Australia could soon feel the economic impact of the escalating conflict involving Iran, with rising oil prices threatening to push inflation higher.
Oil prices surged to their highest level in four years after US and Israeli strikes on Iran raised fears of a prolonged conflict in the Middle East.
Higher oil prices often feed directly into inflation. Energy costs affect transportation, manufacturing and everyday goods, which can push prices up across the economy.
According to Guardian business editor Jonathan Barrett, the renewed surge in inflation could create a difficult challenge for Prime Minister Anthony Albanese during his second term.
If inflation continues rising, central banks including the Reserve Bank of Australia may need to consider higher interest rates to control price pressures.
That would mean many Australian households could face higher mortgage repayments while already struggling with rising costs for fuel, food and other essentials.
The situation is particularly sensitive as the government prepares its upcoming May federal budget, where officials have already signalled plans to limit spending.
Any new government policies that increase spending could face criticism from political opponents if inflation continues to climb.
Consumer confidence in Australia is already weak, according to major bank surveys, largely because of concerns about inflation and the cost of living.
Barrett writes that governments around the world often face political backlash during periods of high inflation, especially when voters believe living standards are worsening.
The conflict in the Middle East could also disrupt global shipping routes, particularly the Strait of Hormuz, one of the most important oil transport corridors in the world.
If shipping risks increase in the region, freight costs could rise further, adding more pressure to global prices.
US President Donald Trump attempted to calm markets by describing the military campaign against Iran as a “short-term excursion.”
If the conflict ends quickly, energy markets may stabilise. But if tensions persist, economists warn the inflation shock could continue spreading through global economies — including Australia.
For the Albanese government, the outcome of events thousands of kilometres away may soon shape economic conditions at home.
