Global oil prices have spiralled past $100 per barrel for the first time since Russia's full-scale invasion of Ukraine in 2022, as conflict between Israel, the United States, and Iran deepens with little sign of resolution. The escalation carries direct implications for Australian motorists and manufacturers already grappling with elevated energy costs.
A senior Iranian official has told Western media there is no prospect for immediate end to the conflict, saying Israel's attacks on oil and fuel depots have pushed the war into a "new phase" with threats of retaliatory strikes on energy infrastructure. For Australian exporters and importers, the stakes are clear: the Strait of Hormuz, a waterway separating Iran from Oman, is under effective Iranian control, and roughly one-fifth of daily global oil and liquefied natural gas production normally transits through it.
The conflict has already suspended almost a fifth of global crude oil and natural gas supply. Major Australian trading partners are particularly exposed. Most crude shipped through the Strait of Hormuz flows to China, India, Japan and South Korea, economies tightly woven into Australian supply chains. When these economies face energy shocks, demand for Australian commodities often weakens in tandem.
Asian equity markets have already absorbed the shock. Japan's Nikkei 225 closed more than 5 percent lower after falling as much as 7 percent, while South Korea's KOSPI was down 6 percent after plunging 8 percent on Monday as investors braced for prolonged energy disruption. South Korea's KOSPI index suffered its biggest crash since the 2008 financial crisis, dropping up to 12% in a single day as traders assessed the conflict's economic reach.
Australian consumers will feel the pressure at the pump. Global oil prices have surged by more than 25 percent since the start of the war, a move that flows directly into petrol and diesel. Energy price inflation also complicates the Reserve Bank of Australia's policy calculus at a time when rates are already high. Analysts expect Malaysia, Australia and Singapore to face pressure to tighten interest rates as a potential oil shock fuels inflation, a difficult position when growth is fragile.
The longer-term economic damage depends on how long shipping through the Strait remains restricted. Analysts warn that oil prices could climb higher if the war continues. As the conflict enters its second week, one major oil analyst sees more probable scenarios in which the strait remains effectively closed harder and longer than scenarios where normal traffic resumes.
For Australia specifically, the vulnerability is structural. Australia imports crude oil to supplement domestic production, and higher global prices mean higher pump prices regardless of local refinery economics. Manufacturing sectors reliant on transport and logistics face a dual squeeze: higher fuel costs and potential slowdown in Asian consumer demand if energy price shocks persist.
The conflict's trajectory will determine whether this becomes a temporary jolt or a prolonged headwind. Until there are signs of de-escalation in the Middle East, Australian policymakers and businesses should prepare for sustained energy price pressure.