US war with Iran and its impact on your personal finances

From petrol prices to interest rates, if the new Middle East conflict spreads it could impact Australians’ investments and nest eggs.

Israel has been bombing Iran since June 13 and the US has joined in. Picture: Atta Kenare / AFP

You can now listen to The Australian's articles. Give us your feedback.

You can now listen to The Australian's articles.

Whether or not World War III eventuates, as doomsayers are predicting, the US directly entering the Israel-Iran war will affect Australians’ hip pockets, investments and nest eggs.

Markets have been relatively muted on Monday, with Aussie shares down about 0.5 per cent in early afternoon trade, but any escalation by Iran could cause a sharp fall in stocks, a sharper rise in oil prices and widespread impacts elsewhere.

Consumers, investors and savers should watch events closely and be prepared for new shocks. These key areas could be affected.

1 Petrol prices

Economists say every $US1 increase in crude oil prices adds roughly 1c per litre to petrol pump prices, and oil has already climbed 25 per cent this month.

If the new Middle East conflict spreads and involves attacks on oil facilities or global shipping lanes shutting down, oil could surge higher – potentially back above $US100 a barrel, where it was when Russia invaded Ukraine in early 2022.

Motorists will soon be feeling the effect of the recent crude price increases from $US60 to $US75 a barrel, which often take a few weeks to flow from oilfields to petrol pumps.

2 Shares

It’s already been a rollercoaster 2025 for stockmarkets, with the Trump tariff threats sending shares spiralling lower before surging back to record highs in recent weeks.

Markets have weakened slightly since Israel’s bombs began falling on Iran, but nothing like the tariff-induced panic of early April. Many market watchers are amazed that stocks remain so strong amid tariff uncertainty and spiralling international conflicts.

An escalating war can cause a sharp fall, but it is often based on fear before a relatively quick rebound. In the two Gulf Wars, in 1990 and 2003, markets dropped 8-15 per cent before quickly recovering their losses.

Any market reaction is likely to be in line with the seriousness of a global conflict.

3 Superannuation

Australian and international shares typically make up a majority of most people’s superannuation assets, so a sharp fall in stocks flows through to super balances.

However, markets and super are likely to bounce back, so panicking today and switching everything to the safety of cash could be more dangerous to your wealth than riding out the short-term storm.

During the Global Financial Crisis of 2008 and 2009, many older Australians switched their super from shares to cash as stockmarkets here and in the US plunged more than 50 per cent. Many sold at the bottom, then missed the inevitable rebound, making those losses permanent.

There’s always a disaster somewhere, and markets and super have always bounced back. So far.

4 Your job and the economy

If the new Middle East war escalates dramatically, or Russia and China get involved, all bets are off about the impact on the global economy, household budgets, employment and the prices we pay for goods and services.

Wars impact household finances, so Australians should monitor events. Picture: iStock

Higher oil prices are inflationary, but they could be offset by economies stalling or going backwards amid mass public fear about the future. It’s a crazy global economic tug of war between inflation and recession, and people lose jobs in recessions.

Meanwhile, the spectre of stagflation – high inflation, high unemployment and a shrinking economy – looms. Central banks helped the world avoid that worst-case scenario during the Covid recovery, and hopefully they can again.

5 Home loans

Mortgage relief has begun for Australians who were smashed by 13 Reserve Bank rate rises between April 2022 and November 2023. Two cuts have come since February, and experts forecast three or four more cuts by early next year.

Even if inflation rises because of higher oil prices, the RBA is likely to keep cutting interest rates because it and other central banks focus on core inflation data that looks through short-term spikes in oil prices.

That means more relief for borrowers, and frustration for savers who will see shrinking returns on their bank deposits.

Originally published as US war with Iran and its impact on your personal finances