Oil prices, the Middle East and your portfolio

Conflict in the Middle East has disrupted oil supply in 2026 and lifted prices well above where they began the year. Brent crude, a global benchmark for oil, ended 2025 at US$60.85 a barrel and was about US$102 on 8 October. The rise has reached Australians through petrol prices, inflation and higher interest rates.

Oil prices have been high and volatile since late February

The conflict escalated sharply on 28 February 2026 and severely disrupted shipping through the Strait of Hormuz, which usually carries around 20 per cent of the world's crude oil and liquefied natural gas, according to the Reserve Bank of Australia (RBA). In May, the RBA estimated that global oil supply had fallen by around 10 per cent.

Brent passed US$100 a barrel in March and briefly touched about US$126 on 30 April, its highest level in around four years. It eased to about US$70 in early July, then climbed again as the conflict re-escalated. On 9 September, Reuters reported it back above US$100 for the first time since 24 July.

Higher fuel costs have reached petrol prices, inflation and interest rates

Weekly figures from the Australian Competition and Consumer Commission (ACCC) show regular unleaded petrol averaged 239.0 cents a litre across the five largest capital cities on 7 October 2026, against 170.9 cents on 20 February, about a week before the escalation. Diesel was 281.0 cents, up from 176.6 cents in February.

From 1 April, fuel excise, the federal tax on each litre of fuel, was temporarily cut by 32 cents a litre. The cut was halved from 1 July and ended on 2 August. The Australian Bureau of Statistics reported that fuel prices rose 14.8 per cent in August alone, which it put down to higher world oil prices and the end of the remaining excise relief. Annual inflation rose to 4.0 per cent in the year to August, from 3.5 per cent in July.

On 29 September the RBA raised the cash rate, its benchmark interest rate, to 4.60 per cent, its fourth increase this year. Its statement said "global energy prices are now much higher than had been assumed" and that some of the rise in fuel costs had already reached the prices of other goods and services.

Share prices, the dollar and bond yields have all responded

Energy producers have tended to gain from dearer oil. On 12 March, as banks and miners sold off, energy was the only part of the Australian share market to finish higher, and on 9 September energy and utilities stocks led the market as oil neared US$100 again, Australian Associated Press reported. Heavy fuel users face higher costs: in May the RBA noted that airlines were scaling back some capacity because of dearer fuel.

The Australian dollar bought 66.93 US cents at the end of 2025 and 69.79 cents on 9 October, RBA figures show. In August the RBA said this year's rise was consistent with Australian interest rates being raised further than elsewhere.

Bond yields have risen too. A bond's yield is the yearly return it offers a buyer at today's price, and when yields rise, existing bond prices fall. The 10-year Australian Government bond yield went from 4.74 per cent at the end of 2025 to 5.40 per cent on 7 October, near its highest in more than a decade, RBA data show. On 1 October, higher oil prices lifted yields globally and every sector of the Australian share market fell, the ABC reported.

Expectations for the RBA's next meeting, on 2 to 3 November, have moved with the oil price. On 8 October, the ASX's rate tracker, which reads pricing in the futures market, put the chance of another increase at about 27 per cent. Bank economists are divided: Westpac's expect a further rise within a couple of months unless the conflict is resolved, while Bendigo Bank's expect the cash rate to stay at 4.60 per cent through November and December.

A spread of investments can help a portfolio absorb a shock like this

Different investments respond differently to the same news, as this year has shown.

• Cash and term deposits. Banks passed this year's earlier rate rises on to deposit rates, the RBA said in August. Deposits with Australian banks, building societies and credit unions are protected by the Government's Financial Claims Scheme up to $250,000 per account holder at each institution.
• Bonds. Yields are higher than at the start of the year, which means higher rates for new money, though the prices of existing bonds have fallen.
• Managed funds and exchange traded funds. Both can spread money across many companies, sectors and countries, so gains in one area, such as energy, can help offset weakness in another. Exchange traded funds are listed on a stock exchange.
• Shares. Shares are growth investments, which aim to grow in value over the long term and can rise and fall sharply along the way. The S&P/ASX 200, which tracks Australia's 200 largest listed companies, briefly fell more than 10 per cent below its record high on the morning of 23 March, then closed the day at 8,365.9 points. It went on to set a new record in early August, and was 8,716 on 9 October.

Selling in response to headlines has been costly at times this year, because prices have reversed quickly. An investor who sold shares after the March fall and stayed out would have missed the rise that followed. Your adviser can check whether your portfolio still suits your goals and, if it has drifted, bring it back to its intended mix.

To talk through what higher oil prices and interest rates mean for your investments, super or retirement plans, please contact your adviser, who can explain your options in plain terms.

This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not a recommendation to buy, sell or hold any investment. Figures are as published on the dates given. Past performance is not a reliable indicator of future performance. Read the full risk warning