When conflict flares up in the Middle East, it feels tragic, unsettling, but far removed from daily life in Australia.

 

Yet history shows that when geopolitical tensions rise in one part of the world, Australians often feel it first in a very familiar place - the petrol pump.

 

That’s because the Middle East sits at the heart of the global energy system. A 55km-wide stretch of water (and the only sea channel between oil-rich Iran and Oman) called the Strait of Hormuz carries about 25 per cent of the world’s seaborne oil trade, around 20 per cent of global LNG trade, as well as 30 per cent of container shipments.

 

When shipping through that route is disrupted, even briefly, oil prices rise.

 

Over the past few days, that’s exactly what’s happened. 

 

The price of oil increased, leaving markets watching closely to see whether this impact will be short lived or not. 

 

Overnight Wednesday there was some relief, with prices stabilising. But it’s early days.

 

The price shock Australians notice first

 

Oil prices feed into everyday life quickly, and petrol is the most obvious example. If global oil prices stay elevated, Australians could see fuel prices rise by anywhere from 25 cents to $1 per litre, depending on how severe and how long the disruption lasts.

 

Beyond affecting commuters, higher fuel costs ripple through the economy, pushing up the price of groceries, online deliveries, airfares - anything that needs to be transported. 

 

In this way, it trickles down to everyday people - farmers face higher fertiliser costs, small businesses see margins squeezed and families feel their budgets tighten.

 

In economics, this is often described as “imported inflation”, but for consumers, the concept is as simple as their money no longer stretching as far.

 

Even when economists describe these shocks as temporary, everyday families live through them in real time.

 

Is Australia better off than other countries?

 

In some ways, yes. Australia exports coal and liquefied natural gas (LNG), which tend to rise in price when oil does. That’s good news, because it brings extra income into the country and softens the blow at a national level.

 

But that protection only goes so far. Unfortunately, the export revenues don’t cancel out higher petrol prices at the bowser or increased transport costs for families and small businesses. 

 

New Zealand, which lacks those energy exports, will likely be even further impacted.

 

What about interest rates?

 

This is where many Aussies feel uneasy. In Australia, headline inflation measures the overall change in prices for goods and services that households buy, including all items in the Consumer Price Index (CPI) like groceries, rent and transport. It's the broadest measure and is often reported in the news.

 

Higher oil prices lift headline inflation, but historically, central banks usually treat this as a one‑off shock rather than a reason to keep hiking.

 

But there’s little doubt policymakers will be watching closely - if higher fuel costs start feeding into wages and broader price rises, the risk of rates staying higher for longer increases. 

 

What should we key an eye out for?

 

The most important factor is duration - if the conflict eases quickly and shipping resumes, oil prices could retreat just as fast. 

 

But if disruptions drag on for weeks or months, the impact to cost‑of‑living becomes more persistent.

 

A version of this article was first published on Westpac IQ