Australia’s energy shock is far from over, what comes next?
The energy shock is not a short-term disruption. It is a structural challenge that will continue to shape economic conditions in the months ahead, writes BDO Chief Economist Anders Magnusson.
In April 2026, the global energy crisis was beginning to reshape economic conditions in Australia. At that point, initial shocks were becoming visible, but the full impact had yet to unfold.
The situation has evolved, but the core risks remain firmly in place. While some of the immediate pressures have eased, the damage already done presents a challenging outlook for businesses, households, and policymakers.
What has changed?
At the height of the initial disruption, global energy markets were responding rapidly to geopolitical instability. The Strait of Hormuz, a critical artery for global oil supply, was effectively closed. Oil prices surged above USD120 per barrel before easing back towards USD100 as early peace talks began. Petrol prices in Australia climbed sharply, and panic buying led to widespread fuel shortages, largely due to local distribution constraints rather than national supply shortfalls.
Since then, the situation has stabilised in some respects, but a quick return to normal is unlikely.
The Strait of Hormuz is reportedly reopening, with shipping volumes increasing. Diplomatic progress has been inconsistent, with peace talks starting and stopping, but the new peace deal appears more robust and oil prices are returning to pre-conflict levels.
You might like
Domestically, Australia’s fuel reserves have improved modestly, supported by intensive government efforts to secure supply. The halving of the fuel excise has helped contain petrol prices, which are now at pre-conflict levels. However, this relief is temporary, with the policy scheduled to end after 30 June.
Importantly, the panic-driven disruption seen during the initial shock has subsided. Fuel availability has largely normalised, with only isolated shortages reported. This reflects a return to more typical consumer behaviour rather than a fundamental improvement in global supply conditions.
The economic reality is now emerging
Earlier warnings suggested rising energy prices would lift inflation, both directly and indirectly through higher costs across the supply chain. That dynamic is now playing out.
Headline inflation has already increased, driven largely by energy costs. More significantly, recent data indicates underlying inflation is now starting to rise as these higher energy costs flow through into other prices in the broader economy. This lagged effect is typical in supply-driven shocks, and it marks an important turning point in the economic cycle.
At the same time, labour market conditions are showing signs of softening. An increase in unemployment in April, weak GDP growth in the March quarter, and rising prices present a difficult combination. For households, this means a squeeze on living standards, with wages failing to keep pace with the cost of living.
Australia may still avoid a technical recession, but that distinction offers limited comfort in practice. For many businesses and individuals, the environment may start to feel recessionary, characterised by weaker demand, rising costs, and growing uncertainty.
Government focus shifts to resilience
Stay informed, daily
Policy responses are increasingly focused on managing risk rather than resolving it.
Governments at all levels are intensifying efforts to understand fuel usage patterns and to prepare plans in case they need to prioritise supply for critical sectors. On the supply side, Australia continues to strengthen its position through strategic purchasing and investment in fuel reserves. These measures align with the current phase of the national response framework, referred to as ‘Level Two’.
This contingency planning is preparing governments for a more severe scenario.
A further escalation would trigger a ‘Level Three’ response by governments, involving demand-side interventions aimed at reducing fuel consumption and directing supply to essential uses. This could include targeted incentives or pricing mechanisms designed to influence fuel use behaviour and manage limited resources more effectively.
What happens next?
Two broad scenarios continue to define the outlook.
In an optimistic scenario, the peace deal holds and the Strait of Hormuz remains open. While this would alleviate supply constraints, the economic impacts already set in motion would continue to affect Australia throughout the year. Inflationary pressures and higher unemployment would still weigh on living standards, and further interest rate increases remain a possibility if demand does not adjust naturally. The Reserve Bank of Australia (RBA) paused cash rate hikes this month, but will be watching underlying inflation very closely ahead of their August meeting.
In a more pessimistic scenario, the peace deal doesn’t hold and disruption persists for several more months. Under these conditions, the economic impacts on Australia are expected to worsen. Global fuel reserves are currently being drawn down, a situation that can likely only continue for a matter of months. As those buffers erode, competition for supply would increase, tightening global markets.
While Australia has maintained relatively strong access to fuel so far, this position may become more difficult to sustain in a more constrained global environment. This would mark a transition to a more acute phase of the crisis, with a likely move to a ‘Level Three’ response by governments and broader and more severe economic consequences.
A practical approach for businesses and leaders
In this environment, the focus must shift from prediction to resilience.
Rather than relying on a single outlook, organisations should be planning across multiple scenarios, building resilience into their operations and decision-making processes. This includes understanding exposure to energy costs and interest rates, strengthening supply chains, and stress-testing financial assumptions against both optimistic and pessimistic scenarios.
The path forward remains uncertain, but the implications of different potential outcomes are clear. The energy shock is not a short-term disruption. It is a structural challenge that will continue to shape economic conditions in the months ahead.
Get expert insights from BDO’s economics team
To understand what these developments mean for your organisation, connect with BDO’s economic advisory team for tailored advice and forward-looking insights.
Want to see more stories from InDaily SA in your Google search results?
- Click here to set InDaily SA as a preferred source.
- Tick the box next to "InDaily SA". That's it.
