Potential Impact of US-Israel Tensions with Iran on Australian Economy

Australians have been cautioned about impending economic strain as the conflict involving the United States, Israel, and Iran disrupts global trade dynamics.

Fuel prices are anticipated to rise following a surge in oil prices to a four-year high. This spike comes amid threats from Iran concerning the Strait of Hormuz, a critical shipping passage that facilitates the daily transport of 20 million barrels of oil.

Social Services Minister Tanya Plibersek has acknowledged the potential for significant economic repercussions at home due to the mounting tensions in the Middle East.

Speaking on Channel Seven’s Sunrise program, Plibersek remarked, “Just as the global economy was impacted by Russia’s invasion of Ukraine, Australia will likely feel the effects of this conflict. Our oil and petrol supplies are largely influenced by Middle Eastern production.”

As petrol and diesel costs climb, Australians may face broader financial consequences. The increase in fuel prices is expected to elevate the cost of goods and services, given the vital role fuel plays in both international and domestic transportation networks.

International shock waves

Sea and air trade routes in the Middle East have been significantly impacted by the conflict in the region.

Air travel across the region has been disrupted, with thousands of flights cancelled and airspace above Iran, Iraq, Israel, Saudi Arabia, Kuwait, and the United Arab Emirates shut.

The Strait of Hormuz, a 33km-wide pinch point through which 20 to 30 per cent of all global oil production travels, is “practically closed”, Iranian state media has said. At least three tankers were damaged off ‌the Gulf coast and one seafarer was killed during Iranian retaliatory attacks.

Danish shipping giant Maersk announced on Sunday that it would be halting transport through both the Strait and the Suez Canal bordering Egypt to ensure the “safety of our crews”.

They join several international shipping groups avoiding the region as Iran exchanges missile fire with Israel and has launched aerial attacks on neighbouring nations.

Maersk has said it will reroute ships around the Cape of Good Hope, adding thousands of kilometres to trade journeys.

Hapag-Lloyd and the French shipping group CMA CGM have said they will apply a “war risk surcharge” on cargo travelling from large parts of the Middle East and North-Eastern Africa.

What impact will it have at the petrol pump?

The price of Brent crude jumped 8.8 per cent on Monday while US crude climbed by 8 per cent, putting Brent at US$79.34 ($111.67) a barrel and US at US72.38 ($101.87).

NRMA spokesperson Peter Khoury told reporters on Monday he expects prices at the pump to increase by around 10 per cent.

“The message to Australian drivers today is this: Please do not panic, in the first instance. Whatever happens overseas takes about seven to 10 days to flow on here at home,” Khoury told reporters in Sydney on Monday.

“So we should not see an impact on the bowser immediately and only then if things are sustained over a period of time and we don’t see that jump stabilise and prices come back again.”

Already, queues around petrol stations in some locations have been reported as people attempt to fill their vehicles ahead of the anticipated climb.

“The other message we have is to the oil companies: Do not use this as an excuse to jack up your prices and charge Australians more than they should be paying”, Khoury said.

“Our hope is that the prices will stabilise, but if things don’t de-escalate, then we could see those prices flow onto the Australian market”.

US President Donald Trump has suggested the war could go on for four weeks.

“It’s always been a four-week process. We figured it will be four weeks or so. It’s always been about a four-week process so — as strong as it is, it’s a big country, it’ll take four weeks — or less,” British newspaper The Daily Mail quoted Trump as saying.

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