With the later situation that's going on. We knew it was going to affect the cost of petrol. Where are we at with this?
So oil prices have literally collapse back to where they were before Israel started in Iran, and that of course I saw that seen the sher market bounced back by about one percent, similar to one percent bounce back in the US.
So that's good news.
It's removed the threat of higher petrol prices in Australia for now. Of course, the issue is whether the sea is fiabile stick and whether we'll see the issues creeping back up again. And that's always been the big fee here that Iran might retaliate by blocking shipping oil shipping through the straight offor moves which goes Pleasuan Golf basically into the Gulf of Oman and then all goes out
of the world. So if they do that, then they would disrupt about twenty percent of oil supplies, which could push oil prices sky high, possibly above one hundred dollars, maybe one hundred and fifty dollars, pushing our petrol prices up above two dollars a leter. Fortunately that's been avoided, but obviously that risk is still there.
So once the knock on effect, then if that happens.
Look if we had that worst case scenario, then I think yes, there would be a knock on effect.
Obviously inflation would.
Get a boost from the higher petrol prices, but it would be the headline motion rates, so the RBA wouldn't necessarily raise interest rates on the back of it. They'll
focus on the underlying measures of inflation. I think that it may cause them if it occurred, it would cause them to delay interest rate cuts, but I think ultimately the Reserve would probably say, well, if people have got to pay two dollars or more a leter for petrol, that chops into household spending power because it means people have less money to spend in the shops in Australia, So they ultimately, I think, would still cut interest rates, but it may be delayed a little bit.
But hopefully we don't go down that path and your market now settles down again.
And if that's the case, then I think we're still on track for a rate cut from the Reserve the Reserve Bank at the July meeting.
Of course, in the next day.
In the day ahead, we'll get another another CPI reading, so that will impact things, But so far it seems as if the worst case scenario on petrol prices has been averted, which means the Reserve Bank probably still on track for a cut in July.
Did that surprise you how quickly things bounce back?
It certainly surprised me how quickly the situation in the Middle East is settled down, although history tells me that it's not that unusual. The First and second Golf Wars when the US and others attacked Iraq. In the first one, Iraq had invaded Q what mad and disrupted oil supplies, leading to a lot of uncertainty at the end of nineteen ninety, and the second one was when the US attacked Iraq seeking regime change on the basis that there
might be weapons of mass destruction in Iraq. Interestingly, ahead of both of those events, prices rose lots of uncertainty, just like we've seen recently, But as soon as the US got involved, the old price collapsed and share markets took off again. Maybe we're seeing history repeat, maybe on a smaller scale because there's been no disruption to oil supplies, but it is similar to what we've seen in the past. Once the US gets involved with missiles and things, it
seems to settle down. Of course, there's a long term issue as well here. This situation may have further disabilized things in the Middle East.
That's the negative take on things.
That Iran may not be too happy what happened, and that can lead to further issues down the track. But for now, what we've seen is consistent with what happened back in nineteen ninety one with the First Golf War and the Second World War in two thousand and three.
If we see another military escalation, how quickly will that affect the prices?
I think if you see another military escalation, suppose Iran is just biding its time here, just regroups, and then in a few weeks time there's an attack on ships through the Middle that the Gulf of the straight upfor moves. Rather that I think would quickly see all prices spiked back up, because the whole equation would change. So far, financial markets oil markets are thinking, well, there hasn't acted spottle the noise. There hasn't actually been a disruption to
oil supplies. Now the threat is receiding. If that threat quickly came back and there was an actual attack disrupting oil supplies, then I think you'd see a quick spike higher in oil prices and share markets would have a fairly significant fall on the back of that.
But that would require some concrete action.
By Iran to disrupt the flow of oil after the rest of the world coming from the Middle East. So far we haven't seen that, but if that did happen, then it would cause a big scare in markets.