Australian shares plunged on Monday, wiping around $13 billion off the value of the ASX midway through the trading session, after a sharp rise in oil prices caused by the Middle East conflict sparked concerns of a burst in global inflation.
The benchmark S&P/ASX 200 index fell 4% in midday trading to fall below the 8,500 point mark, marking the biggest one-day drop since Donald Trump’s “liberation day” tariffs announcement last year.
The sell-off is linked to the disruption of oil supplies, the biggest contributor to global inflation, which makes almost all goods and services more expensive, from gasoline and groceries to utilities and travel.
Global oil prices surpassed $100 a barrel shortly before the Australian stock market opened for the week, spooking investors.
Archival Garcia, chief executive of Melbourne transport technology company Fluent Cargo, said the fallout from the market conflict was spreading beyond energy markets.
“Fuel costs rise, war risk insurance premiums rise, ships slow down or divert, and freight rates rise, particularly in energy-dependent supply chains,” Garcia said.
The energy price shock came after a weekend of escalating violence in the Middle East, intensifying concerns about a sustained supply crisis that has driven crude oil prices to their highest level in four years.
The ASX was a sea of red on Monday, with the exception of the energy sector which has benefited from the turmoil.
The consequences of the conflict for the market were initially moderate due to expectations that the war would be short-lived. Losses in global markets have accelerated in recent days after the conflict spread across the region and hopes for a quick resolution faded.
Tony Sycamore, market analyst at IG Australia, said “local markets are reflecting intense global risk aversion sentiment” in his report released shortly before the market opened on Monday.
Sycamore also noted that the Reserve Bank’s aggressive stance against inflation through early rate increases – known as “hawkish signals” – added downward pressure on markets.
If the RBA raises rates at its March meeting next week, many Australians will find themselves paying higher mortgage rates at the same time as petrol and other household costs rise, hampering spending.
High interest rates are one of three traditional triggers for a decline in stock markets, along with rising unemployment and some type of exogenous shock, such as war.
