Deloitte Access Economics says 1 million jobs at risk amid Iran-US Strait of Hormuz stand-off
If the price of crude oil rises to $150 per barrel in one of two nightmare scenarios modeled by Deloitte Access Economics, almost a million Australians could be unemployed and inflation could exceed 6.5 per cent.
A price of US$175 per barrel, a scenario that is only likely in the event of a protracted Middle East war, would plunge the Australian economy into a deep recession. Unemployment will rise above one million, to about 6.8 percent, and inflation will reach 7.5 percent.
Multiple analysts, including analysts from AMP and Oxford Economics, have warned that prices of US$150 per barrel are likely if the Strait of Hormuz does not open in the coming weeks. In this scenario, Deloitte predicts that inflation could reach 6.6 percent by the end of the year, the economy would fall into recession and more than 950,000 people would be unemployed.
At $175 per barrel, activity in the air transport sector would have collapsed by 8.3 percent; This would be equivalent to a 150,000 drop in incoming tourist flights during the peak Christmas period.
In both scenarios, the manufacturing and tourism sectors will be hit the hardest.
Crude oil, which was priced below $60 per barrel at the beginning of this year, rose above $110 per barrel after the US and Israel attacked Iran and blocked the flow of cheaper oil through the Iranian-controlled Strait of Hormuz. The price has fallen below $100 in recent days following ceasefire negotiations.
The prospect of a lasting peace looked even more remote on Sunday after the United States and Iran failed to reach a peace deal in talks hosted by Pakistan.
Shipping data showed some oil tankers were allowed to pass through the Strait of Hormuz on Sunday, Australian time, but following the peace talks, a source told Iran’s Tasnim News Agency that the country would continue to restrict access to the waterway through which 20 percent of the world’s oil supplies pass.
Last month, Finance Minister Jim Chalmers unveiled modeling showing the impact of a protracted war in the Middle East on the Australian economy. If oil prices had remained around $100 per barrel before easing through the end of the year, economic growth would have been 0.2 percent lower for the year, while inflation would have approached 5 percent, well above the Federal Reserve’s target of 2 percent to 3 percent.
Treasury analysis of oil prices around US$120 per barrel showed the economy would take a 0.6 per cent hit by the middle of next year, with the impact lasting until 2029. Inflation will rise above 5 percent.
Chalmers did not release Treasury estimates on the impact of even higher oil prices, as the Deloitte study did.
Pradeep Philip, lead partner at Deloitte Access Economics, said severe scenarios do not take into account government actions to mitigate economic headwinds.
“More severe scenarios would well and truly send us into recession, with a huge rise in unemployment. That would be a recession we don’t want,” he said.
There is no end in sight to the volatility in oil prices after the United States and Iran failed to reach an agreement after their first meeting since the ceasefire began.
Iranian state media reported that “excessive” US demands were responsible for the failed negotiations. US Vice President JD Vance, who led the US delegation in the discussions, said Iran’s nuclear program was a sticking point in the peace talks initiative.
“We had a number of important meetings with the Iranians,” he said. “That’s the good news. The bad news is that we couldn’t reach an agreement. And I think that’s more bad news for Iran than it is bad news for the United States,” he said in Islamabad.
Pakistani Foreign Minister Ishaq Dar, who helped facilitate the talks, called on both sides to continue abiding by the ceasefire. Foreign Minister Penny Wong described the lack of agreement as “disappointing”.
‘Australia is going to increase wages’
Meanwhile, budget analyst Chris Richardson urged Chalmers not to squander the $30 billion oil and inflation windfall that the Middle East crisis will bring to the next budget.
Richardson said the May 12 budget would generate $8 billion from personal income tax collections and $13.1 billion from businesses.
In his mid-year update in December, Chalmers forecast a $34.3 billion deficit for 2026-27. Richardson said it’s on track for less than half of the $14.3 billion.
Richardson, whose forecasts did not take into account changes Chalmers may announce on May 12, said the rise in oil prices and Australia’s pre-war inflation rate meant the budget was in better shape than expected.
“Essentially the world has given Australia a pay rise and the government is getting a big chunk of it,” he said.
“While the ceasefire has also reduced the fuel price conflagration, there is enough damage to infrastructure and ongoing uncertainty that the wage growth the world has given us will disappear slowly rather than quickly.”
Corporate tax collections are expected to be stronger given the underestimation of key commodity prices.
In December, the government expected thermal coal spot prices to drop to US$70 per tonne and iron ore prices to drop to US$60 per tonne. Instead, this week they were at US$111 and US$103 per tonne respectively.
Chalmers said this year’s budget would include packages covering spending cuts, tax reform and productivity-related reforms aimed at increasing the rate at which the economy can grow without increasing inflation.
However, the government halved taxes on gasoline and diesel for three months to cope with the increase in fuel prices caused by the war against Iran. This will cost the budget almost $2.6 billion.
Opposition Leader Angus Taylor said Richardson’s analysis meant the government should not use the extra revenue for further spending. “The test in this budget is clear: to save the windfall, pay down the debt and rebuild the fiscal buffers Australia needs for the future,” he said.
with Brittany Busch
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Shane Wright is senior economic correspondent for The Age and The Sydney Morning Herald.Connect with: X or email.
