War is the most damaging form of economic shock, new International Monetary Fund research reveals, as a breakdown in the Middle East ceasefire adds more fuel to Australia's inflation fire.
Fewer than 24 hours after it was struck, the two-week truce was already on life support after Iran closed the Strait of Hormuz following Israeli attacks on Iranian ally Lebanon.
Ship tracking data showed only three vessels passed the vital freight corridor on Wednesday, compared to 135 daily crossings before the war, Commonwealth Bank commodities analyst Vivek Dhar said.
The uncertainty over the truce and the long-term future of the war caused oil prices to jump back up to around $US97 a barrel from an intraday low of $US90.60.
"It's hard not to see more upside risks to current prices than downside risks," Mr Dhar said in a research note on Thursday.
North Sea oil cargoes were being bid at $US20 a barrel higher than the benchmark crude price, underscoring how tight physical markets remain, which will flow through to futures markets if the strait remains closed.
That's bad news for the Reserve Bank and Australian businesses that had been hoping the ceasefire would provide a reprieve from inflation.
If enacted, the two-week pause would give businesses breathing room to restock much-needed supplies, Oxford Economics Australia lead economist Ben Udy said.
But Mr Udy still expected the RBA to lift rates in May.
Ongoing fuel shortages, as well as disruption to other vital supply chains such as fertiliser, which affects food prices, and helium, which is essential for computer chips, would keep inflation elevated for an extended period.
A 10 per cent rise in the oil price adds up to 0.4 percentage points to consumer prices over two years, according to NAB economist Josh Copeland.
It was essential Australia used the window to replenish fuel stockpiles and bolster resilience in case hostilities resumed, Australian Chamber of Commerce and Industry chief executive Andrew McKellar said.
"However, the risks have not disappeared. Businesses remain exposed to global supply shocks, and Australia cannot assume that the break in conflict will hold," he said.
War will have lasting effects on the global economy, according to research released by the IMF late on Wednesday (AEST).
Countries in which wars occur naturally face higher costs, but the ripple effects reach far and wide.
"These costs extend well beyond short-term disruption, with enduring consequences for both economic potential and human well-being," said Hippolyte Balima, Andresa Lagerborg and Evgenia Weaver, researchers at the IMF, which acts as a global "financial firefighter".
Losses to economic output as a result of conflict typically exceed those resulting from financial crises or severe natural disasters and the economic scars can persist even a decade later, the research found.
Uncertainty around the ceasefire and Strait of Hormuz meant the economic recovery could not begin until the war came to a proper conclusion, Treasurer Jim Chalmers said.
"The Australian people are hostage to developments in the Middle East," he told reporters in Melbourne.
"The end of this war can't come soon enough."
Consumer sentiment remained near rock bottom ahead of the ceasefire news, despite a slight uptick last week as motorists enjoyed some temporary relief from rising fuel prices.
Household sentiment picked up 3.5 points to 62.3 in the week leading into Easter, coinciding with the government's decision to cut the fuel excise, according to the ANZ-Roy Morgan consumer confidence index.
Businesses are also feeling the pinch.
In Australia's construction industry, where fixed-price contracts remained the norm, builders were particularly vulnerable to supply shocks, said Housing Industry Association managing director Jocelyn Martin.
Prices for some building materials such as PVC pipes are up by more than a third in the space of a few weeks. In many cases, builders have no choice but to swallow the cost.