The escalation of conflict in the Middle East has led to the closure of the Strait of Hormuz – the world’s most important oil chokepoint. Around 20% of global oil supply typically passes through this route each day, making any disruption significant for global energy markets.
Most Australians think about the oil crisis in terms of what they’re paying at the petrol pump. But this is not just an energy story. It is a cost-of-living and interest rate story that reaches into mortgage repayments and housing demand.
In early 2026, US and Israeli military action against Iran triggered a chain of events that has effectively closed the Strait of Hormuz. Global oil prices surged, reaching almost US$120 per barrel by late March before easing back to around US$110.
In Australia, we import over 90% of our refined fuel and currently have strategic reserves of just 38 days – well below the International Energy Agency’s recommended 90-day minimum. When global supply chains are disrupted, Australia feels it quickly.
When oil prices rise, the first impact is felt in transport and logistics. Fuel is a core input across the economy, from freight and shipping to agriculture and manufacturing. As fuel costs increase, businesses face higher operating expenses.
Those costs are typically passed on to consumers. Groceries, building materials, delivery services and everyday goods all become more expensive. This feeds into inflation and places additional pressure on households already managing a mortgage.
Australia’s headline consumer price index was already running at 3.7% in February before the crisis deepened, according to the Australian Bureau of Statistics (ABS).
In March 2026, the Reserve Bank of Australia (RBA) responded by raising the official cash rate from 3.85% to 4.10%.
If oil prices remain elevated, similar pressures could persist. Three of the big four banks (ANZ, NAB and the Commonwealth Bank) are predicting a third interest rate increase in May, while Westpac has gone even further to forecast another three rises in 2026 (May, June and August).
For homeowners, this creates a double squeeze. Everyday costs are rising at the same time as mortgage repayments. Household budgets that were already under pressure are being stretched further.
Rising interest rates reduce borrowing capacity, which directly affects the property market. Two or three further rate rises from here would shrink the pool of buyers who can finance a purchase at today’s prices.
When borrowing capacity falls and household confidence softens, buyer activity across the property market tends to slow. This is already reflected in SQM Research’s revised 2026 forecasts, which cut the weighted capital city price growth outlook from +6% to +10% down to just 0% to +3%, with Sydney forecast to fall between 2% and 6% and Melbourne between 1% and 4%.
However, supply dynamics are also shifting within the property market. The oil crisis is also adding new pressure to construction costs. Rising fuel costs push up freight, materials and labour, making that gap harder to close. The Housing Minister has already held emergency roundtables with industry leaders about supply chain disruptions, including potential shortages of inputs like PVC pipe.
This has two key implications for the property market. First, new builds become more expensive, which can push up prices for newly constructed homes. The cost of a new home was already up by 3.7% over the year to February 2026, according to the ABS, the fastest annual increase since October 2024.
The second implication is that developers may delay or cancel projects if margins are squeezed, reducing the pipeline of new housing supply.
The National Housing Supply and Affordability Council recently confirmed that Australia’s housing supply pipeline is already behind schedule, with completion of the National Housing Accord’s goal of 1.2 million new homes now expected in June 2030, as opposed to the original target of July 2029.
Less new housing coming onto the market means prices are unlikely to fall sharply, even if demand slows
The current environment calls for preparation.
If you are an existing borrower on a variable interest rate, now is a good time to stress-test your repayments. Could you comfortably manage repayments if the cash rate rose by a further 0.50 or 0.75 percentage points? If the answer is no, consider speaking to a broker about whether your current mortgage structure is right for your situation.
If you are looking to buy, understanding your borrowing capacity across different interest rate scenarios matters more than it has in years. A pre-approval gives you a clear picture of where you stand and means you are not scrambling to secure a mortgage when the right property comes along.
Location also matters more in this environment as not all markets are responding the same way. According to Cotality, Perth prices were up 24.3% over the year to March. Brisbane was up 19% and Darwin 19.7%. Sydney and Melbourne, by contrast, grew just 4.8% and 3.4% respectively – and both are now trending downward.
For those committed to Sydney or Melbourne, softer conditions may mean more negotiating power and less competition than buyers faced 12 months ago.
In an uncertain market like this, the difference between a good outcome and a poor one often comes down to preparation. The good news is that you do not need to navigate it alone. A Shore Financial broker can give you a clear picture of what you can borrow and help you structure your mortgage in a way that suits your circumstances. The market will keep changing. Having the right advice in your corner means you are ready for it.
Every borrower’s situation is different. To find out where you stand and what your options are, call Shore Financial on 1300 416 700, email info@shorefinancial.com.au or fill in this online form.
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