SYDNEY — As the Iran war enters its second month with the Strait of Hormuz largely closed and global oil prices hovering above $100 a barrel, economists are warning that supply-chain shocks will deliver a triple blow to Australia's economy this year — driving inflation higher, squeezing key industries and raising recession risks.

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Treasurer Jim Chalmers has acknowledged the government's fuel-reserve assurances are under severe strain, while Oxford Economics and major banks forecast prolonged disruptions could subtract up to 0.7 percentage points from GDP growth and add as much as 3 percentage points to headline inflation in a worst-case scenario.

Here are three key predictions for how the conflict's supply-chain fallout will reshape Australia's economy through 2026, based on the latest Treasury modeling, bank forecasts and industry data as of early April.

Prediction 1: Fuel shortages and soaring energy prices will fuel persistent inflation and erode household spending.

Australia imports more than 80 percent of its refined fuels from Asia, and with crude flows through the Strait of Hormuz — which normally carries one-fifth of global oil — effectively halted, local petrol and diesel prices have already spiked sharply. Hundreds of service stations, especially in New South Wales, have run dry, prompting the government to suspend national fuel-quality standards and allow higher-sulphur blends to boost domestic supply by an extra 100 million litres per month.

Westpac and Westpac economists project a one-month disruption could lift the consumer price index by around 1 percentage point, while a three-month closure might push the peak CPI increase to 1.5-3 percentage points. Petrol prices could rise by as much as A$1 a litre in extreme cases, feeding directly into transport and freight costs that ripple through groceries, construction materials and consumer goods.

The Reserve Bank of Australia is closely watching the pass-through. Higher energy costs are already compounding existing cost-of-living pressures, with trimmed-mean inflation risks staying "higher for longer." Oxford Economics warns that in a prolonged-war scenario with oil above $150 a barrel, Australia could face quarterly GDP contractions of 0.3-0.8 percent — the sharpest outside the pandemic era — as households cut back on discretionary spending.

Farmers and manufacturers are already feeling the pinch. Diesel-dependent trucking and agricultural operations face higher operating costs, while fertiliser prices — heavily tied to energy inputs — have climbed, threatening the autumn planting season.

Prediction 2: Global shipping rerouting and freight-cost surges will disrupt imports, exports and manufacturing.

Beyond oil, the Iran war is forcing container ships and bulk carriers to avoid chokepoints linked to Houthi activity in the Red Sea and broader Middle East tensions, driving up freight rates and extending delivery times. Australia's manufacturers posted their first contraction in five months in March, with the S&P Global manufacturing PMI falling to 49.8 as demand weakened and cost pressures mounted.

Supply chains for critical inputs — from petrochemicals used in plastics and packaging to components for vehicles and electronics — are tightening. Australian industry group leaders note that Asia's refinery disruptions are already lifting fuel prices and tightening supply for the 90 percent of refined liquid fuels Australia imports.

Export sectors are not immune. Agricultural exporters face higher freight costs and congestion risks for grain, beef and live-animal shipments to Europe and the Middle East. Mining and resources, while benefiting from any LNG price spikes as an exporter, still rely on imported equipment and parts whose delivery is now delayed.

Industrial-property analysts in Western Australia report that fuel shortages and diesel-price pressure are already translating into higher warehousing demand and supply-chain uncertainty, with construction projects facing material-cost volatility.

The Australian dollar has weakened against the greenback as markets price in the energy shock, further raising the cost of imported goods and adding another layer of imported inflation.

Prediction 3: A broader economic slowdown or outright recession becomes more likely, with uneven sectoral pain.

Oxford Economics' prolonged-war scenario paints a stark picture: world GDP growth slows by 1.2 percentage points in 2026, and Australia suffers a sharp recession as fuel rationing and capacity constraints bite. Transport, manufacturing and mining — the sectors most reliant on diesel and global supply chains — would bear the heaviest burden.

Treasury's own modeling, updated in mid-March, shows the war could subtract 0.2-0.6 percentage points from GDP growth while adding 0.5-1.25 percentage points to headline inflation, depending on how long oil stays elevated at $100 or spikes to $120.

Prime Minister Anthony Albanese has warned of a potential fuel crisis, and economists note Australia's low fuel reserves — around 30 days for diesel and 36 days for petrol — leave the economy exposed compared with the International Energy Agency's 90-day benchmark.

The pain will not be uniform. Energy exporters may see some offset from higher global LNG and coal prices, but domestic gas users and households will face higher power bills. Retail and hospitality sectors, already navigating cost-of-living strains, could see further weakness as consumers tighten belts.

Longer-term, the disruptions underscore Australia's vulnerability as an island trading nation dependent on open sea lanes. Calls are growing for improved fuel-security measures, diversified supply chains and accelerated investment in domestic refining or alternative energy sources.

As of early April, the government insists fuel deliveries remain assured until mid-April, but analysts caution that panic buying and distribution bottlenecks could accelerate shortages. Markets continue to underprice the risk of a drawn-out conflict, according to State Street Global Advisors strategists.

For Australian businesses and households, the coming months will test resilience. While a swift ceasefire remains the base-case assumption for many forecasters, the longer the Strait of Hormuz stays closed, the deeper the supply-chain scars — and the greater the drag on growth, jobs and living standards.

Economists will watch April inflation data and the next Reserve Bank board meeting closely for signals on how aggressively policymakers respond to the energy-driven price shock. In the meantime, the Iran war's distant battles are delivering a very real economic hit at home.