Summary
Recent corporate updates and survey data indicate that the fallout from the Middle East conflict is now reaching Australian balance sheets. A spike in oil and jet fuel prices has already prompted profit warnings from two of the country’s largest companies and coincided with plunging business and consumer confidence. Officials and market participants warn this combination - higher inflation paired with slowing activity - could evolve into a stagflationary shock.
Corporate writedowns and the fuel shock
Qantas Airways, Australia’s largest airline, disclosed that a surge in jet fuel costs could raise its bill for the second half of the financial year ending in June by as much as A$800 million, about 32% above previous guidance. The carrier said jet fuel prices have more than doubled and remain highly volatile. In response, Qantas has reduced flight schedules, increased fares and delayed a planned A$150 million share buyback while it watches the unfolding situation.
Westpac Banking Corp, the country’s second largest lender, signaled that rising energy prices and higher interest rates are likely to weaken the outlook for some customers. The bank has increased credit provisions to reflect this tougher environment, noting that provisioning levels are the highest since the COVID-19 pandemic. Westpac explicitly linked the supply shock in energy markets to risks of higher inflation and higher interest rates, and to an expected slowing in economic growth that could create more difficult conditions for parts of its customer base.
Market and sentiment reactions
Investors reacted to the corporate updates, selling down bank shares more heavily. Westpac’s stock fell by 3.7% following its update, while Qantas shares declined by 1%. Observers highlighted the potential for the pain to deepen the longer the conflict continues, increasing the likelihood of further profit warnings across sectors sensitive to fuel and cost pressures.
Survey data reinforced the corporate signals. An index from National Australia Bank showed business confidence plunged by 29 points to -29 in March, a drop of a magnitude that the data series has previously recorded only in major crises. A separate consumer survey recorded a 12.5% fall in sentiment in April, bringing it to its weakest level in more than two years.
Outside Australia, New Zealand’s a2 Milk cited the Middle East conflict as a factor in supply chain disruptions and cut its profit guidance for fiscal 2026, illustrating that the economic effects are crossing borders and affecting both producers and service firms.
Voices of concern
Reserve Bank of Australia Deputy Governor Andrew Hauser warned the country may be facing what he described as the central bank’s nightmare: an outcome where inflation rises while activity falls. Market participants echoed that sentiment. Omkar Joshi, chief investment officer at Opal Capital Management, said recession or stagflation is a real risk and that the probability of that risk has increased over recent weeks. He also noted specific concerns about higher bad debts among customers with exposure to energy-related sectors.
Implications for sectors and markets
The immediate impact is most visible in transport and banking. Airlines are directly affected by soaring jet fuel costs, forcing capacity reductions and fare increases that may further damp demand. Banks face a twofold challenge - higher provisioning needs as borrowers confront rising prices and rates, and weaker loan demand as economic momentum slows. Consumer-focused companies and exporters exposed to higher input costs and disrupted supply chains may also face margin pressure.
Currency note
All monetary figures in Australian dollars can be compared using the exchange rate provided in the corporate disclosures: $1 = 1.4114 Australian dollars.
Outlook and uncertainties
The trajectory of both the conflict and fuel prices remains a key determinant of how deeply the shock will affect corporate profits and the broader economy. Analysts and lenders are watching for further corporate updates and macro data that will clarify whether inflationary pressures persist while activity weakens.
This report summarizes corporate disclosures, market reactions and survey data that together underscore the growing economic risks facing Australia amid a volatile energy price environment.