A multi-angle assessment of a global shock
Since the Middle East conflict commenced, CommBank’s Global Economic & Markets Research (GEMR) has been assessing the escalating Middle East conflict through multiple lenses, spanning commodities, global & domestic economics, and geopolitics.
Here’s an overview of their analysis to date:
Commodity impacts: energy markets under strain
The most immediate and high-profile impact has been felt across global energy markets, particularly oil and gas. Around a fifth of global oil supply and LNG trade typically transits the Strait of Hormuz, and its effective closure has sidelined a material share of global supply at a time when spare capacity is limited.
Oil prices surged to levels approaching those seen during the early stages of the Ukraine war, before retreating on hopes of strategic reserve releases and signals the conflict could be short-lived. However, underlying market conditions remain fragile.
CommBank Head of Commodities and Sustainable Economics Vivek Dhar says markets may still be underestimating the scale and duration of the disruption.
“If this conflict lasts for months rather than weeks, energy markets are not fully pricing in the risk,” Dhar says. “With such a large share of global oil and LNG supply effectively disrupted and very limited spare capacity, prices could move sharply higher once physical shortages begin to emerge.”
Natural gas and LNG markets are particularly exposed. While the initial gas price spike was driven by the shutdown of LNG facilities in Qatar, competition for LNG cargoes is expected to intensify as Europe, Japan and South Korea rebuild inventories later in the year ahead of the northern hemisphere winter. Fertiliser prices have also lifted, including for widely used products such as urea, a key ingredient in growing crops like wheat and rice, which could push up global food prices if higher costs persist.
Freight costs for energy commodities have surged as tankers and LNG vessels reroute around conflict zones, adding further upward pressure on delivered energy prices.
Global economic impacts: inflation risks resurface
Higher energy prices act like a tax on households and businesses, with fuel costs rising quickly and broader price pressures filtering through over time. The impact will vary widely across countries depending on their energy dependence, industry mix and inflation backdrop.
Import dependent economies such as Japan and China are most exposed, while energy producers like Australia, Canada and the United States are better cushioned at the national level, even if households still feel higher fuel prices.
Commonwealth Bank Head of Foreign Exchange, International and Geoeconomics Joseph Capurso says central banks now face difficult trade-offs.
“We’re seeing the world enter a second major energy supply shock in just four years,” Capurso says. “For economies already dealing with persistent inflation, central banks are more likely to respond to renewed price pressures,” he says. “Others may try to look through the initial spike unless it spills over into broader inflation.”
Fuel and energy costs feed quickly into transport and food prices, while electricity prices tend to respond with a lag depending on market structure and generation mix. In Europe and the UK, where gas pricing often determines the marginal electricity price, consumer energy bills are expected to rise over coming months, particularly if the conflict persists.
For global growth, sustained high energy prices would weigh on consumption, raise business costs and increase the risk of policy tightening in economies where inflation is already above target.
Geopolitical outlook: conflict likely to be prolonged
Beyond markets, the conflict is reshaping the geopolitical environment, with increasing risks of escalation and spillovers across the region.
Commonwealth Bank Senior GeoEconomics Analyst, Madison Cartwright, says expectations of a short conflict appear increasingly unrealistic.
“Our assessment is that this conflict is more likely to last months, rather than weeks,” Cartwright says. “The US and Israel’s key strategic objectives remain unmet while Iran considers itself locked in struggle for its survival. The incentives for further escalation remain in place on all sides.”
The effective closure of the Strait of Hormuz means there’s no insurable and secure passage for commercial shipping. So far, even limited attacks on energy infrastructure and shipping have been enough to halt traffic, with insurance and security concerns proving decisive.
The conflict is also placing pressure on global alliances and defence resources, drawing in regional players and stretching military stockpiles. Meanwhile, countries outside the immediate conflict zone are grappling with the economic fallout, from higher import costs to renewed volatility in financial markets.
If the conflict endures, the risk is not just higher energy prices, but a broader shock to global growth, inflation and stability.
What it means for Australia: inflation up, growth risks depend on duration
For Australia, the initial economic impacts of the conflict are expected to come through higher fuel prices and financial market volatility, rather than an immediate hit to growth. The scale of the impact will ultimately depend on whether the energy shock remains supply driven or evolves into a broader demand shock for the global economy.
CommBank Head of Australian Economics Belinda Allen says the most direct and immediate impact for Australia is through petrol prices and headline inflation.
“The most direct way an energy price shock can impact Australia is through fuel prices,” Allen says. “If higher oil prices are sustained, petrol will add to headline inflation, even if the Reserve Bank looks through the initial supply side shock.”
Fuel accounts for a relatively small share of the CPI basket, but given the potential lift in oil prices, the impact on headline can increase quickly. Persistently higher oil prices could weigh on household sentiment at a time when inflation is already pushing higher and interest rates look like climbing.
Allen says that while Australia is a net exporter of energy, the boost to national income from higher prices will probably be muted.
“Higher energy prices should lift export revenues, but a large share of the income flows offshore, given foreign ownership in the sector,” she says. “That limits the benefit to the domestic economy.”
For now, Australia’s economy is expected to face headwinds, but will be supported by buffers built up in recent years by the household sector and the Australian dollar acting as a shock absorber because it often falls during global crises, which helps our exporters but can also make imported goods like fuel more expensive.
But a longer lasting conflict would both raise the pressure on economic growth while keeping inflation pressures uncomfortably high.
