Middle East conflict: the uneven economic impact on Australia

Geopolitical conflict rarely hits economies evenly. The current instability in the Middle East is a clear example, particularly through its impact on global energy markets. For Australia, the outcome is split: resource exporters benefit, while households, construction and the housing market face increasing pressure.

This dynamic has been clearly outlined by Ray White Chief Economist Nerida Conisbee in her recent analysis, Australia’s winners and losers from the Middle East conflict: https://www.raywhite.com/news-and-market-insights/economic-updates/australias-winners-and-losers-from-the-middle-east-conflict

Countries heavily dependent on imported energy, particularly across Europe and Asia, are most exposed to rising oil and gas prices. Australia sits in a more complex position. We are a major exporter of LNG and coal, yet we import most of the refined fuel we consume domestically.

That creates a two-speed economic effect, one that lifts national income while simultaneously squeezing households and key sectors of the economy.

Australia’s mining and energy sector is the clear near-term winner. When geopolitical tensions disrupt supply, global prices for oil, gas and coal tend to rise. For Australia, that translates directly into stronger export revenues and improved terms of trade.

LNG producers are particularly well positioned. Global gas markets are highly sensitive to disruption, and Australian exporters supplying Asia and Europe benefit quickly when prices spike. Coal exporters can also gain as countries shift away from expensive gas or diversify energy sources.

This is not a new dynamic. Australia avoided recession during the global financial crisis largely due to strong commodity demand, particularly from China. While the current drivers are different, the mechanism is the same, rising commodity prices act as an economic buffer.

There is also a fiscal upside. Higher commodity prices boost company tax receipts and deliver significant royalty windfalls to resource-heavy states such as Western Australia and Queensland.

The benefit to exporters contrasts sharply with the reality facing households.

Despite being an energy exporter, Australia imports the majority of its refined fuel. As a result, global oil price increases flow quickly into higher petrol and diesel costs.

For households already dealing with elevated living costs, this is immediate and visible. Fuel is one of the fastest transmission channels of inflation.

The impact does not stop at the bowser. Higher transport costs flow through to freight, lifting the price of groceries and consumer goods. Airfares rise as airlines pass on higher jet fuel costs. Over time, this erodes purchasing power and weakens household consumption.

The pressure is most acute in outer suburban and regional areas, where car dependency is higher and transport distances are longer. The housing sector sits directly in the path of these pressures.

Construction is highly energy-intensive. Diesel-powered machinery, transport logistics, and materials such as steel, cement, and bricks all become more expensive when fuel prices rise. As costs increase, fewer projects remain financially viable. This comes at a time when development feasibility is already under strain.

At the same time, elevated energy prices risk keeping inflation higher for longer. That increases the likelihood of sustained higher interest rates, which reduces borrowing capacity and slows price growth.

However, higher rates also make it harder to deliver new housing. Financing costs rise, particularly for higher-density projects where debt is a key component. The result is a constrained supply pipeline.

The net effect is a more complex housing market. On one hand, higher interest rates limit price growth. On the other, rising construction costs and tighter feasibility reduce new supply. When supply slows, underlying housing shortages deepen.

In practice, this pressure tends to shift into the rental market. With strong population growth and limited new housing delivery, rents remain elevated even as price growth moderates.

That dynamic feeds back into inflation, reinforcing the broader economic challenge. The economic fallout from Middle East instability will not be evenly distributed. Australia benefits at a national level through stronger commodity prices and export income.

At a household level, the impact is inflationary and immediate. For property markets, this creates a difficult balance of slower price growth, but worsening supply constraints. That combination is likely to keep pressure on rents and prolong the broader housing imbalance across Australia.

Andrew Huggins is Principal of Ray White Urban Springs, the top real estate agent in the City of Belmont for over 20 years. He writes about Perth property trends, WA real estate insights, Australian housing supply and demand, and long-term investment strategy.