How global conflict is shaping Australia’s economic outlook
Synopsis
Australia’s economy faces rising pressure from global conflict, as higher fuel costs, supply disruptions and inflation risks weigh on growth and consumer sentiment.
The tensions in the Middle East are weighing on the Australian economy, primarily through higher oil prices, disruptions in global shipping routes, and increased inflationary pressures.
While Australia is an exporter of commodities such as iron ore, coal, and LNG, it remains reliant on imported refined fuels like petrol, diesel, aviation fuel and finished commodity products.
This dependence leaves the economy exposed to global energy shocks because their fuel supply is still indirectly dependent on the Middle East with over 50% of diesel imports linked to Persian Gulf crude that is refined in Asia and is typically shipped from the Strait of Hormuz.
Brent crude is trading close to the US$101 per barrel mark, in line with this the shipping costs for fuel tankers has risen from $20,000 to over $300,000 per day there, which means an import heavy country like Australia is paying premium prices for fuel supply during this global competition and supply chain issues.
Due to disruptions in early 2026 a lot of shipments to Australia were stopped forcing them to source costlier alternatives from US and Europe.
This shows how vulnerable the country was due to their low reserves which were expected to last them 25-36 Days.
Rising Costs and Pressure on Households
The impact of all of this is the highest on the people of Australia with housing and food inflation which was up 7.2% and 3.1% respectively.
Retailers face higher distribution costs, airlines deal with elevated fuel expenses, and mining companies see a rise in operational costs.
For households, this translates into a renewed squeeze on budgets at a time when inflation, currently around 3.8-4.2%, is targeted by the RBA.
(CPI) was unchanged in February from the previous month, while the annual pace slowed to 3.7%, from 3.8%, still above the central bank’s target band of 2% to 3%.
Interest Rates, Growth and Economic Outlook
After an extended period of interest rate hikes which were to control inflation, the central bank was expected to gradually shift toward a more neutral stance.
However, more pressure from energy prices may delay that transition.
If inflation remains upside or increases further, the RBA may be forced to keep interest rates unchanged at a higher level which might increase the burden on mortgage holders, decrease consumer spending, and slow business investment, particularly in rate-sensitive sectors like banking and real estate.
GDP growth is currently around 2.6% and is expected to moderate to ~ 2.1-2.3% in 2026. Rising input costs and global uncertainty could impact on consumption and business confidence.
The higher costs incurred due to the recent blockade announced by US President Donald Trump and his 50% tariff on any country who makes a deal with Iran to safely get oil through the Strait of Hormuz is only going to keep the pressure on their economy for finished fuel products.
Trade Exposure and Sectoral Impact
Industries such as aviation, logistics, agriculture, and manufacturing are particularly exposed due to their reliance on stable and predictable supply chains.
With imports especially fuel, machinery, and electronics expected to grow faster than exports, pressure on the trade balance could increase.
At the same time, Australia’s export base provides some support. The country benefits from demand from China for key commodities including iron ore, coal, LNG, gold, and critical minerals such as lithium.
Export growth is expected to remain moderate at around 3-4%, largely by demand from Asian economies.
However, this reliance on external demand also means that any slowdown in global growth could quickly affect the domestic economy.
At the sectoral level, the impact has been uneven. Energy companies such as Woodside Energy and Santos have benefited from higher crude prices, as stronger pricing directly supports their earnings outlook.
Other resource-linked companies have also performed relatively well.
Contrastingly, sectors such as technology, retail, and consumer discretionary have come under pressure, as higher inflation erodes purchasing power and delays expectations of interest rate cuts.
Banking stocks remain mixed, balancing improved margins against rising credit risks.
Market Trends and Overall Outlook
The ASX 200 is showing a short-term recovery after a recent sharp correction, with price rebounding from the 8,300-8,400 zone.
The move above 8,800 indicates improving sentiment, supported by RSI rising towards 60, suggesting higher momentum. However, the index is approaching a key resistance zone near 9,000-9,100, where previous supply exists.
As long as the index holds above 8,700, the recovery can extend towards 9,100-9,200. Failure to sustain above this zone may lead to consolidation.
Overall, the outlook is mildly bullish in the short term, but confirmation of a stronger uptrend will require a decisive breakout above resistance levels.
That said, the conflict is adding to inflationary pressures while increasing risks to economic growth.
Higher fuel and freight costs are feeding into both household expenses and business operations, leaving policymakers with limited room to respond.
Despite being geographically distant from the conflict, Australia remains closely tied to global energy and trade flows, making it vulnerable to prolonged instability in the region.
(Disclaimer: This is an authored article by Dr. Ravi Singh, Chief Research officer at Master Capital Services. Views expressed are his own.)
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I write about markets, money, and the macro forces that move them. Passionate about turning complex economic trends into sharp, easy-to-understand stories. Off the clock, it’s hip hop, rock, reggae -- and a mix of cricket and basketball.
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