Petrol prices could rise to $2 a litre in Australia amid Middle East conflict, analysts warn

The Guardian

7 days ago

Australian motorists could be paying $2 a litre for petrol in coming weeks, after US military strikes on Iranian nuclear facilities triggered a lift in oil prices on Monday.
As the IMF warned that turmoil in international energy markets posed a threat to global growth, analysts said higher fuel and power costs would be another blow to households still struggling with the high cost of living.
The prospect of higher energy prices may also delay the next Reserve Bank rate cut to August instead of July, economists said.
The international oil benchmark, Brent crude, briefly climbed above $US80 a barrel early on Monday morning compared with Friday's close of just over $US77, before easing to $US78.12 in late afternoon trade.
Sign up for Guardian Australia's breaking news email
Oil has jumped by more than 20% in June, or by about $US14 a barrel, as tensions have ratcheted higher since Israel's earlier wave of strikes on Iran.
Iran's Press TV reported at the weekend that the Iranian parliament approved a measure to close the strait of Hormuz, a narrow strip of water through which about a fifth of the world's oil supply passes.
Fears of more severe disruptions to global oil supplies were only heightened when Bloomberg reported that two oil supertankers approaching the strait had performed abrupt U-turns after news of the US strikes emerged.
But CBA energy analyst, Vivek Dhar, said it was more likely that Iran would adopt more 'symbolic' measures that allow room for deescalation with Israel and a return of oil prices to between $US60 and $US65 .
Still, Dhar said it was possible that Iran could choose to disrupt shipping through the strait of Hormuz via missile and drone attacks.
If that were to happen, oil prices could push to $US100 a barrel, with major consequences for the global economy.
'Right now, Brent oil at about $US80 is caught between those two polarising outcomes,' he said.
Closer to home, Dhar estimated that oil at current levels of $US75 to 80 barrel, if maintained, already suggested prices at the pump would climb $1.90 to $2 a litre, from $1.75 a litre on average last week.
And at $US100, motorists could be facing unprecedented unleaded fuel prices of between $2.30 and $2.40.
AMP chief economist, Shane Oliver, estimated that oil prices of $US100 would translate to a lower $2.13 a litre at the pump.
Even that lower level would push the average Australian household's petrol bill to a historic $74.55 a week, or about $14 a week higher than now.
'The economy is already pretty sluggish, and having to fork out an extra $15 a week, or $780 a year, would start to be quite a drag on consumer spending,' Oliver said.
Sign up to Breaking News Australia
Get the most important news as it breaks
after newsletter promotion
Oliver said higher fuel and energy prices could add 0.3 percentage points to headline inflation - and potentially more in a worst-case scenario - which could add to the case for the Reserve Bank board to hold off on cutting rates when it next meets on 7-8 July.
Even so, an August move remained on the cards, Oliver said.
The chief economist at Barrenjoey Capital Partners, Jo Masters, agreed that a spike towards $US100 oil prices was 'plausible', and that the uncertainty triggered by Israel's attack on Iran was more reason for the RBA to wait until August to cut rates in order to assess the fall-out on inflation and growth.
The managing director of the International Monetary Fund, Kristalina Georgieva, warned the turmoil in global energy markets could deliver another blow to a global economy already under pressure from Donald Trump's tariffs.
Georgieva told Bloomberg the IMF was wary that 'there could be secondary and tertiary impacts' from oil market disruptions.
'Let's say there is more turbulence that goes into hitting growth prospects in large economies — then you have a trigger impact of downward revisions in prospects for global growth,' she said.
Steve Miller, a market strategist at GSFM Funds Management, said he was a little surprised with the sanguine reaction in financial markets, as shown by only modest selling in sharemarkets and similarly modest buying in safe-haven assets, such as gold.
'The clear outcome from this is uncertainty, and we don't know what the shape of any Iranian retaliation looks like, but it could be serious,' Miller said. 'I wonder if the market's taken a view that Iran is essentially impotent, as that's not a view I would subscribe to.'
He added: 'I think there could be quite severe economic consequences of this. The US is already flirting with a stagflation-like environment where inflation is at 3% and just 1.4% growth, and this could exacerbate that. If inflation gets out of the bottle and with the US deficit already at 6.5% of GDP and likely to grow - that's a very nasty cocktail for markets.'