Australians could be facing petrol prices pushing towards $3 a litre if the Middle East conflict intensifies and oil flows remain disrupted, according to fresh modelling from Westpac.
The warning comes after the US and Israel struck targets across Iran, killing Supreme Leader Ayatollah Ali Khamenei, with Tehran retaliating against US assets and regional infrastructure.
If disruption is limited to Iranian production, around 4 per cent of global supply, oil prices could rise another US$25 per barrel to around US$100, Westpac modelling suggests.
But the real risk lies in the ongoing closure of the Strait of Hormuz, the narrow shipping corridor that carries around 20 per cent of the global oil trade.
Iran has effectively shut down commercial traffic through the Strait of Hormuz for four consecutive days, using a combination of drone strikes and explicit military threats to deter vessels, despite sustained US strikes targeting its naval assets.
At least four oil tankers have reportedly been hit, while maritime data from Lloyd’s List Intelligence shows seaborne traffic through the chokepoint plunged by roughly 80 per cent on Sunday.
Meanwhile, major maritime insurers withdrew cover for ships operating in the area, further discouraging passage.
A senior adviser to the commander-in-chief of Iran’s revolution guards, Brig Gen Ebrahim Jabbari, said: ‘We will attack and set ablaze any ship attempting to cross.’
If shipping through the Strait of Hormuz is affected for up to a month, Westpac warned Brent crude oil prices could instead spike to US$113 per barrel.
Australians could be slugged with petrol prices nearing $3 a litre if the Strait of Hormuz shutdown drags on, fresh modelling from Westpac shows
The bank warns a prolonged oil shock could push up groceries, airfares and even mortgage rates
In a severe scenario where the Strait is disrupted for three months or more, the model suggests Brent could surge to US$185 per barrel.
‘The longer and more intense the disruption, the greater the real economy cost and hit to sentiment,’ Westpac said.
This could mean petrol prices in Australia rising by between 25 cents and $1 per litre, depending on movements in the Australian dollar and refinery margins.
At the upper end of that range, fuel prices in many cities could climb towards — and potentially exceed $3 a litre.
Higher oil prices would ‘feed rapidly into headline CPI via petrol and transport costs, and indirectly via energy-intensive products such as fertilisers,’ the bank warned.
That means the impact wouldn’t stop at the bowser. Dearer fuel raises the cost of moving goods around the country, pushing up freight and logistics expenses that flow through to supermarket shelves.
Farmers face higher costs for fertiliser and diesel, manufacturers pay more for energy and transport, and airlines pass on rising jet fuel costs through airfares.
Over time, those pressures ripple across groceries, retail goods and travel, making everyday essentials more expensive for households.
If oil were to rise to US$100 a barrel and remain there, modelling suggests Australian interest rates could settle around 25 basis points higher over the longer term than otherwise expected.
Reserve Bank Governor Michelle Bullock has warned the escalating conflict in the Middle East could complicate the path for interest rates, saying the central bank is closely watching the impact on inflation.
‘Every meeting is live,’ Ms Bullock said of the board’s next meeting on March 17. ‘The board will be looking at whether it needs to be moving more quickly.’
She said the bank’s staff were ‘very alert’ to the impact on inflation expectations from the Middle East conflict.
‘It’s too early to say what the impact will be, events are moving rapidly and there are different ways this can play out,’ Ms Bullock told the Financial Review Business Summit on Tuesday.
‘A supply shock could, for example, add to inflation pressures.
‘At the same time, a prolonged impact on energy markets could have adverse effects on global economic activity and result in downward pressure on inflation. It is not obvious how this might play out.’
‘The potential implications for inflation expectations are something we are very alert to.’
Westpac economists based their analysis on the Oxford Economics Global Economic Model, a large-scale forecasting system used to test how major global events affect economies.
The model allows economists to simulate shocks, such as a sudden disruption to oil supply, and track the knock-on effects on prices, growth, inflation, interest rates and financial markets
