The International Monetary Fund's World Economic Outlook has outlined a scenario in which global oil prices could reach US$130 a barrel between the fourth quarter of 2026 and first quarter of 2027. The modelling assumes the Middle East conflict persists through June 2027, with major shipping routes largely closed to commercial traffic and damaged oil infrastructure delaying supply recovery until the end of 2027.
Economists warn that such a price rise could push fuel costs significantly higher, with one analyst stating that every US$10 increase in global oil prices typically leads to a 10-cent rise in petrol prices at the pump. The scenario could leave inflation substantially higher than currently expected by the end of the year, adding to households' cost of living pressures and potentially dragging on economic growth.
The RBA's current inflation forecasts assume Brent crude will fall to US$81 a barrel. Should prices instead reach the IMF's modelled US$130 level, inflation could remain as high as 4.5% in late 2026, well above the central bank's predicted 3.6%. One economist noted that a 10% rise in fuel prices directly adds 0.33 percentage points to headline inflation.
Minutes from the RBA's recent board meeting, released on Tuesday, showed members had already discussed how the Middle East conflict had escalated and oil prices were substantially above levels assumed in August forecasts. An economist at Challenger said central banks would likely have to respond to higher fuel costs with interest rate rises.