Renewed US military strikes on Iran and a new maritime blockade have driven oil prices to their highest level since the June peace deal, raising the risk of a fourth Reserve Bank of Australia interest rate increase this year. Economists warn that if the conflict is not resolved within a week, oil could surge past US$100 a barrel.
Brent crude reached US$85 a barrel on Tuesday, while West Texas Intermediate surpassed US$80 a barrel. Both had traded near US$70 in early July before the US resumed airstrikes and announced a maritime blockade overnight.
Potential for Oil to Hit US$150
Vivek Dhar, an energy commodities strategist at Commonwealth Bank, said escalating hostilities could rapidly deplete global oil stockpiles and push prices far beyond their April high. "The clock has started ticking again on global oil inventory depletion," Dhar said in a note on Tuesday. He warned that continued conflict could send Brent crude to US$100 a barrel within 10 days and US$150 a barrel within 10 weeks.
When crude hit US$110 a barrel in April, Australian unleaded petrol prices surged to nearly 260 cents a litre and diesel to nearly 320 cents a litre. Already, rising oil prices in July have pushed wholesale diesel from 177.1 cents a litre at the start of the month to 186 cents a litre on Tuesday, according to the Australian Institute of Petroleum.
Fuel Prices and Excise Relief Expiry
Service station diesel prices have risen accordingly, back to about 190 cents a litre in major capital cities, data from MotorMouth shows. Peter Khoury, an NRMA spokesperson, said markets had already factored in negotiation breakdowns, but fuel would become more expensive if oil prices stayed elevated for more than a week. The federal government's fuel excise relief is set to expire on 2 August, adding 16 cents a litre to petrol prices.
Matthew Hassan, head of Westpac's macro-forecasting, said resurgent oil prices supported the bank's prediction that the RBA will raise interest rates in August. "It will feed into their unease that this inflation will be persistent," he said.
Market Bets on Rate Hike
Markets have increased bets on an RBA rate hike since airstrikes resumed on Thursday, now pricing in a 23% chance of a hike in August and more than a 50% chance by December. The RBA has already raised rates three times in 2026, to 4.35%.
Renewed hostilities have also damaged household confidence, according to the Westpac-Melbourne Institute consumer confidence tracker published on Tuesday. "In the absence of that [conflict], we probably would have seen a more substantive recovery for the month," Hassan said. The survey found consumers had been growing less afraid of a rate rise and more hopeful about family finances before the conflict escalated, but most remained pessimistic and expected a further increase in the coming year.
My Bui, an AMP economist, said higher oil prices and the growing likelihood of a rate rise would drag consumer confidence back toward its April lows. "The employment market hasn't yet deteriorated to concerning levels, and price pressures are still around," Bui said. "So we continue to see higher chance of a hike from the RBA in the August meeting."
