The Reserve Bank of Australia has warned it is too early to determine the full economic impact of the escalating conflict in Iran, even as rising petrol prices place fresh pressure on inflation-weary households.
Speaking at the Australian Financial Review Business Summit in Sydney, RBA Governor Michele Bullock said events in the Middle East were unfolding rapidly and could affect the economy in different ways. She noted that while disruptions to oil and gas supplies could push inflation higher, a prolonged conflict might also slow overall economic growth.
“It’s too early to say what the economic impact will be,” Bullock said, adding that it was not yet clear how the situation would play out for Australia.
The most immediate impact has been felt at the petrol pump. In New South Wales, the average price of unleaded 91 has climbed sharply in recent days, with some service stations charging significantly higher rates despite industry advice that global oil price increases typically take about a week to flow through to consumers.
The broader concern centres on the effective closure of the Strait of Hormuz, a critical shipping route through which around one-fifth of the world’s oil supply passes. Iran’s Revolutionary Guards have threatened to target vessels using the narrow passage between Iran and Oman, heightening fears of supply disruptions.
Global oil prices have already risen to around US$77.60 per barrel, and analysts warn they could climb as high as US$100 if the conflict drags on. Although this would remain below the peak seen after Vladimir Putin’s invasion of Ukraine, it would represent a sharp increase from the roughly US$60 per barrel recorded at the start of the year.
Economists say higher oil prices could significantly impact Australian households. AMP chief economist Shane Elliott estimated that every US$1 rise in oil prices typically adds about one cent per litre to petrol costs. A sustained US$40 increase could lift petrol prices by around 40 cents per litre, adding roughly 0.8 percentage points to inflation.
He warned that such a spike would also weigh on economic growth, increasing household fuel bills by about $14 per week and forcing families to cut spending elsewhere. “In other words, it will act as a tax on households,” he said.
While Elliott suggested the RBA should look through a temporary inflation spike, Bullock acknowledged that with inflation already high, the central bank may not be able to ignore another supply shock. She cautioned that there is a risk inflation expectations could rise further, a factor that will be front of mind for the monetary policy board.
The escalating conflict has also drawn attention from Donald Trump, who has indicated the possibility of a prolonged operation and has not ruled out deploying ground troops, raising the prospect of a drawn-out crisis.
If inflation pressures intensify, economists say the likelihood of another interest rate hike — already widely anticipated in May — could increase, adding further strain to Australian households.
