the Australian government considered a s.cenario in which an escalation of the conflict with Iran could push oil prices to $200 per barrel and trigger a global economic crisis

The Department of Finance released this analysis on Tuesday as part of its budget documents, warning that such a situation could arise if the conflict continues protracted or if escalation damages energy and export infrastructure in the Middle East, cutting off oil supplies from the region, including through the Red Sea trade route.

Under this scenario, oil reaching $200 per barrel between July and September would lead to a contraction in the Australian economy in that quarter. Domestic inflation would rise to 7.25% year-on-year by the end of the fourth quarter, and unemployment would also increase.

Shipping in the Strait of Hormuz remained suspended on Tuesday, and oil prices rose after President Donald Trump rejected Iran's latest proposal and signaled a ceasefire might not hold. Brent crude rose 2% to above $106 per barrel.

A Treasury Department report said rising prices for fuel, fertilizer, and other petrochemical products will make some businesses unviable and reduce margins for others.

"We're very dependent on what happens," Finance Minister Jim Chalmers told reporters on Tuesday. "The consequences of the war in the Middle East are already severe. There's a risk that they could become very severe, and we've tried to give you a sense of that severity."

A protracted war would also lead to higher prices for Australian coal and LNG exports, providing some support to the economy.

The Labour government's central forecast assumes inflation will peak in the three-month period ending in June and then begin to decline as the war ends. Chalmers noted that this forecast "depends heavily on developments abroad for obvious reasons, including the duration of the conflict."