As the conflict intensifies in the Middle East, Treasurer Jim Chalmers has warned of the escalating situation’s human and economic consequences, particularly the risks posed by rising oil prices.
“We are primarily concerned about the human cost of the conflict in the Middle East, but we cannot ignore the economic consequences,” said Chalmers.
Global oil prices have spiked, with Brent crude oil now trading at around $77 a barrel—a 7 percent increase in just over a week. While still 11 percent lower than a year ago, this recent rise threatens to add to global economic uncertainty.
Chalmers explained the potential ramifications of sustained high oil prices in Australia.
“For every 10 percent sustained increase in the price of Brent oil, it takes about 0.1 percent off our GDP and adds roughly 0.4 percentage points to our Consumer Price Index,” he said.
The increased cost of oil could drive inflation higher, placing additional pressure on Australian households and businesses already grappling with cost-of-living challenges.
The situation has wider implications for the global economy.
“Almost a third of the world’s oil comes from the Gulf,” Chalmers pointed out, highlighting the region’s vital role in maintaining global supply chains. Any disruption could have knock-on effects on economies around the world, and Australia is no exception.
The volatility in oil prices comes at a time when other global economic factors are also causing concern. The Chinese economy, while showing some signs of stabilisation, continues to be a concern, while developments in the U.S. add to the unpredictability.
“Global economic uncertainty has consequences for Australians, and we’re seeing that in a number of different ways,” according to Chalmers.
Australia, along with many leading countries, has been pushing for a ceasefire in the region.
According to Reuters, oil prices surged last week, marking their largest weekly gains in over a year due to fears of a wider conflict in the Middle East. Brent crude rose 43 cents to $78.05 per barrel, while U.S. West Texas Intermediate crude increased by 67 cents to $74.38.
This escalation followed Israel’s vow to retaliate against Iran for missile attacks after the assassination of a Hezbollah leader.
However, U.S. President Joe Biden urged Israel to reconsider targeting Iranian oil facilities, causing some price fluctuations.
Weekly gains for Brent and WTI were over 8 percent and 9 percent, respectively, the highest since early 2023.
