were pursued without genuine diplomatic exhaustion. Iran's Foreign Minister Abbas Araghchi stated that nuclear negotiations were "treated like a real estate transaction" with "unrealistic expectations", and accused Trump of betraying diplomacy by bombing Iran. Indirect talks between the US and Iran were held as recently as 6 February in Muscat, mediated by Oman's foreign minister, and were described by both sides as a "good start", with both agreeing to continue engagement. Whether those talks were given sufficient time, or were genuinely exhausted before the strikes, remains a legitimate point of contention.
Analysts also caution that the succession dynamic raises the risk of a more, not less, hardline Iran. Where Ali Khamenei repeatedly ruled out reconciliation with Washington, his successor inherits a far heavier burden. Trump now carries not only the blood of Qasem Soleimani on his hands, but also Ali Khamenei's. That makes any future compromise considerably harder to sell domestically, and raises the stakes for any decision to escalate further.
Reasonable people can disagree about whether the strikes were legally justifiable or strategically wise. What is harder to dispute is the economic arithmetic now facing Australia. This country imports refined petroleum products and sends the vast majority of its LNG and iron ore exports to the Asian economies most exposed to a Hormuz closure. The Reserve Bank of Australia has already flagged that a supply shock of this nature could add to inflationary pressures at precisely the moment households are seeking relief from the cost-of-living cycle. The conflict's trajectory remains deeply uncertain, but the signal from energy markets is not: Canberra needs a clear-eyed strategy for managing the economic fallout, whatever the geopolitical outcome proves to be. Australia's Department of Foreign Affairs and Trade has urged Australians to avoid travel to the broader Middle East region until further notice.