To paraphrase Lenin, there are decades where nothing much happens in the global economy and there are weeks where decades happen. We’ve just seen the latter.

The conflict in the Middle East has precipitated what Executive Director of the International Energy Agency Fatih Birol has called “the worst-ever energy crisis”. He also warned that “the next month, April, will be much worse than March.”

Australia entered this crisis in a vulnerable position. Our underlying (trimmed mean) inflation rate was 3.4 per cent, well north of the Reserve Bank’s 2.5 per cent target.

When the current energy crisis hit, we had reserves representing 36 days of petrol, 34 days of diesel, and 32 days of jet fuel. The government is scrambling to shore up supply of these critical commodities. But already there are serious concerns about the availability of fertilizer and PVC pipes. Without the latter it is literally impossible for any construction—residential or commercial—to begin in Australia.

The e61 Institute recently noted that our retail supply chains have not become “less just-in-time and more just-in-case” since the pandemic. In fact, they point out that: “Australian retailers did not rebuild inventories after the pandemic. Instead, they reduced them further. The inventory held by retailers has fallen from around 35 to 30 days’ worth of sales since 2019.”

Australia is at the long end of the global petroleum supply chain, with relatively little refining capacity still existing. Much of Australia’s refined product comes from Korea and Japan, but those countries rely to a meaningful extent on crude oil from the gulf.

Iran has managed to effectively close the Strait of Hormuz. It can launch speed boats laden with explosives essentially at will. Even the threat of this has been enough to make insurance for tankers either prohibitively expensive or unobtainable altogether. Despite President Trump removing sanctions on Iranian oil, there is estimated to be a reduction of 15 per cent of the world’s oil supply.

Worse still, Iranian attacks on a major LNG facility in Qatar has halted production and may the three years or more to repair. If there are further drone and missile attacks from Iran then the supply of energy in general will be further reduced. Helium—a crucial input for making semiconductors—is also in shorter supply.

In Australia, we’re not in a full-scale economic crisis yet. But we are definitely “crisis-adjacent”.

The Australian government has moved to cut the fuel excise in half, and the states have agreed to give back part of the GST on petrol as well. This provides some cost-of-living relief. And despite it putting downward pressure on measured CPI, it increases the inflationary pulse in the economy. Additional subsidies could well be enacted if the crisis stretches on.

The Australian budget on May 12 has been pitched by Treasurer Jim Chalmers as containing a number of significant reforms. It seems plausible that the capital gains tax discount for residential property investments will be reduced, and there may also be a reduction in (or limit on) negative gearing of investment properties. CA ANZ’s 2026–27 pre‑budget submission calls for the Federal Government to address the declining pipeline of critical accounting skills and talent, modernise and streamline the tax system, implement digital financial reporting and improve access to retirement advice.

Bond markets are of the view that the RBA will raise interest rates by 50 basis points over the remainder of 2026. The bank’s monetary policy board will be under serious pressure to increase the cash rate 25 basis points at their next meeting on May 5.

What advanced economies around the world, but certainly including Australia and New Zealand, are facing is the prospect of some 2020s version of 1970s stagflation. That is, uncomfortably high unemployment and inflation simultaneously. This pulls central banks in opposite directions: wanting to cut rates to deal with unemployment but raise rates to combat inflation.

It’s unlikely that we will see 1970s-style double-digit unemployment plus inflation. But even 5 per cent inflation combined with 6-7 per cent unemployment would be a serious challenge for policymakers.