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Speaker 1: Already, and this is the Daily This is the Daily OS. Oh,

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Speaker 1: now it makes sense.

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Speaker 2: Good morning and welcome to the Daily OS. It's Wednesday,

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Speaker 2: the fourth of March.

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Speaker 1: I'm Emma Gillespie, I'm Billy fitz Simon's and m very quickly,

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Speaker 1: before we get into today's deep dive, I do want

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Speaker 1: to say that this is the first podcast we are

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Speaker 1: recording in our new studio. It is our first one together,

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Speaker 1: it is, and if the sound is a little bit off,

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Speaker 1: it is a work in progress. Yes, I promise we

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Speaker 1: will stop saying that.

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Speaker 2: As we have planned, as we have flagged a few times,

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Speaker 2: we are working progress on our new studio set up.

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Speaker 1: Yes, but it is exciting that we are coming to

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Speaker 1: you today from a brand new studio. And now let's

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Speaker 1: get into the new some very big news that we

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Speaker 1: have already covered, but we're looking at things from a

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Speaker 1: different angle today.

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Speaker 2: That's right, Billy. It really is one of those news

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Speaker 2: weeks where there is one major global story dominating everything,

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Speaker 2: but there are some important conversations coming out of that

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Speaker 2: about how this impacts us here in Australia. So over

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Speaker 2: the weekend, the US and Israel launched strikes on Iran,

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Speaker 2: killing the country's supreme leader, and in the days since,

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Speaker 2: we've seen an escalating exchange of retaliatory strikes across the

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Speaker 2: Middle East. But here at home, as I mentioned, attention

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Speaker 2: is now turning to the potential cost of living impacts

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Speaker 2: of the conflict. So today we are going to unpack

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Speaker 2: what a war thousands of kilometers away means for everyday

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Speaker 2: expense is here like petrol, and why the Reserve Bank

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Speaker 2: is already watching closely.

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Speaker 1: M I think before we discuss the more local angle,

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Speaker 1: I'm sure you know no one would have missed the

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Speaker 1: news that these strikes happened over the weekend, But because

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Speaker 1: there has been so much happening, I think it is

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Speaker 1: worth just to briefly go back to what exactly happened

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Speaker 1: on the weekend that has caused all of this.

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Speaker 2: Yep, So just to quickly bring you up to speed.

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Speaker 2: Over the weekend, the United States and Israel launched joint

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Speaker 2: strikes on Iran. Those strikes killed the country's supreme leader,

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Speaker 2: Ayatola Ali Khamene. Iran has since launched retaliat tree strikes

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Speaker 2: across the region, and this has significantly escalated. There have

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Speaker 2: been strikes on southern Lebanon right across the UAE, and

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Speaker 2: this all follows a breakdown of nuclear negotiations between the

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Speaker 2: US and Iran. Donald Trump, the US President, had threatened

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Speaker 2: this kind of action in the lead up to these strikes,

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Speaker 2: so we had a sense that this was coming. But

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Speaker 2: it's well and truly here and the world is reacting.

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Speaker 1: And so to understand how it's going to impact Australia,

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Speaker 1: I think we should first understand what has the Australian

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Speaker 1: government's response been.

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Speaker 2: Yeah, so the government has been really clear that Australia

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Speaker 2: wasn't involved in those initial strikes and it did not

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Speaker 2: receive advance warning of those strikes. That being said, though,

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Speaker 2: Prime Minister Anthony Albanesi released a statement essentially condemning the

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Speaker 2: Iranian regime, condemning the Ayatola who died in those strikes

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Speaker 2: and all of the atrocities committed as part of that regime.

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Speaker 2: Deputy Prime Minister Richard Miles also confirmed on Monday that

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Speaker 2: no joint US Australian facilities were used in the strikes

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Speaker 2: on the weekend, and Miles was also frank in his

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Speaker 2: comments about the economic impacts of this conflict, So he

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Speaker 2: told ABC News Breakfast on Tuesday. Quote. There could easily

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Speaker 2: be an economic dimension to this, and it's a function

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Speaker 2: of how long it goes. We're very mindful of that

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Speaker 2: and looking at what potential economic impacts will be.

