Oil prices climb amid supply risks
The conflict between Israel and Iran has raised fears of oil supply disruptions and sparked inflation concerns across global markets. Oil prices have surged from US$62 to around US$74 per barrel in recent weeks. Australian motorists may see petrol prices rise by up to 12 cents a litre if the current trend holds. AMP chief economist Shane Oliver said a US$1 rise in oil adds about one cent at the bowser. Rising oil costs could increase living expenses and place pressure on transport sectors. Analysts suggest prices could exceed US$80 per barrel if tensions escalate in the Middle East. Oil traders remain focused on the Strait of Hormuz, a critical route for global oil trade that Iran has previously threatened to block.
Interest rate outlook remains stable
Despite inflation risks, experts believe Australia’s interest rate trajectory will not change significantly. Shane Oliver does not expect oil to cause an inflation shock large enough to halt the Reserve Bank of Australia’s expected rate cuts. Markets still price in three RBA rate cuts this year, with the first likely at the upcoming meeting in three weeks. In the United States, Donald Trump’s inflation strategy relies on lower energy costs and falling petrol prices. If oil prices continue climbing, it could challenge his calls for Federal Reserve rate cuts. Saxo’s global head of investment strategy, Jacob Falkencrone, outlined three possible scenarios for how conflict may influence rate decisions. These include containment with stable prices, a diplomatic breakthrough that drives a relief rally, or escalation leading to surging prices and delayed rate cuts.
Gold gains as investors seek safety
Gold prices have hit record highs due to heightened demand for safe-haven assets amid geopolitical and economic instability. Prices neared US$3,500 an ounce following Israel’s strike on Iran, continuing a rally that began before the conflict. Investors now question the US dollar’s reliability and favour gold as a more secure store of value. Market sentiment reflects the “sell America” trend, sparked by Trump’s April tariff regime. This shift has driven funds from US assets into gold and alternative investments like bitcoin. Chris Weston from Pepperstone said the case for gold remains clear. The Australian dollar slipped after the Israeli strikes but remained relatively stable. Analysts believe its future will depend on whether the conflict intensifies or eases. The currency has also benefitted from global shifts away from US assets.
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ASX faces waves of share volatility
Australian shares continue facing instability as investors react to geopolitical shocks. Gold miners and oil producers, including Woodside and uranium firm Paladin, saw share price increases. Rising commodity prices are expected to lift Australia’s tax revenues, potentially supporting the federal budget. Travel and airline stocks, including Qantas and Flight Centre, declined on fears of weakened travel demand and increased fuel costs. AMP warned that the market “ride is likely to remain volatile in the near term.” Uncertainty over energy prices and conflict outcomes will continue shaping investor sentiment. The ASX is likely to experience mixed performances across sectors in coming weeks.
Inflation, commodities, and central bank policies in focus
The conflict has brought commodities, inflation, and central bank policies into sharp focus for Australian markets. Petrol prices remain the most direct impact felt by consumers. The RBA still appears set to cut rates despite rising oil prices. Gold remains attractive to investors concerned about inflation and economic instability. The ASX continues to reflect investor caution, with volatility likely to persist. Energy supply risks and geopolitical tensions will remain central to market behaviour in coming months.
