Global Markets | Australia Inc starts to feel Iran war fallout, raising stagflation risk

Australia's corporates are starting to count the cost of the war in the Middle East, with profit warnings from two top companies and a crash in business sentiment pointing to pain from rising prices, raising the risk of stagflation.

The country's top airline Qantas Airways and second largest lender Westpac Banking Corp flagged their earnings could be hurt by soaring fuel prices and the impact ‌on customers, as feared ⁠by the ⁠country's central bank.

"With the supply shock from the energy market disruption expected to result in higher inflation and higher interest rates, an expected slowing in economic growth will create a more challenging environment for some customers," Westpac said.


The updates are some of the clearest indications yet on how the Middle East conflict and the resultant fuel crisis are impacting the bottom lines of companies in Australia.

They came the same day as surveys showed business confidence and consumer sentiment have slumped and Reserve Bank of Australia Deputy Governor Andrew Hauser said the country could be facing "the central bank's nightmare: the stagflationary shock - ⁠inflation up, ‌activity down."

Qantas warned its jet fuel bill for the second half of its financial year ending June could be up to A$800 million ($567 million) or 32% higher than it previously forecast due to ⁠a jump in oil prices, and said it had cut flights and hiked fares.

"Jet fuel prices have more than doubled and remain highly volatile," Qantas said in a market update, adding it was closely monitoring the "dynamic environment" and could take further steps to offset the impact of fuel cost increases.

Qantas also said it had held off starting a planned A$150 million share buyback due to the heightened uncertainty.

Westpac increased credit provisions, anticipating borrowers faced a tougher outlook due to rising prices and interest rates. It said provisioning was at the highest level since the COVID-19 pandemic.

THE LONGER THE WAR, THE MORE IT WILL HURT

Westpac's warning came ‌as more of a surprise than the airline's, with investors sending the bank's shares down 3.7%, while Qantas fell 1%.

"Westpac is interesting because they're talking about potentially higher bad debts on some of their energy-exposed customers," said Omkar Joshi, chief investment officer ⁠at Opal Capital Management.

Investors said the longer the Middle East conflict drags on, the more of a material impact it would have, which would lead to more profit warnings.

National Australia Bank's index of business confidence tumbled 29 points to -29 in March, a magnitude only seen during major crises, such as the pandemic in 2020. A separate survey showed consumer sentiment dropped by 12.5% in April to its lowest in more than two years.

In New Zealand, a2 Milk slashed its fiscal 2026 profit guidance on Monday, citing disruptions to its supply chain caused by the Middle East conflict.

Opal Capital Management's Joshi said recession or stagflation was "definitely a real risk".

"And has the risk increased in the last six weeks? I'd say definitely it has."

($1 = 1.4114 Australian dollars)