Donald Trump’s re-election helped Anthony Albanese win a landslide election, but now threatens to derail his second term in office, with the fate of the Labor government increasingly tied to the US president’s political agenda.
Trump’s foray into the Middle East caused a huge spike in energy costs, driving oil prices to their highest level in four years, as fears of a prolonged regional conflict took hold.
A high oil price is a major trigger of global inflation as it raises the costs of goods and services in the economy, pushing central banks, including Australia’s, to consider rate increases to control inflation.
The resurgence of Australian inflation, already a factor before the Middle East conflict, now risks intensifying, creating a problem for the incumbent government.
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If interest rates rise, as expected, many voters will pay higher mortgage rates while facing high prices for everything from gas to food.
This will make things awkward for Labor’s May budget and wider second term agenda, as the government will pursue policy reforms while fighting a rearguard action against rising cost of living pressures.
While the Labor Party has signaled it will reduce spending in the next budget, any policy that costs money will be criticized by its opponents. If unemployment levels start to rise, Labor may not be able to help significantly without risking another rise in inflation.
These are the classic cost of living conundrums. There are no easy answers and the current president will face backlash no matter what he does.
Many people will look to more populist politicians for solutions; a trend that is already occurring among the disaffected electorate.
As my colleagues wrote earlier this month, One Nation may not just be a Coalition problem.
Ownership is no longer immunity
Consumer confidence is low in Australia, according to customer confidence surveys by major banks, largely due to concerns about inflation.
Fearful voters sometimes vote for government stability, but they will not do so if they blame the government for that insecurity.
However, the question remains whether the Coalition is strong enough, or One Nation viable enough, to take that vote away from the government.
While many issues influence the election outcome, it is no coincidence that the 2024 “graveyard of rulers” – including the ruling parties of the United States and the United Kingdom – occurred shortly after, or during, the rise in inflation and associated living costs.
Current governments – including the governments of Australia, Norway and Canada – fared better in 2025 after inflation stabilized.
In politics, timing is everything.
Shortly after the recent oil price surge, Trump calmed markets when he called the war against Iran a “short-term excursion,” raising investor hopes that oil supplies would soon normalize.
Leaving aside the humanitarian consequences created by a quick exit strategy, such a policy would alleviate the immediate concerns of an oil crisis and help the Australian government.
However, in the long term it is unclear whether shipping volumes through the crucial Strait of Hormuz would simply rebound or whether there would be added risk (and cost) to transporting goods through the strait, fueling global inflation.
The link between Albanese’s perspectives and Trump’s agenda will not surprise Labor, given that US policies had a measurable impact on Australia’s last election.
Peter Dutton adopted some of the Republican plan – attacks on utility figures, skepticism about working from home and anti-woke rhetoric, to name a few – that worked until it didn’t.
Trump’s “liberation day” tariffs, announced weeks before the Australian election, were a gift to the Labor Party, with the Coalition’s republican-tinged platform stuck in the water.
While Trump may have inadvertently helped Albanese on that occasion, his excursion to Iran will not.
