In the past 48 hours, hostilities have intensified between Israel and Iran, with Israel conducting over 200 missile strikes targeting Iranian military bases and nuclear facilities.

This escalation has resulted in numerous casualties, with Iranian state media reporting at least 78 deaths in recent attacks, and hundreds more injured.

In retaliation, Iran has launched drone strikes and missile attacks, which have also caused fatalities.

As the situation develops, economists are analyzing the potential implications for the Australian economy, particularly concerning oil prices, inflation, and interest rates.

Oil prices have already shown a marked increase due to the tensions.

Brent crude futures rose more than 13 percent immediately following Israel's significant military actions, marking the largest intra-day price movement since the onset of the Russia-Ukraine conflict in 2022. While oil prices peaked, they settled around US$74.23 a barrel, a 7 percent increase from previous levels.

Analysts suggest that if these elevated prices persist, Australian petrol prices could increase by approximately 12 cents per litre.

However, the degree of this increase largely hinges on Iran's response to the strikes, particularly regarding any actions that might impact the vital Strait of Hormuz, a crucial shipping corridor for global oil and natural gas.

Approximately 20 percent of the world's oil consumption and a quarter of liquefied natural gas (LNG) trade passage through the Strait of Hormuz, heightening concerns about potential disruptions.

Market watchers indicate that if Iran were to target U.S. military bases or block access to this pivotal strait, the resulting consequences could lead to further spikes in oil prices.

The geopolitical ramifications may also affect inflation rates in Australia; however, current assessments by financial institutions indicate that the Reserve Bank of Australia (RBA) is likely to overlook any short-term inflation surges stemming from rising petrol prices, at least for now.

Historically, conflicts in the Middle East, particularly those involving Israel and Iran, have generated significant fluctuations in global oil prices.

However, experts are divided over the likelihood of a sustained increase in prices.

If disruptions to oil production facilities in Iran occur, or if attacks extend to oil infrastructures in other nations, the market could face significant price spikes.

Westpac's economic team predicts that, despite the current tensions, monetary policy in Australia will remain largely unchanged in the near term, citing a weaker global economy as a moderating factor.

Additionally, the current geopolitical climate has also influenced gold prices, which surged following the hostilities.

In contrast, U.S. bond yields have risen, reflecting a shift in investor sentiment regarding traditional safe-haven assets.

Normally, U.S. Treasuries benefit from a surge in demand during times of uncertainty, but recent trends indicate a decreasing confidence in U.S. bonds as a safe investment.

As both sides continue their military engagements, potential impacts on trade and economic stability could be considerable.

The ongoing situation necessitates close monitoring of both the conflict's developments and their ramifications for global financial markets, including commodities and Australian economic indicators.