Chart of the Month - October 2026

Higher global fuel prices are forcing central banks around the world to raise interest rates. In Australia, inflation would be flat since July without the contribution of automotive fuel prices (see chart below). However, the resilience of the Australian economy is providing the RBA with the room to raise interest rates further, if needed, while maintaining a low level of unemployment. Not every country has that luxury.

The impact of the Iran war on fuel prices

Despite recent US efforts to increase the flow of oil exports through the Strait of Hormuz, exports remain well below pre-war levels (see chart below).

Further, with shipping insurance rates increasing over 7x and the high cost of ship-to-ship transfers in the Gulf of Oman (up to $30 per barrel), the cost of the oil that is getting through is higher than it would otherwise be, which also pushes up the price. It also remains to be seen how long the US can commit to expensive ship escorts.

On top of this, Houthi attacks on Saudi Arabian infrastructure and ships have also pushed up the price of oil.

As a result, the price of Brent crude oil is currently at its highest level since the war started (see chart below).

Refineries around the world also have little capacity to increase production to make up for lost production earlier in the year and lost production from Gulf countries. Ukrainian targeting of Russian refineries is also having an impact. Diesel is more affected than petrol.

Given this, the price of unleaded petrol and diesel in Australia remains at high levels (see chart below).

A resilient Australian economy

While the RBA cannot do anything about the war in Iran or the price of oil, it can try to decrease the general level of inflation in the economy by tamping down demand with higher interest rates.

The RBA has already raised rates four times this year and may increase rates again. Other central banks have also been raising interest rates (see charts below).

However, it is important to note that Australia did not raise rates as high as some other central banks in 2022 and 2023.

As a result, Australia did not experience as large a decrease in growth and increase in unemployment like some of its peers (see chart below).

Australia is also expected to grow faster than some if its peers over the next three years (see chart below).

Final thoughts

Australia's low unemployment and strong economic growth give the RBA some space to raise rates further if needed without worrying about pushing the economy into recession. This is critical given the uncertainty over when the war in Iran will end and the time needed for oil and refining supply chains to return to normal. With so many factors outside of its control, the RBA can at least rest on a resilient economy.