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Speaker 1: And I think that's what we want to focus on today,

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Speaker 1: the economic impacts for us here in Australia, because I've

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Speaker 1: been hearing the words cost of living crisis getting worse,

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Speaker 1: and I think that's really important context because obviously we've

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Speaker 1: spent the last three years or so talking about this

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Speaker 1: cost of living crisis that Australia and other countries have

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Speaker 1: been in. Can you explain why a conflict in the

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Speaker 1: Middle East has the potential to hit Australian households.

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Speaker 2: Well, Billy, It all comes down to oil, which I

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Speaker 2: know doesn't sound very exciting, but there's a lot attached

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Speaker 2: to this and a very specific stretch of water called

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Speaker 2: the Strait of Home muhs now. This strait is a

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Speaker 2: thirty three kilometer wide shipping lane on Iran's southern border.

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Speaker 2: To give you a sense of how significant this patch

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Speaker 2: or straight is, roughly twenty to twenty five percent of

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Speaker 2: the world's oil and liquefied natural gas, which is used

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Speaker 2: to heat homes and generate electricity. Twenty to twenty five

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Speaker 2: percent of that is shipped through this strait south of

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Speaker 2: Iran every single day. That's around twenty million barrels. So

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Speaker 2: we're talking about a really important trade passage.

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Speaker 1: Okay, so the Strait of Homus is very important.

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Speaker 2: Here.

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Speaker 1: Has the current conflict disrupted that.

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Speaker 2: Shipping lane well, according to Iranian state media, it is

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Speaker 2: quote practically closed, so they have declared it orbit shot.

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Speaker 2: At least three oil tankers have already been struck near

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Speaker 2: that straight hundreds more are anchored just outside, waiting for

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Speaker 2: instruction on whether or not it's safe to proceed or

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Speaker 2: where they can go. Major shipping companies have announced that

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Speaker 2: they are going to stop using this shipping lane entirely,

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Speaker 2: and that will mean re routing ships around the southernmost

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Speaker 2: point of Africa, a region called the Cape of Good Hope,

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Speaker 2: which is the longest possible alternative shipping route that will

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Speaker 2: add thousands of kilometers to each journey for these massive

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Speaker 2: shipments of oil and gas sparrels.

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Speaker 1: And one of the headlines that I've seen a lot

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Speaker 1: since Saturday is that the price of oil has gone up,

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Speaker 1: and so I presume that's why because this strait has

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Speaker 1: been closed.

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Speaker 2: Yeah, there's already been an impact on global markets, with

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Speaker 2: oil prices jumping around eight to thirteen percent on Monday alone.

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Speaker 2: Before the conflict, oil was sitting at around sixty seven

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Speaker 2: US dollars a barrel. By Monday it had already jumped

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Speaker 2: to around seventy nine dollars.

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Speaker 1: So if I went to the petrol station today, what

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Speaker 1: does that look like for me?

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Speaker 2: Well, it shouldn't look like anything for you today, Billy.

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Speaker 2: And this is an interesting angle to all of this.

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Speaker 2: The good news, if you can call it that is

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Speaker 2: there will be a delay, So the worst of whatever

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Speaker 2: happens overseas usually takes a week or two to hit

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Speaker 2: us here in Australia about seven to ten days. A

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Speaker 2: widely accepted rule of thumb is that every ten dollar

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Speaker 2: increase in the price of a barrel adds about ten

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Speaker 2: cents to the cost of a leter of fuel here

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Speaker 2: at the pump in Australia. Some economists are estimating that

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Speaker 2: oil will reach ninety five US dollars a barrel in

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Speaker 2: the coming weeks, and at that point we can expect

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Speaker 2: to be paying close to two dollars elita here, which

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Speaker 2: would be about an extra twenty five to twenty eight

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Speaker 2: cents a later on the pre conflict prices.

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Speaker 1: Yesterday on the news, I saw people talking about panic buying,

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Speaker 1: so people rushing to fill up their cars with petrol.

