The Australian sharemarket fell sharply on Tuesday from a record high as the escalating conflict in the Middle East intensified risk-off sentiment among investors as rising oil prices reignited inflation fears.

The S&P/ASX 200 Index dropped 1.3 per cent, or 123.60 points, to 9077.30, retreating from Monday’s record close of 9202.90 as 10 of the 11 sectors finished in the red.

“Investors decided to batten down the hatches and lock in profits after a fantastic February reporting season and a good run higher,” IG market analyst Tony Sycamore said.

All eyes on energy

Oil remained the central focus, climbing another 2.6 per cent to $US79.76 a barrel in Asian trading as Iran threatened to close the Strait of Hormuz, a key global oil transit route. The surge in energy prices heightened concerns about renewed inflationary pressures and reduced expectations of near-term interest rate cuts in the United States.

“Surprisingly, the rally in crude oil has been relatively tame,” Sycamore said. “This reflects a market betting on a short conflict and one that was already positioned for such an event.”

Coal miners underpinned gains the energy sector of the ASX as benchmark Newcastle coal prices jumped 8.6 per cent to $US128.70 per tonne – the most in three years – after Qatar shut down its largest liquefied natural gas plant.

New Hope rallied 7.4 per cent to $5.10, Yancoal 4.9 per cent to $6.49 and Whitehaven Coal 3.2 per cent to $8.19.

Among the oil producers, Woodside advanced 0.8 per cent to $30.48, adding to strong gains on Monday, Santos firmed 1 per cent to $7.28 and Ampol 3.2 per cent to $29.98.

Investors took profits in the gold miners that reversed Monday’s gains despite elevated geopolitical tensions. Newmont fell 2 per cent to $183.44, Northern Star dropped 3.2 per cent to $30.71 and Evolution Mining declined 4.5 per cent to $16.87, while BHP eased 2.6 per cent to $57.70.

And airline stocks remained under pressure, with Qantas down 1.8 per cent to $9.24 – its lowest close since May – amid ongoing Middle East flight disruptions, even as Etihad Airways and Emirates resumed limited services.

Elsewhere, real estate stocks were lower after bond trader ramped up bets for another rate increase in Australia by May. That’s after the Reserve Bank of Australia governor Michele Bullock made hawkish comments on Tuesday that suggested every board meeting was “live” to a move in interest rates.

Goodman Group and GPT Group both fell more than 2 per cent to $28.17 and $4.86, respectively. Stockland eased 2.2 per cent to $4.89 as it finalised documentation for a 50/50 data centre partnership with EdgeConneX.

Stocks in focus

In corporate news, Magellan Financial Group surged 21.9 per cent to $10.31 after completing a $130 million institutional placement to fund its merger with Barrenjoey. CLSA upgraded the stock and describing the deal as a “game changer”.

Life360 dropped 17.6 per cent to $20.36 after the family tracking app warned that user growth will be slow this quarter. That’s despite reporting its first annual profit of $US150.8 million ($212 million).

Neuren Pharmaceuticals fell 8.8 per cent to $12.56 after partner Acadia Pharmaceuticals said it would seek a re-examination of a European regulator’s decision to refuse approval for Trofinetide that treats Rett Syndrome.

Capstone Copper declined 8.1 per cent to $13.30 after reporting record revenue and adjusted earnings that fell short of expectations.