War in Middle East could shave $16.5bn off Australian economy, Chalmers warns

Treasurer Jim Chalmers released Treasury modelling showing a prolonged conflict in the Middle East could leave Australia’s GDP 0.6% lower in 2027, removing about $16.5bn from the national economy. The forecasts also suggest inflation could peak near 5% this year and that petrol price rises may continue to burden motorists until 2029.

Chalmers warned a longer war “would leave a bigger scar”, saying roughly half the economic hit comes from higher oil prices and the rest from broader knock-on effects. The modelling set out two oil-price paths: a shorter scenario with oil at $100 a barrel for the first half of the year before returning to pre-conflict levels by Christmas, and a prolonged scenario with prices at $120 a barrel in the first half of 2026 and taking three years to normalise.

Prime Minister Anthony Albanese will chair a national cabinet meeting to coordinate responses to fuel disruptions, and the government is expected to name a supply chain coordination tsar.

Australia

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