AARON PATRICK: How the war in the Middle East will fundamentally change Australia’s political landscape

Anthony Albanese never wanted to join a war against Iran, but the war gave him little choice.

Australia’s token military force — some missiles and a single unarmed jet — gives the Prime Minister cover against criticism he is neglecting the US alliance.

But his Government will be unable to escape the economic consequences, which are reshaping, almost on a daily basis, the political landscape for the rest of the Labor Party’s second term.

“We already had serious domestic economic problems and the oil-price shock is making things even worse,” John Simon, a former Reserve Bank of Australia head of research, told The Nightly.

Inflation was rising before Donald Trump began bombing Tehran on February 28. Since then, Australian petrol prices have risen 30 per cent.

Bunnings outlets have run out of jerry cans. Fuel is being sold on Facebook. “We’ve seen panic buying immediately,” Energy Minister Chris Bowen said on Friday.

Higher transport costs will spread across the economy, affecting anything that needs to be physically moved — which is almost everything on sale.

Other forms of energy are becoming more expensive too. Newcastle coal is up 9 per cent. Liquified natural gas has risen 60 per cent in Asia. Both will drive up the cost of electricity unless prices fall quickly.

Rate rises

Even Treasurer Jim Chalmers is privately musing the prospect of inflation heading towards 5 per cent, from January’s 3.8 per cent, according to a report Thursday. Which is why the big banks predict the Reserve Bank will increase interest rates next Tuesday and likely again on May 5.

Two hikes would return rates to their post-pandemic peak — some economists expect them to go higher — smashing the narrative advanced by Dr Chalmers that he tamed inflation and is ushering in a period of peaceful prosperity.

The opposite looks more probable. Years of high inflation and elevated interest rates will make Australians poorer. The greatest store of national wealth, residential property, will likely decline in Sydney and Melbourne this year, SQM Research said this week.

Shadow treasurer Tim Wilson argues the Government can’t afford to help financially, because of budget deficits that are already contributing to inflation.

“The conflict has made an unnecessary inflation situation for Australians extremely painful,” Mr Wilson told The Nightly. “Had the Albanese Government shown some spending constraint we would be in a substantially better situation to cushion it.”

The Strait

The future is always uncertain. A sudden end to the war could re-open the Persian Gulf and return global energy markets to normality relatively soon.

Experts see that as unlikely. Even if Mr Trump, chastened by high petrol prices and criticism from his right, decides to declare victory and stop bombing next week, there is no certainty the ayatollahs will accept the war is over.

New Supreme Leader Mojtaba Khamenei, in his first public comments since the attack that killed his father, wife, sister and niece, didn’t even hint at compromise in a statement read on television early Friday morning Australian time.

“Certainly the leverage of blocking the Strait of Hormuz must continue to be used,” he said.

Even without mining the Strait, Iran has stopped all oil supplies moving through the chokepoint — except its own. “Iran today, two weeks into the war, is producing and exporting more or less as much oil as it did before it was attacked,” Bloomberg energy analyst Javier Blas said on X today.

Satellite photographs showed fuelling of two tankers on Thursday, according to TankerTrackers.com, on Kharg Island, an important Iranian export terminal about 25 kilometres from the mainland.

Iran’s ability to fund itself by selling oil to China is one of the reason some experts believe the Israeli government is encouraging Mr Trump to order a dramatic assault of the island.

Joining the war

There are, or will soon be, about 200 Australian military personnel in and around the United Arab Emirates, which has Australia has promised to defend. “There is a war,” Mr Bowen said today. “I think war ticks the box of there is a crisis.”

Obviously a war is underway. But is Australia at war with Iran?

The Government won’t answer the question. Foreign Minister Penny Wong told the Senate on Wednesday Australia is participating in the “collective self-defence” of the United Arab Emirates.

Law professor Donald Rothwell told The Nightly Australia “became a belligerent” in the war when it sent a Boeing E-7 Wedgetail to the region.

The aircraft’s long-distance radar will be used to track Iranian aircraft, missiles and drones. Under international law, based on Professor Rothwell’s assessment, Iran is entitled to shoot down the plane.

The Coalition, which supported the modest commitment, shows no interest in getting more deeply involved, despite a natural affinity with their Republican counterparts. There is no desire within the Opposition to send “a frigate or F-35 squadron”, one Liberal MP told The Nightly.

That view reflects concern among many commentators about whether the US has a plan to end the war, beyond the capitulation of the Khamenei regime, which seems unlikely without some kind of land invasion.

“The Iranians will keep on fighting,” said military analyst Malcolm Davis from the Australian Strategic Policy Institute. “They know they can keep this war going.”

Budget blues

The Liberal Party has already produced online ads raising concerns fuel could run out. In Parliament this week, shadow ministers have repeatedly attacked the Government over shortages — attacks that have received widespread media coverage.

But two weeks ago, when the war began, the Opposition didn’t regard it was important enough to raise in Parliament. For two days, while Israel and the US unleashed the air war against Iran, the Opposition focused on wives and children of ISIS terrorists. On the third day, they shifted to living standards.

The economic effects of the war are now clear to all political participants, likely none less than Dr Chalmers, who is writing next year’s Budget, which will be published in May.

During regular times, forecasting spending and taxes is a challenging task. War makes accurate predictions almost impossible.

Whether the Treasurer has the fortitude to make unpopular spending cuts that would help the Reserve Bank fight inflation is unclear.

Independent economist Chris Richardson said this week he worries the Government “will turn timid again” and cut petrol taxes. “If fuel excise goes down, then interest rates will go up by more than they’d otherwise do,” he wrote.

Mr Richardson calculated halving excise for a year would inject $6.5 billion into the economy, which has same financial effect as a regular interest rate cut.

So if the Treasurer announces pre-Budget fuel relief, instead of cheering, Australians might recognise that Dr Chalmers is merely shifting responsibility for responsible economic management to Michele Bullock, the Reserve Bank governor.

Which looks the same as asking a woman to clean up a man’s mess.