Australians are facing record-high fuel prices, with diesel surpassing $3 per litre in nearly every capital city. The surge, driven by the ongoing war in Iran and high domestic taxes, is causing widespread economic strain. Truckies, farmers, and small miners warn they may go out of business, while airlines hike fares or cut flights. Construction groups report fuel surcharges of 8% to 10%, adding to costs that never fully eased after the pandemic.
Denita Wawn, head of Master Builders Australia, expressed concern that the effects could linger long after the conflict ends, drawing parallels to the 12-month tail seen after COVID-19 disruptions. Fuel prices have risen about 40% since Israel and the US began bombing Iran, effectively closing the Strait of Hormuz and cutting off 20% of global oil trade.
Economist Jonathan Kearns, a former Reserve Bank official, warned that headline inflation could rise from 3.7% to near 5% in coming months, potentially prompting three additional rate hikes in 2026. Unlike the post-COVID recovery, which was cushioned by a rebounding economy and record employment, the current energy shock is stagflationary, combining rising inflation with climbing unemployment as businesses cut back.
Consumer confidence has collapsed to its lowest level since 1973, according to the ANZ-Roy Morgan survey, even gloomier than during the 2020 national lockdowns. The International Energy Agency's Fatih Birol described the oil supply disruptions as twice as severe as those in the 1970s, with gas market shocks comparable to Russia's invasion of Ukraine. Treasurer Jim Chalmers has asked Treasury to model scenarios where crude oil prices exceed $120 a barrel and remain elevated.
Chalmers stated, “The end of this war can’t come soon enough for the economy,” noting the government's focus on the timing of the conflict's end and the subsequent global recovery. Australians are blaming the government for the fallout from US-led military action in the Middle East. As fuel prices persist, the government may consider targeted relief for vulnerable households, though economists expect a muted response unless fuel shortages or rationing emerge.
