Australia's economic outlook is at risk as the ongoing conflict in the Middle East, particularly the war involving the US and Israel against Iran, disrupts global oil supplies. According to new Treasury modeling, inflation could surge past 7% if oil prices escalate to $200 per barrel. Currently, inflation is expected to peak at 5% by June 2026 due to the closure of the Strait of Hormuz, which has significantly impacted fuel availability. The Treasurer, Jim Chalmers, acknowledged that while Australia is better positioned than many countries to handle these challenges, the economy remains vulnerable to international developments. In a worst-case scenario, unemployment could rise to 5%, and the economy may contract in the September quarter, although a recession is not anticipated. The government has set aside $11.9 billion over five years to enhance fuel reserves and has implemented measures such as halving the fuel excise to mitigate the impact of rising oil prices. Additionally, there is ongoing debate about imposing a new 25% tax on gas export revenue, which the government has so far avoided to maintain relationships with key Asian trading partners.