Fuel uncertainty: oil price scenarios
Hope provided by the announcement of a ceasefire last week is fading. It is prudent to acknowledge that the situation could get a lot worse.
The saying goes that forecasting is very difficult, especially about the future. Current events in the Middle East are moving at a pace that makes that especially true. In this brief we step through the results of some scenario analysis conducted by Deloitte Access Economics to gauge how our central forecasts in the March edition of Business Outlook might (or might not) vary depending on how events unfold.
The crude oil market is the clearest indicator of this pressure. At the start of last week, the price of a physical barrel of Brent crude for delivery within the month was at an all-time high. The near-term futures contract, which allows traders to partially hedge against rising risk premiums, was also on the up. The pattern is clear - the longer the conflict, the higher the price of energy, and the greater the downside economic risks.
The announcement last Wednesday of a two-week ceasefire which was supposed to include the re-opening of the Strait of Hormuz (for a two-week period during which negotiations would take place) seemed like a timely de-escalation. However, the United States and Iran failed to reach an agreement during negotiations over the weekend, and the Strait of Hormuz remains largely impassable. The conflict continues, inflicting further damage to energy infrastructure in the region. In response, Brent crude oil prices have risen again. It is therefore prudent to model downside scenarios.
The most understood channel for this type of shock to impact Australia is through fuel prices, with anyone who hasn’t yet bought an EV feeling the pinch already. But as far as cost pressures go, it doesn’t stop there.
Any motorist who fills up will notice that fuel is expensive, but they probably don’t notice that the petrol cap they’ve unscrewed is made of plastic, as is the bottle of milk they pick up from the fridge (which had to be trucked in). Basically, everything around them is going to be affected by a rising price for energy. Added to that, the person serving them is likely to ask their employer for a pay rise to compensate them for increased cost of living. In short, these factors will all push prices up.
In response to higher prices, households and firms will need to wind back purchases (where they can) and will likely defer making big investment decisions. If they don’t do this themselves, the RBA is likely to respond to the price increase by raising interest rates which will see the economy slow further, unemployment rise, and put pressure on an already strained Commonwealth budget.
The economic impact will be a function of two things: how much trade is disrupted (severity) and for how long (duration). We’ve modelled how this might play out in the short-term using our in-house, economy-wide model. To help explore the first element, we have simulated different magnitudes of constraint on exports coming out of the Middle East region alongside shocks which represent the damage that has been done to energy production facilities.
Both factors start in the Middle East, but our global model enables us to see how the impacts flow through the global economy and affect Australia.
The tables below show how our projected headline forecasts from the most recent release of Business Outlook (from last week) could potentially shift considering the range of impacts discussed above.
The ‘end soon scenario’ sounds reasonable, but with oil at US$120 per barrel until the end of the year, it would land Australia’s economy at the doorstop of recession. The more severe scenarios (based on oil prices at US$150 and US$175 to the end of the year respectively) would tip us well and truly into recession, with an expected jump in unemployment.
These show some dire numbers, but importantly, these scenarios don’t factor in government policy responses to support the economy. These responses would likely occur and mitigate some of the downside effects here (though likely at the cost of a greater debt build-up). No easy solutions, and perhaps why this year’s Federal budget will go down to the wire before being finalised. The purpose of these scenarios is to focus attention on the task ahead – to build a more resilient economy and more resilient businesses.
This newsletter was distributed on 13th April 2026. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Cedric Hodges (Partner, Deloitte Access Economics) and Lester Gunnion (Manager, Deloitte Access Economics)
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David Rumbens
David Rumbens is a leading expert in macroeconomics and strategic economic advice. As a Partner in Deloitte Access Economics’ macroeconomics practice, he has extensive experience advising government and business leaders on the economic environment, key risks, and long-term strategy. David leads several Deloitte Access Economics subscription publications, including Employment Forecasts, Retail Forecasts and publishes a weekly economic briefing newsletter.
