Westpac warns petrol could hit $2.68 and diesel $3.07 if US-Iran ceasefire collapses
The price of filling up could become significantly more expensive if the US-Iran ceasefire stalls, with economists warning of flow-on impacts across the economy.
Diesel will hit $3.07-a-litre and petrol will climb to $2.68 by the end of the year if the US-Iran ceasefire stalls, economists at one of the big four banks predicts.
That grim forecast would push Australia’s headline inflation rate to nearly 6 per cent by Christmas this year.
Westpac’s head of business economics Sian Fenner said the bank’s most likely forecast showed oil prices would normalise by the end of 2027, with petrol prices rising from July as the full Australian government fuel excise comes back on.
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By continuing you agree to our Terms and Privacy Policy.The bank predicts petrol prices fall back below $2 a litre in early 2027 and diesel falls back under $2 in mid-2027.
Under a still-murky peace deal to be signed on Friday, the US has agreed to stop blockading Iranian ports.
“Ships of the World, start your engines. Let the oil flow!” Donald Trump posted online. The US President claimed no less than 40 times since hostilities began in late-February that a peace deal was imminent.
Iranian news agency Mehr published a 14-point draft agreement, which includes and end to hostilities on all fronts, including Lebanon, the lifting of the US naval blockade within 30 days, the US withdrawing its forces from around Iran, and the reopening of the Strait of Hormuz.
The draft agreement includes the suspension of US sanctions on oil sales, reaching a final agreement on Iran’s nuclear activities within 60 days, and the release of $24bn in frozen Iranian assets.
With Australia receiving its petrol, diesel and jet fuel at the end of a long supply chain, reopening of the Strait of Hormuz still brings at least months-long effects.
Ms Fenner said the immediate dip in oil prices since news of the agreement would subside.
“We expect this optimism to be pared back, with prices to push higher as it becomes evident that the return of Gulf oil production will still take time,” she said in a note on Wednesday.
In a “faster rebound” scenario, Westpac forecasts petrol prices fall back below $2 a litre in early 2027 and diesel falls back under $2 in mid-2027.
Lower energy prices knock about 0.5 percentage points of Australia’s headline inflation rate to 4.2 per cent by the end of 2026 under this scenario.
Under an “adverse” Strait reopening scenario, only 30 to 40 per cent of ships return to the crucial waterway; this pushes oil to above the 2008 peak of US$150 a barrel, driving Australian diesel prices to $3.07 a litre by the end of the year, and petrol to $2.68.
Energy-intensive goods like plastic and fertiliser, combined with elevated production and transport costs, pushes headline inflation in Australia to 6 per cent, and trimmed inflation to 3.4 per cent.
“In this scenario the Australian economy records several quarters of negative growth as higher inflation and interest rates further erode household disposable income and households pull back from spending on discretionary goods and services,” Ms Fenner said.
“Businesses defer or cancel new investments amid higher cost pressures, elevated interest rates and weaker demand.”
“For New Zealand, the impact is more pronounced.”
Originally published as Westpac warns diesel could top $3/L despite US-Iran ceasefire
