Middle East conflict spells more pain at the bowser

The Hamas terrorist attacks on Israel risk sending petrol prices back to record highs over coming weeks.

Treasurer Jim Chalmers. Picture: NCA NewsWire / Martin Ollman

The Hamas terrorist attacks on Israel risk sending petrol prices back to record highs over coming weeks, analysts say, as Jim Chalmers warned Middle East tensions will make it harder to bring inflation under control.

Ahead of a key consumer price report next week that has the potential to trigger a 13th Reserve Bank rate hike on Melbourne Cup day, the Treasurer in parliament question time said the cost-of-living crunch could prove more “persistent”, as he highlighted the government’s $23bn in support measures.

“We understand that inflation and interest rates were on the rise before we came to government, that the war on Ukraine has caused havoc on energy prices, and recent tensions in the Middle East have added to the uncertainty as well,” Dr Chalmers said.

“And Australians are not immune from these global factors, they feel the pinch every time they fill up at the bowser. We know that inflation is moderating overall, but global challenges mean that it has become more persistent around the world, and it will unfortunately be more persistent here as well.

“That is why our number one priority remains and has been helping to deal with these pressures.”

The average price of unleaded petrol nationally eased to $2.04 a litre last week, the Australian Institute of Petroleum reported, from a peak of $2.11 through the two weeks to October – just shy of the record highs in March and July last year following Russia’s invasion of Ukraine. But the rebound in oil prices over the past week as a result of the Hamas atrocities now threatens to send petrol prices soaring once more, potentially to new highs should oil prices continue climbing as the Middle Eastern conflict worsens.

CBA commodity analyst Vivek Dhar said the global benchmark Brent crude price would remain in the $US90s even in the best-case scenarios involving a brief Israeli land invasion of the Gaza Strip and only limited involvement from Iranian-backed groups such as Hezbollah.

In contrast, an extended Israeli occupation of Gaza and an escalation of Israel’s confrontations with Iran and its proxies would drive Brent crude above $US100 a barrel for the first time since August 2022, a level ANZ economists believe will, regardless, be reached in coming weeks.

Experts have blamed a weaker Australian dollar and Saudi Arabian supply cuts as responsible for a sharp rise in global oil prices over the past two months, which pushed above $US96 a barrel in late September.

Rising fuel costs helped drive annual inflation from 4.9 per cent in July to 5.2 per cent in August, and raised alarm that the RBA board may be forced to lift rates from 4.1 per cent to 4.35 per cent when it meets on November 7.