Oil Back Above $100 After Iran Conflict Mines Hormuz Strait

Geopolitics overwhelmed fundamentals on March 12: Brent crude surged more than 9 per cent to trade above US$100 per barrel, its highest level since mid-2022, after reports confirmed that Iran had placed naval mines in the Strait of Hormuz. Fresh coalition strikes on Iraqi energy infrastructure added further pressure to a market already spooked by weeks of escalating Middle East conflict.

The Strait of Hormuz handles roughly 20 per cent of global petroleum trade. When it becomes contested, every oil benchmark reprices within hours. Australia, which imports most of its refined fuel and maintains roughly three weeks of commercial reserves, is exposed in ways that policymakers have long acknowledged but never adequately addressed.

The ACCC Steps In

Within hours of the price spike, the Australian Competition and Consumer Commission announced it had convened an emergency meeting with major fuel suppliers. The regulator declined to specify which companies attended, but the move signals clear government concern about both supply security and the risk of opportunistic price gouging at the bowser. Australia's fuel market has long been characterised by tight margins at the retail level and concentrated market power among a handful of importers and refiners.

How quickly will US$100 oil translate into higher petrol prices? Based on historical pass-through rates, approximately two to three weeks for wholesale price movements to reach the retail pump. If Brent remains above US$100, Australians should expect average unleaded prices to rise toward $2.30 per litre in capital cities, assuming no further disruption to Asian refinery margins.

The renewed oil spike stoked fears war will crimp energy supplies and fuel inflation.

— Bloomberg, March 12, 2026

Global Markets React

The sell-off extended well beyond commodities. India's benchmark Sensex index fell more than 800 points, its sharpest single-session decline in six months. European equities opened deep in the red, with energy-intensive sectors such as airlines and chemicals leading losses. The flight to safety pushed US Treasury yields lower, though not by as much as equity weakness might have suggested. Bond markets are weighing inflation concerns against recession risk.

India's petroleum ministry issued a statement confirming the country faces no immediate shortage, noting that state-owned refiners are actively sourcing crude from non-Hormuz routes, including West African and American suppliers. The logistical scramble illustrates how rapidly major importers are adjusting supply chains. India imports roughly 85 per cent of its crude, making it acutely sensitive to Hormuz disruption, and its ability to pivot will be closely watched by other import-dependent economies including Australia.

The International Energy Agency has noted that global oil inventories stand at a record 400 million barrels, a buffer accumulated partly through strategic releases during the 2022 energy crisis. That stockpile provides some cushion, but analysts caution that it cannot offset a sustained blockage of the Strait. A full closure would remove approximately 17 million barrels per day from seaborne trade, a gap that no combination of strategic releases and alternative routing could fully bridge.

Inflation and the Central Banks

For central banks already fighting sticky inflation, the oil spike complicates an already difficult picture. In the United States, futures markets had been pricing three to four quarter-point rate cuts in 2026, reflecting optimism that inflation would continue moderating toward target. That view has evaporated in the space of a week. Fed funds futures now imply a single September cut at best, with some traders pricing no cuts at all if oil remains elevated through the northern hemisphere summer.

The Australian situation is no less difficult. The RBA had begun signalling cautious optimism that underlying inflation was moving in the right direction, allowing markets to price a possible cut in the second half of 2026. Higher fuel prices will mechanically add to headline CPI, but the greater concern is second-round effects: transport costs flowing into food prices, businesses rebuilding margins, and wage claims adjusting to compensate for higher living costs. The 1970s provided a painful tutorial in how oil shocks can embed themselves in inflation expectations if central banks ease prematurely.

Governor Michele Bullock has consistently emphasised that the RBA will respond to data rather than forecasts. The March and April inflation prints, due in late April and late May respectively, will now carry even greater weight. If trimmed mean inflation surprises to the upside, any prospect of 2026 rate relief will likely disappear entirely.

Australia's Position

Foreign Minister Penny Wong confirmed this week that Australia is closing several diplomatic missions in the Middle East as a precautionary measure, while emphasising that the country is not directly involved in the conflict. The distinction matters politically but offers little economic comfort. Australia's fuel supply chain runs through Singapore, a refining hub heavily dependent on Middle Eastern crude. A sustained Hormuz disruption would create bottlenecks regardless of Australia's diplomatic posture.

Australia holds roughly three weeks of refined fuel in commercial stocks, well below the International Energy Agency's recommended 90-day minimum. Successive governments have acknowledged the gap without meaningfully addressing it, a pattern that looks increasingly reckless as geopolitical risk intensifies. The current crisis may finally force policy action, though recent history suggests that urgency tends to fade once oil prices stabilise.

Australian households and businesses face higher fuel costs eroding disposable income, higher goods prices following transport costs upward, and an RBA even less likely to provide relief. The 1990 Gulf War oil shock added roughly 0.5 percentage points to Australian inflation over two quarters; the current disruption, if sustained, could match or exceed that impact. Inflation was already elevated before the shock, leaving less room for central bank tolerance.

What Comes Next

Oil markets have a tendency to overshoot in both directions when geopolitical events dominate. The 9 per cent single-day move reflects genuine supply risk, but also the repricing of tail-risk scenarios that traders had previously discounted. If diplomatic efforts gain traction, or if Iran's mine deployment proves less operationally significant than initial reports suggested, some of the risk premium could unwind. Mine warfare in shipping lanes is rare enough that market participants are pricing in the dark.

For Australian policymakers, the immediate task is managing public expectations while avoiding the appearance of panic. The ACCC meeting is a sensible first step, but the underlying structural issues around refining capacity and strategic reserves require action that extends well beyond emergency convening. The next federal budget, due in May, will test whether the government treats fuel security as a genuine priority or another item deferred to calmer times.

Brent crude closed March 12 at US$102.40 per barrel.