The ‘last war’ trap: Westpac chief economist says the Middle East conflict requires a new playbook

Marina Karpathios
04:30pm March 27 2026

Westpac chief economist Luci Ellis says the key risk to the global economy is whether the Middle East conflict disrupts oil and gas supply, but for monetary policy it is, “not (yet) a financial crisis.” (Image: Pexels) 

Westpac chief economist Luci Ellis says governments and policymakers should avoid treating the Middle East conflict and the resulting fuel disruption as a replay of earlier crises.

 

“The Middle East conflict is not Venezuela or Russia’s invasion of Ukraine or COVID,” she says. “Policymakers should not use ‘the last war’ as a template for the current one.”

 

Ellis says the key risk to the world economy this time around is whether the conflict disrupts oil and gas supply, and that should remain the primary focus.

 

Special attention should be placed on any closure of the Strait of Hormuz or damage to energy infrastructure in Gulf states, she says. Westpac’s initial assumption that the Strait would be closed for about a month is nearing its end, and the bank will update its baseline forecast soon.

 

Even so, Ellis’ view is that the closure of the Strait is “a time-limited source of leverage for Iran”, noting that some tankers are already being allowed through.

 

For the next few weeks, she believes the right approach for monetary policy is to observe, stressing the current situation is “not (yet) a financial crisis or a pandemic” that would require urgent, out-of-cycle action.

 

Ellis says Australia is in a different position to past energy shocks, pointing to the east coast wholesale gas price cap introduced after 2022 and more household solar and batteries. For Australia, she says, this is “mostly an issue of fuel prices and availability, rather than electricity”.

 

Admitting all the discourse around work-from-home mandates came as a surprise because “a fuel shortage is not a respiratory virus,” Ellis points to practical options for the time being. She sees expanding public transport coverage and frequency, encouraging carpooling (including transit lanes) and cancelling non-essential government travel as the initial strategy, with work-from-home a secondary option if those steps fail or fuel shortages become extreme.

 

She admits one parallel which could play out similarly to the pandemic is “stockpiling” - household supplies like toilet paper then, fuel now.

 

Even if this were to happen, Ellis believes measures like communicating when fuel supplies are being replenished - alongside steps already taken such as temporary changes to fuel standards and the oil-for-gas supply deal with Singapore - “make more sense” than broad work-from-home rules.

 

She says the immediate issue shared by both the global and local economy is fuel availability, warning that while higher prices can curb demand, “periods of localised unavailability will be especially disruptive”.

 

Ellis’ view remains that a May rate hike is on the table, although “we do not expect an out-of-cycle RBA decision… This is not COVID, and we do not expect policymakers to act like it is.”

 

A version of this article was first published on Westpac IQ.

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