July 28, 2026 – 00:01 Save You have reached your maximum number of saved items. Remove items from your saved list to add more. TOTOTO The Treasury has warned that the Australian economy could be hit by rising inflation and slower growth in the second half of the year, as the US war on Iran,
The Treasury has warned that the Australian economy could be hit by rising inflation and slower growth in the second half of the year, as the US war on Iran, Houthi attacks in the Red Sea and Ukraine’s attack on Russian oil refineries disrupt the global oil market.
Amid forecasts by the chief economist of the country’s largest bank that “the clock is ticking” and oil soaring toward $150 a barrel, the Treasury is increasingly worried about a price crisis as nations deplete their oil reserves and supplies from the Middle East and Russia dry up.
Brent crude fell to $85 on Monday after hitting $100 a barrel late last week on concerns that renewed hostilities between the United States and Iran will leave oil refiners struggling for adequate supplies in the coming months.
Retail prices have now risen to their highest level since early June. Over the past week, the national average price of unleaded gasoline rose 9.5 cents to 182.3 cents a litre. Retail prices rose 8.9 cents in Sydney to 178.7 cents a litre, while they jumped 10.1 cents in Melbourne to 181.7 cents a litre.
In formal advice to Treasurer Jim Chalmers, his department – which in May’s budget published the worst-case model of what would happen if oil prices hit $200 a barrel – warned that a number of factors meant the cost of oil would likely remain high, hurting the domestic economy.
At the start of the war in March, members of the International Energy Authority pledged to release 400 million barrels of their strategic reserves. About 290 million barrels of that reserve have been used, leaving little to boost global supplies.
The Houthi rebels’ decision to attack oil movements across the Red Sea has added to pressures on global prices. Although oil can still be taken out of Saudi Arabia through the Suez Canal, this adds time and cost to shipping costs.
A new and unexpected development has been Ukraine’s success in using drones to attack Russian oil refineries. Last week, a strike at a Siberian refinery, almost 2,000 kilometers from Ukraine, and at another facility in the Caspian Sea caused extensive damage.
The attacks have not only forced Russia, one of the world’s largest oil producers, to impose restrictions on domestic use. Diesel exports have currently been banned, depleting global supply.
The Treasury warned that “upside risks to oil prices” would build up if the current situation did not change.
Chalmers said the rise in global prices caused by the current turmoil in the Middle East could have a detrimental impact on the global and domestic economy.
“The recent escalation of tensions in the Middle East poses a substantial threat to global inflation. There is still much uncertainty about this war and its current costs and consequences,” he said.
“Like the rest of the world, we are closely monitoring daily developments because much depends on a proper ceasefire and the permanent reopening of the Strait of Hormuz.
“From an economic point of view, a proper and permanent end to the war cannot come soon enough.”
Commonwealth Bank chief economist Luke Yeaman said markets believed just a few weeks ago there was a good chance of a global oil oversupply that would drive prices down to between $60 and $70 a barrel.
But he said fresh hostilities, plus Houthi attacks, the war in Russia and shrinking global reserves meant there was a real chance oil could hit $150 a barrel within eight to 10 weeks.
“Time is ticking,” he told this newspaper.
Yeaman said a rise in oil prices would force domestic inflation to rise, which alone would likely trigger an increase in official interest rates by the Reserve Bank. But the bank could be forced to cut rates to cope with a slowing economy.
“You could see stagflation momentum, with higher inflation in the short term, but then growth falls below potential,” he said.
Prime Minister Anthony Albanese will on Tuesday announce $4 million in federal funding for a pre-feasibility study of an oil refinery plant in Western Australia to be built by energy and fertilizer company Perdaman. The country has only two refineries – in Queensland and Victoria – and no new ones have been established since the 1960s.
“The longer the war in the Middle East continues, the greater the impact on Australia, and my government will continue to do everything we can to protect Australia from the worst effects and prepare us for the future,” he said.
While petrol prices are poised to rise, the electricity market is providing some reasons for optimism as renewables and batteries decouple Australian energy prices from the volatile global energy market.
Coal-fired power fell to its lowest point on record in the second quarter of the year, and gas hit its lowest level in 20 years, as renewable energy generation and, in particular, battery production grew, according to the latest report from the Australian Energy Market Regulator.
As a result, last quarter’s wholesale price, which is the cost retailers pay to purchase electricity, was down 47 percent compared to the same period last year.
A big change in the electricity market over the past year is the rise of batteries, including home and grid-scale installations, which have seen a boom thanks to the Albanian government’s rebate scheme.
The batteries store cheap and abundant solar energy that floods the grid during the day to discharge after sunset, and the increased volume of battery storage on the grid has reduced the cost of the evening peak, which typically occurs around 6 p.m., when solar production recedes and demand for electricity increases as millions of people begin coming home to turn on lights and appliances.
Cut through the noise of federal politics with news, opinions and expert analysis. Subscribers can sign up for our weekly Inside Politics newsletter.
Shane Wright is senior economics correspondent for The Sydney Morning Herald and The Age.Connect through X either email.
Mike Foley is climate and energy correspondent for The Age and The Sydney Morning Herald.Connect by email.From our partners
Keep following us for the latest insights.
