Australian drivers face the prospect of paying $2 a litre at the bowser in coming weeks after oil prices spiked on Monday in the wake of US airstrikes on Iranian nuclear facilities. The surge threatens to exacerbate household cost-of-living pressures and may prompt the Reserve Bank of Australia (RBA) to delay its next interest-rate cut until August.
Oil Prices Break Out on Geopolitical Fears
Brent Crude Climbs Above $80
On Monday morning, Brent crude—the international benchmark—soared above US$80 per barrel, up from Friday’s close at just over US$77. By late afternoon trade, prices had eased slightly to $78.12, but the upward momentum underscores market concerns that the Middle East conflict could choke off supplies. Over the month of June, oil has jumped more than 20 percent—roughly a US$14 increase per barrel—as tensions escalated following a wave of Israeli strikes on Iranian territory.
Strait of Hormuz Concerns
Iran’s decision, reportedly approved by its parliament, to potentially close the Strait of Hormuz—a narrow chokepoint through which about 20 percent of the world’s oil passes—has fanned additional supply-disruption fears. Bloomberg News reported that two supertankers approaching the strait performed abrupt U-turns in response to the unfolding crisis, highlighting how fragile shipping operations have become.
Will Iran Disrupt Shipping? Analysts Speak Out
Symbolic vs. Serious Disruption
Commonwealth Bank energy analyst Vivek Dhar suggests Tehran may opt for limited “symbolic” measures rather than a full blockade, preserving space for diplomatic de-escalation that could bring oil back down to US$60–65 per barrel. “Right now, Brent at about US$80 is caught between those two polarising outcomes,” Dhar said. He warns, however, that missile or drone strikes on shipping could send crude prices surging to US$100, with widespread economic fallout.
Markets Seem Calm—For Now
Despite the geopolitical tinderbox, global sharemarkets showed only modest selling on Monday, while traditional safe havens—gold, Japanese government bonds—saw only minor gains. GSFM Funds Management strategist Steve Miller called the muted reaction “surprising,” arguing that the real economic threat lies in a potential return to stagflation. “If inflation gets out of the bottle and growth stalls, combined with a ballooning US deficit, that’s a very nasty cocktail for markets,” he said.
From Barrel to Bowser: Translating Oil Prices into Pump Costs
Experts Predict $1.90–$2.00 a Litre
Closer to home, Dhar estimates that sustained oil at US$75–80 per barrel would translate into average retail petrol prices of $1.90 to $2.00 per litre. That represents a significant jump from last week’s national average of $1.75. AMP chief economist Shane Oliver offered a slightly higher figure—projecting that US$100 oil would still result in pump prices near $2.13 per litre once wholesale, refining and distribution costs are factored in.
Impact on Household Budgets
At $2 per litre, the average Australian household’s weekly petrol bill would leap to $74.55—a $14 increase on current outlays—equating to an extra $780 annually. That comes on top of recent spikes in grocery, energy and mortgage costs. “The economy is already pretty sluggish, and having to fork out another $15 a week would be a drag on consumer spending,” Oliver warned.
Inflation Implications and the RBA’s Dilemma
Adding to Headline Inflation
Higher fuel prices would feed directly into headline inflation, with Oliver estimating an extra 0.3 percentage points if oil reached US$100. That could complicate the RBA’s roadmap for monetary easing: financial markets had been pricing in a rate cut as early as July, but higher energy costs strengthen the case for the board to hold fire until its August meeting.
Economists Call for Caution
Jo Masters, chief economist at Barrenjoey Capital Partners, concurs that elevated oil prices—particularly if they spike toward US$100—justify postponing the next rate cut. “We need to see how this plays out on inflation and growth before loosening policy,” Masters said. With the RBA already cautious about being premature in easing, geopolitical-driven price shocks add fresh uncertainty.
Global Growth at Risk: IMF Voices Alarm
Kristalina Georgieva’s Warning
International Monetary Fund managing director Kristalina Georgieva cautioned that volatility in energy markets poses a broader threat to economic expansion. Speaking to Bloomberg, she noted that “secondary and tertiary impacts” from oil disruptions could ripple through major economies, prompting downward revisions to global growth forecasts. The IMF estimates that a sustained US$10-per-barrel increase in oil could shave 0.2 points off global GDP growth.
Trump Tariffs and Trade Tensions
Georgieva also flagged ongoing risks from trade frictions—particularly US tariffs under President Donald Trump’s administration—that compound the strain from higher energy costs. With growth in advanced economies already moderating, a fresh shock to supply chains would be the last thing policymakers need.
Australia’s Energy Mix and Longer-Term Prospects
Domestic Production vs. Import Bills
Australia is a net exporter of coal and liquefied natural gas, but remains a net importer of crude oil and refined petrol products. Higher global crude prices swell import bills, weakening the terms of trade and putting further pressure on the Australian dollar. That translates into more expensive petrol, diesel and aviation fuel, as well as higher downstream product costs.
Renewables as a Hedge
In the longer term, the current crisis underscores the value of renewable energy investments. Solar and wind farms, coupled with battery storage, can insulate households and businesses from fuel-price spikes. Federal and state governments have set ambitious renewable-energy targets, but delays in grid upgrades and regulatory hurdles have slowed progress. The latest geopolitical shock may catalyse further support for acceleration of clean-energy infrastructure.
What Comes Next for Consumers and Policymakers
Short-Term Pain for Households
In the near term, motorists and businesses reliant on transport face unavoidable pain at the pump. Some high-consumption households may switch to public transport, carpooling or telecommuting where possible. Retailers, couriers and logistics firms will grapple with higher operating costs, likely passing on at least a portion to consumers through price hikes.
Call for Targeted Relief
Economists and consumer advocates are urging governments to consider targeted relief measures. Proposals include petrol-card subsidies for low-income earners, tax offsets, or temporary reductions in fuel excise—though the latter has been politically sensitive ever since excise cuts were rolled back in 2019. Any relief would need to balance fiscal costs against the urgency of supporting disposable incomes under duress.
Monetary Policy on Hold
Given the inflationary impulse from rising petrol prices, markets now anticipate the RBA will defer further rate cuts until August at the earliest. If oil prices remain elevated or climb further, the board may even decide to hold rates steady into the final quarter of 2025. “Central banks cannot look through energy-induced inflation indefinitely,” Masters noted.
Conclusion: Navigating Uncertainty in a Volatile Era
With global geopolitics once again roiling energy markets, Australia’s economy faces fresh headwinds. Rising petrol prices will squeeze household budgets, dampen consumer spending and cloud the outlook for inflation and growth. Policymakers—from Canberra to Martin Place—must weigh the trade-offs between short-term relief and long-term fiscal and monetary credibility. Meanwhile, households and businesses would do well to prepare for continued volatility at the bowser, and for petrol at—or even above—$2 per litre becoming the new normal rather than an anomaly.
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