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<\/a><\/p>\nDomestically, Australia\u2019s fuel reserves have improved modestly, supported by intensive government efforts to secure supply. The halving of the fuel excise has helped\u00a0contain\u00a0petrol prices, which are now\u00a0at\u00a0pre-conflict levels. However, this relief is temporary, with the policy scheduled to end after 30 June.<\/p>\n
Importantly, the panic-driven disruption seen during the\u00a0initial\u00a0shock has subsided. Fuel availability has\u00a0largely normalised, with only isolated shortages reported. This reflects a return to more typical consumer behaviour rather than a fundamental improvement in global supply conditions.<\/p>\n
The economic reality is now\u00a0emerging<\/p>\n
Earlier warnings suggested rising energy prices would lift inflation, both directly and indirectly through higher costs across the supply chain. That dynamic is now playing out.<\/p>\n
Headline inflation has already increased, driven\u00a0largely by\u00a0energy costs. More significantly, recent data\u00a0indicates\u00a0underlying inflation is now starting to rise as these higher energy costs flow through into other prices in the broader economy. This lagged effect is typical in supply-driven shocks, and it marks an important turning point in the economic cycle.<\/p>\n
At the same time, labour market conditions are showing signs of softening.\u00a0An\u00a0increase in unemployment in April, weak GDP growth in the March quarter, and\u00a0rising prices\u00a0present\u00a0a difficult combination. For households, this means a squeeze on living standards, with wages\u00a0failing to keep\u00a0pace with the cost of living.<\/p>\n
Australia may still avoid a technical recession, but that distinction offers limited comfort in practice. For many businesses and individuals, the environment may start to feel recessionary, characterised by weaker demand, rising costs, and growing uncertainty.<\/p>\n
Government focus shifts to resilience<\/p>\n
Policy responses are increasingly focused on managing risk rather than resolving it.<\/p>\n
Governments at all levels are intensifying efforts to understand fuel usage patterns and to prepare plans in case they need to prioritise supply for critical sectors. On the supply side, Australia continues to strengthen its position through strategic purchasing and investment in fuel reserves. These measures align with the current phase of the national response framework, referred to as \u2018Level Two\u2019.<\/p>\n
This contingency planning is preparing governments for a more severe scenario.<\/p>\n
A further escalation would trigger a \u2018Level Three\u2019 response by governments, involving demand-side interventions aimed at reducing fuel consumption and directing supply to essential uses. This could include targeted incentives or pricing mechanisms designed to influence fuel use behaviour and manage limited resources more effectively.<\/p>\n
What happens next?<\/p>\n
Two broad scenarios continue to define the outlook.<\/p>\n
In an optimistic scenario,\u00a0the peace deal holds\u00a0and the Strait of Hormuz\u00a0remains\u00a0open.\u00a0While this would alleviate supply constraints, the economic impacts already set in motion would continue to affect Australia throughout the year. Inflationary pressures and higher unemployment would still weigh on living standards, and further interest rate increases\u00a0remain\u00a0a possibility if demand does not adjust naturally. The Reserve Bank of Australia (RBA)\u00a0paused\u00a0cash rate hikes\u00a0this\u00a0month, but\u00a0will be watching underlying inflation very closely\u00a0ahead of their August meeting.<\/p>\n
In a more pessimistic scenario,\u00a0the peace deal\u00a0doesn\u2019t\u00a0hold\u00a0and\u00a0disruption persists for several more months. Under these conditions, the economic impacts on Australia are expected to worsen. Global fuel reserves are currently being drawn down, a situation that can\u00a0likely only\u00a0continue for a matter of months. As those buffers erode, competition for supply would increase, tightening global markets.<\/p>\n
While Australia has\u00a0maintained\u00a0relatively strong\u00a0access to fuel so far, this position may become more difficult to sustain in a more constrained global environment. This would mark a transition to a more acute phase of the crisis, with a\u00a0likely move\u00a0to a \u2018Level Three\u2019 response by governments and broader and more severe economic consequences.<\/p>\n
A practical approach for businesses and leaders<\/p>\n
In this environment, the focus must shift from prediction to resilience.<\/p>\n
Rather than relying on a single outlook, organisations should be planning across multiple scenarios, building resilience into their operations and decision-making processes. This includes understanding exposure to energy costs and interest rates, strengthening supply chains, and stress-testing financial assumptions against both optimistic and pessimistic scenarios.<\/p>\n
The path forward\u00a0remains\u00a0uncertain, but the implications of different potential outcomes are clear. The energy shock is not a short-term disruption. It is a structural challenge that will continue to shape economic conditions in the months ahead.<\/p>\n
Get expert insights from BDO\u2019s economics team<\/p>\n