Iran conflict has financial markets preparing for oil price shock and economic damage
One analyst suggests Australian motorists take advantage of fuel prices before a likely steep rise in prices at the pump. (AAP )
In short:
Global financial markets are bracing for Iran to choke off the Strait of Hormuz, a vital route for the world's oil supply, amid the air war between the US, Israel and Iran.
The region, including Saudia Arabia, Iraq, Iran, UAE, Kuwait, Qatar, Bahrain and Oman, produces 27 per cent of the world's crude oil.
What's next?
Australian motorists have been warned petrol prices could surge if the Middle East conflict continues.
The world is bracing for a surge in the oil price when commodities markets open tomorrow, with reports the air war between the US, Israel and Iran has closed the Strait of Hormuz to shipping.
The conflict has erupted around the strait, which is a critical shipping route connecting the region's biggest oil producers to the world.
The region, including Saudi Arabia, Iraq, Iran, UAE, Kuwait, Qatar, Bahrain and Oman, produces 27 per cent of the world's crude oil.
About three-quarters of that, which equates to about 20 per cent of the world's total oil supply, passes through the Strait of Hormuz.
A smaller proportion passes through the Red Sea and the narrow Bab-el-Mandeb Strait.
Iran fires a missile during exercises near the Strait of Hormuz in 2022. (Iranian Army/West Asia News Agency/Reuters)
While no country has exclusive control of the Strait of Hormuz, Iran is a threatening military presence and could exercise sovereignty 12 nautical miles from its coastline, restricting shipping at the narrowest point.
Vessels in the area have received radio transmissions alerting them that the Strait of Hormuz is closed, the UK Maritime Trade Operations agency said.
The US Department of Transportation Maritime Administration also issued an alert: "It is recommended that vessels keep clear of this area if possible."
Reuters has reported several tanker owners, oil majors and trading houses have suspended crude oil, fuel and liquefied natural gas shipments via the Strait of Hormuz after Tehran said it had closed navigation.
"Our ships will stay put for several days," one top executive at a major trading desk said.
Satellite images from tanker trackers showed vessels backed up next to big ports, such as Fujairah in the United Arab Emirates, and not moving through Hormuz.
There has been no official word from Iran that it intends to close the strait.
"Oil prices will spike sharply, possibly above $US100 a barrel, from $US67 on Friday for West Texas, given the disruption to oil supplies, including via the Strait of Hormuz," AMP chief economist Shane Oliver told the ABC.
"This is particularly so given the broad nature of the US and Israeli attack — including talk of regime change — and Iran's broad-based retaliation so far.
"The key issue is how long it lasts."
Mr Oliver said a prolonged conflict would "cause more damage economically".
'Fill up your car' before petrol price spikes
The oil price spiked above $US120 a barrel in 2022 when Russia invaded Ukraine, but economists said this conflict could be more significant given the key oil producers involved.
Marcus Today senior market analyst Henry Jennings agreed with Mr Oliver.
"If the straits are blocked, we could see $US90 oil on a spike, so it may be wise to fill up your car with some cheap petrol in the next few days,"Mr Jennings said.
"Much depends on the Iranian reaction."
Analysts say a $US10-a-barrel rise roughly translates to a 10-cents-a-litre increase in Australian petrol prices.
So a rise from $US67 on Friday to $US107 could push local petrol prices up by 40 cents a litre.
The immediate implications of the conflict for the Australian economy are mixed.
"So if there are sustained interruptions to the flow of oil from the Middle East to China, that could have a negative impact on China's economy and, presumably, on China's imports from Australia," Mr Oliver said.
"Also, note that close to one-fifth of the world's LNG also passes through the Strait of Hormuz, so there could be implications for LNG prices, too, which would be a positive for Australia as we are also a big exporter of LNG, although it might also mean higher domestic gas prices."