Oil Prices, the Iran Conflict, and Your Household Budget: What Australians Need to Know

What’s Happening With Oil Prices

The conflict involving Iran has sent shockwaves through global energy markets. As a major oil-producing nation situated near the Strait of Hormuz (through which roughly 20% of the world’s oil passes), any military escalation near Iran directly affects global oil supply and pricing.

For Australia, which imports the vast majority of its liquid fuel, this isn’t a distant geopolitical event. It hits the hip pocket directly.

How It Affects Australians

At the Pump

The most immediate impact is petrol prices. The relationship is roughly linear: every US$10 increase in the oil price adds about 10 cents per litre at Australian pumps.

SBS News modelled three scenarios:

There are also concerns about price gouging. Australian petrol retailers have been accused of passing on wholesale increases faster than justified, adding an extra layer of cost for consumers.

At the Supermarket

Fuel costs flow through to everything that gets transported, which is essentially everything. When diesel prices rise, the cost of moving goods from farms, factories, and ports to shops increases. Fresh produce, which relies on refrigerated transport, is particularly exposed.

On Your Mortgage

This is the less obvious but potentially bigger impact. If oil prices stay elevated and push inflation higher, the RBA may be forced to raise interest rates again. Governor Bullock has already flagged this risk, saying the March meeting is “live” for a potential hike.

A prolonged oil shock could mean the difference between rates holding steady and one or two additional increases this year.

What You Can Do

1. Review Your Transport Costs

If you’re commuting daily by car, now is the time to crunch the numbers on alternatives. Could you work from home one more day per week? Is public transport viable for some trips? Even small reductions in fuel consumption add up when prices are elevated.

For those driving fuel-efficient or electric vehicles, the impact is obviously less severe. If you’ve been considering the switch, rising petrol costs change the payback calculation.

2. Build a Buffer

If your household budget is already tight, try to build a small buffer for cost-of-living increases over the coming months. Even setting aside $50-100 per week into a high-interest savings account gives you breathing room if petrol, groceries, and potentially mortgage repayments all move higher simultaneously.

3. Lock In What You Can

Some costs can be locked in to provide certainty:

• Fixed-rate electricity plans can protect against energy price rises
• Fixing a portion of your mortgage shields you from rate increases
• Bulk buying non-perishable groceries before transport cost increases flow through

4. Get Professional Advice

If you’re worried about the combined impact of rising costs on your financial position, speaking with a financial adviser can help you prioritise. They can assess your overall position, identify risks, and build a plan that accounts for different scenarios.

The Silver Lining

It’s worth noting that oil price shocks tend to be temporary. Markets adjust, alternative supplies come online, and geopolitical situations evolve. The key is to not make panic decisions but to be pragmatic about preparing for a few months of elevated costs.

Australia’s economy is fundamentally strong, with low unemployment and reasonable wage growth. Most households will absorb this shock, even if it’s uncomfortable. The households most at risk are those already stretched by high mortgage costs and minimal savings buffers.

Need Financial Guidance?

If you’re concerned about how rising costs might affect your financial position, a financial adviser can help you build a plan. Find a financial adviser near you on WealthWorks.