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Speaker 1: Has that been happening and does that need to happen?

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Speaker 2: Yeah, that is certainly a concern, and the NRMA has

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Speaker 2: actually warned drivers against doing this. Their spokesperson, Peter Curry,

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Speaker 2: addressed that directly this week. He said to drivers, please

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Speaker 2: do not panic. He also had a message for retailers, saying, quote,

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Speaker 2: do not use this as an excuse to jack up

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Speaker 2: your prices and charge Australians more than they should be paying.

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Speaker 2: But you are right, Billy, we could see prices increase

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Speaker 2: faster than perhaps we should due to that panic, that

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Speaker 2: sense of okay, well we all need to fill up

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Speaker 2: right now before things get worse in seven to ten

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Speaker 2: ish days.

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Speaker 1: Okay, we're going to talk about the broader picture of

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Speaker 1: what this could mean for the cost of living crisis.

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Speaker 1: But first, here is a quick message from today's sponsor.

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Speaker 1: And if the conflict keeps going, which at this stage

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Speaker 1: it is, and we have no idea of knowing how

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Speaker 1: long this is going to go for Do you think

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Speaker 1: that the cost of living impacts will go beyond petrol

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Speaker 1: and oil.

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Speaker 2: This is a really big unknown, but we do have

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Speaker 2: previous conflicts in history to look to and learn from.

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Speaker 2: A prolonged conflict could have implications for the entire economy.

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Speaker 2: And that's because believe oil prices stay elevated. That flows

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Speaker 2: into transport costs, which flows into the price of goods

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Speaker 2: and services, so groceries, manufacturing, basically anything that needs to

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Speaker 2: be moved from A to B. And we have seen

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Speaker 2: it before, like when Russia launched its invasion of Ukraine

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Speaker 2: that impacted economies around the world, including Australia. We saw

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Speaker 2: oil prices saw and as a result, other costs increased too.

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Speaker 1: One thing I've also heard people talk about is the

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Speaker 1: cache rate and that this could mean that interest rates

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Speaker 1: are increased when the Reserve Bank of Australia needs to

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Speaker 1: make their next decision, which I believe is this month.

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Speaker 2: Yep, we're just a few weeks away from the next

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Speaker 2: interest rate decision. Reserve Bank Governor Michelle Bullock has weighed

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Speaker 2: in on this topic this week. She delivered a speech

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Speaker 2: at the Australian Financial Reviews Business summit in Sydney on

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Speaker 2: Tuesday yesterday, And some important context here, as you flagged, Billy,

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Speaker 2: the RBA did raise interest rates in February. Inflation is

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Speaker 2: currently above the banks two to three percent target range

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Speaker 2: at three point eight percent, and that means the Central

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Speaker 2: Bank is widely expected to lift interest rates again this month.

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Speaker 2: So this conflict is really landing at an already sensitive moment.

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Speaker 1: Yeah, I guess that's an important thing to point out

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Speaker 1: that those inflation numbers and inflation already being higher than

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Speaker 1: the RBA's target. That is the context prior to this

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Speaker 1: war even.

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Speaker 2: Happening exactly so already before this the seventeenth of March

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Speaker 2: is the next RBA cash rate decision, there was already

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Speaker 2: concern that things were not heading in the direction that

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Speaker 2: the government and the RBA were hoping, Bullock said on Tuesday.

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Speaker 2: Events in the Middle East are a timely reminder that

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Speaker 2: in this world of geopolitical uncertainty, things can change quickly.

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Speaker 2: She said, it's too early to say what the impact

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Speaker 2: will be. Events are moving rapidly and there are different

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Speaker 2: ways this can play out.

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Speaker 1: Did she give any indication of what they are looking

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Speaker 1: for prior to them making the decision.

