Investors are facing fresh warnings that the economic fallout from the ongoing Middle East war could linger well after fighting ends.
Australian Prime Minister Anthony Albanese said the conflict may have a "long economic tail", raising concerns about what could come next for global markets, inflation, and interest rates.
Let's unpack what this could mean for investors.
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Leaders warn the economic impact could last for years
According to The Australian, the Prime Minister said the current situation could create economic shockwaves similar to those seen after COVID and Russia's invasion of Ukraine.
Albanese described the situation as another major disruption to the global economy during a decade already marked by shocks.
He warned that even if the fighting ends quickly, the economic effects could continue to flow through supply chains, trade routes, and energy markets.
One of the biggest concerns is oil.
The Middle East remains the world's most important energy-producing region. Any disruption to shipping routes or oil production can quickly push prices higher.
Why markets are getting nervous
Financial markets tend to react quickly to geopolitical shocks, particularly those involving energy supplies.
Higher oil prices can make things more difficult for central banks such as the Reserve Bank of Australia (RBA), which has been trying to bring inflation back within its 2% to 3% target band.
If energy costs rise quickly, inflation may stay higher for longer. That could force central banks to keep interest rates elevated or even raise them again.
Policymakers have already warned that inflation risks remain tilted to the upside.
And this is one reason why investors are watching developments in the Middle East very closely.
What it means for the ASX 200
Despite the uncertainty, the S&P/ASX 200 Index (ASX: XJO) has held up relatively well so far.
At the time of writing, the index is up around 0.1% today to about 8,621 points.
However, the broader trend has been weaker.
Over the past month, the ASX 200 has fallen by almost 4%, reflecting growing caution among investors amid rising global risks.
The pullback highlights how sensitive markets remain to geopolitical developments and interest rate expectations.
Energy stocks have generally been among the beneficiaries when oil prices surge. But other sectors, such as technology, consumer discretionary, and property, often face pressure when borrowing costs remain high.
That mix of winners and losers is likely to continue if volatility persists.
What to watch next
The biggest factor now is how the conflict develops and whether it continues to disrupt the global energy supply.
Markets will also be watching oil prices closely. If crude prices push back well over US$100 per barrel, inflation fears could intensify quickly.
The key takeaway is that these types of world events rarely stay contained.
They tend to ripple through markets, supply chains, and central bank policy.
And if this latest crisis carries on, the effects could be felt on the ASX for some time yet.
