Iran war disrupts global oil markets, hits Australia

The de facto closure of the Strait of Hormuz and damage to regional infrastructure have produced the largest disruption to the global oil market in its history, according to the International Energy Agency. About 25 to 30 percent of global oil and 20 percent of liquefied natural gas normally pass through the strait. Global oil supply fell by more than 10 million barrels per day in March and the price of oil surged above $100 per barrel. The crisis has been a big shock to Australian consumers, adding to pressures that were already expected to slow spending, said Ashwin Clarke, a senior economist at CommBank. Domestic diesel, petrol, gas and electricity prices in Australia will all rise due to the war. Prime Minister Anthony Albanese said the economic shock from the war will 'be with us for months' and urged Australians to limit unnecessary fuel usage and switch to public transport. The government halved fuel excise and scrapped road user charges for heavy vehicles for three months.

Australian business confidence tumbled 29 points to minus 29 in March, the second-largest monthly fall in history, according to a National Australia Bank survey. Consumer sentiment slumped by 12.5% to 80.1 in April, the lowest in more than two years. The deterioration has been rapid, with many households already paying more on their mortgages before rising petrol prices took hold in March. The Westpac-Melbourne Institute consumer sentiment index shows anxiety over jobs has reached levels not seen since the pandemic. RBA deputy governor Andrew Hauser said the central bank's nightmare is a stagflationary shock with inflation up and activity down. Richard Hemming, editor at Under The Radar Report, said people don't like war, it's a confidence killer.

Households have responded by forgoing purchases of furniture, bedding and home appliances. Over the past two months, shares in furniture retailer Nick Scali have fallen about 20%, Harvey Norman is down more than 25% and homeware stockist Adairs has dropped by more than 30%. Richard Hemming described retail as 'at the forefront of your discretionary dollar.' There has been a years-long trend in Australia of drinking less, but better quality, alcohol, but consumers are now searching for cheap drinks. Steven Fanner, executive director at Spirits & Cocktails Australia, said Australians are 'trading down' due to rising living costs, and consumers are getting something cheaper or opting for lower alcohol content more because of cost than responsibility. Cafes and restaurants are grappling with rising costs and financially strained customers cutting back on takeaway coffees and eating out.

The consumer trend is making it difficult for businesses that would ordinarily increase prices to offset rising costs such as freight and fuel. The ASX-listed alcohol packaging company Orora has detected a global shift toward cheaper spirits since the start of the Iran war. The volume of sales is less than previously forecast due to diminishing customer confidence, Orora said. Cochlear lost more than 40% of its market value in a single trading session on Wednesday. Cochlear downgraded its profit outlook after global demand for its cochlear implants weakened amid deteriorating consumer sentiment. The company said poor sentiment appears to be affecting discretionary healthcare decisions as more prospective patients are unable to afford treatment, especially in the US. Analysts at Morningstar said Cochlear was facing long-term headwinds with adults 'deprioritising implants.' The ASX was trading near record highs shortly before investors lost confidence that there was a clean exit strategy for the US-Israel war on Iran that could normalise the oil trade.

Half of China's oil imports and nearly one-third of its LNG imports transit the Strait of Hormuz. China imported 42% of its crude oil from the Middle East in 2025, including from Saudi Arabia, Iraq, UAE, Oman, Kuwait, and Qatar, according to China's General Administration of Customs. China's oil stockpiles should enable it to weather a multi-month disruption of oil imports from the Middle East. China's teapot refiners are likely to purchase Iranian and Russian oil in floating storage in Asia and Iranian oil in bonded storage in China. China has less flexibility to deal with a disruption of its LNG imports from Qatar and is likely to prioritize reducing consumption rather than paying higher prices. A prolonged disruption of China's LNG imports might make the proposed Power of Siberia 2 pipeline from Russia more attractive to Beijing. The conflict may vindicate China's efforts to increase its energy self-sufficiency, including boosting domestic oil and natural gas output.

Governments around the world are implementing measures to reduce fuel demand and protect consumers, including remote work, cooling limits, and promoting public transportation. Fatih Birol, executive director of the International Energy Agency, said the Iran war has changed the fossil fuel industry forever, turning countries away from fossil fuels to secure energy supplies. Birol said the UK should forgo much of its potential North Sea expansion, as new fields would not significantly improve energy security or lower prices. He added that there will be a significant boost to renewables and nuclear power and a further shift towards a more electrified future.

Australia is the second biggest liquefied natural gas exporter in the world. Multinational gas companies exporting Australian gas will profit from the crisis. However, Australia does not receive a significant tax or royalty benefit when energy prices rise.

Australian households have substantial financial buffers, including savings rates above pre-pandemic levels and mortgage offset balances around 20% of income. The government has halved fuel excise and scrapped road user charges for heavy vehicles for three months. The exact duration of the Strait of Hormuz closure remains unknown, and the full extent of global oil price increases since the conflict began has not been confirmed. The current status of Qatar's LNG exports is also unclear.