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Speaker 2: Well in terms of their considerations around the impacts of

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Speaker 2: inflation as a result of the escalating conflict in the

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Speaker 2: Middle East. Bullock has laid out two competing scenarios. So,

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Speaker 2: on one hand, a supply shock, now that's where oil

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Speaker 2: prices remain elevated for a prolonged period, that could add

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Speaker 2: to inflation pressures. Higher inflation means more rate rises for

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Speaker 2: the cash rate means more headaches for borrowers, mortgage repayments,

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Speaker 2: et cetera. On the other hand, Bullick described how a

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Speaker 2: lengthy conflict in the Middle East could damage global economic activity,

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Speaker 2: which could actually push inflation down. So, in other words,

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Speaker 2: if a war drags on and oil prices stay really

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Speaker 2: high for a long time, that doesn't just make petrol expensive,

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Speaker 2: but it makes everything more expensive. So at a certain point,

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Speaker 2: people and businesses can't afford to spend as much, so

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Speaker 2: they pull back and consumer spending slows, Production can slow,

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Speaker 2: and that's when we can see economic growth stalling, which

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Speaker 2: is also something that the RBA wants to avoid.

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Speaker 1: So one potential scenario is that inflation goes up yep,

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Speaker 1: and the other is that it goes down.

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Speaker 2: Yes, right, yeah, I mean basically that's what she said.

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Speaker 1: So let's go with the first one, where inflation goes up.

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Speaker 1: What does that actually mean for people listening today that

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Speaker 1: everything gets more expensive?

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Speaker 2: Yeah, So if this conflict escalates and we do see

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Speaker 2: that scenario play out where prices increase, the RBA already

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Speaker 2: raised those rates. Now there's a possibility for another rate

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Speaker 2: rise in March and future rate rises beyond that throughout

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Speaker 2: the year. Every rate rise feeds into mortgage repayments for

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Speaker 2: roughly one third of Australians who do have a home loan.

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Speaker 2: It also affects the cost of business loans. Now that

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Speaker 2: can eventually flow through to what you pay what we

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Speaker 2: all pay for goods and services. So it really is

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Speaker 2: a very big picture that impacts almost everyone.

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Speaker 1: Just to end, do we have any indication of how

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Speaker 1: long this war could go on for?

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Speaker 2: Well, it's a great question to ask, Billy, because so

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Speaker 2: much of these economic impacts will depend on the duration

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Speaker 2: of the conflict. Now, what we do know is that

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Speaker 2: US President Donald Trump has said right from the beginning

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Speaker 2: he is projecting four to five weeks of conflict, and

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Speaker 2: that the US was already substantially ahead of its time projections.

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Speaker 2: But it's a big butt. He did warn that the

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Speaker 2: US has the capability to quote go far longer than that.

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Speaker 2: He said, the US will do whatever it takes, So

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Speaker 2: it could be four or five weeks, it could be

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Speaker 2: several months, it could be years. Ultimately, nobody knows how

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Speaker 2: long this will last, and that's the key concern here.

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Speaker 2: There is this coalition of major oil producing countries around

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Speaker 2: the world known as the OPEC plus. It's agreed to

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Speaker 2: boost oil productions slightly to help ease the supply shortage.

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Speaker 2: So if production ramps up, oil prices shouldn't rise as

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Speaker 2: dramatically as they did during the Russia Ukraine War in

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Speaker 2: twenty twenty two. But again, and sorry to say this

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Speaker 2: and sound like a broken record, all of this depends

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Speaker 2: on how things unfold and how long the conflict lasts.

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Speaker 1: Well, we will absolutely be keeping a very close eye

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Speaker 1: on it. M Thank you for explaining that so expertly.

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Speaker 2: Thank you for having me, Billy.

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Speaker 1: And thank you so much for listening to this episode

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Speaker 1: of The Daily OS. We'll be back this afternoon with

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Speaker 1: your evening headlines, but until then, we hope you have

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Speaker 1: a great day. My name is Lily Maddon and I'm

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Speaker 1: a proud Arunda Bunjelung Calgodon woman from Gadighl country. The

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Speaker 1: Daily oz acknowledges that this podcast is recorded on the

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Speaker 1: lands of the Gadighl people and pays respect to all

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Speaker 1: Aboriginal and torrestrate island and nations. We pay our respects

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Speaker 1: to the first peoples of these countries, both past and present,