The Australian sharemarket fell on Friday as the escalating conflict in the Middle East raised the prospect of sustained disruptions to energy markets and oil prices, with implications for inflation and global commerce.

The S&P/ASX 200 Index was down 111.10 points, or by 1.2% to 8829.50, taking total losses for the week to around 4%. A weekly drop by this amount would be the worst week for the benchmark since a 4.2% drop after the Reserve Bank of Australia delivered a shock rate rise in May 2022. Bond markets now expect more than two RBA rate rises by the year’s end after a jump in bond yields.

Capital.com senior market analyst Kyle Rodda said markets have started to price in a degree of price shock from oil, which has watered hopes for further US rate cuts and flipped the swaps curve in the Eurozone.

“The risk of an ongoing and intensifying supply shock that heavily disrupts energy markets and leads to higher inflation and weaker economic growth has risen,”

Overnight Brent surged, rising by 4.9% to $US85.41 per barrel, while US WTI Crude gained almost 7% to $US79.76. On the ASX, Woodside Energy rose 1% and Santos by 1.4%. Among the refiners, Ampol lost 1% and Viva Energy 3.4%.

Spot gold retreated overnight to below $US5100 an ounce with investors instead jumping into the US dollar, which was tracking its best week since 2024. Newmont dropped 2.4% and Evolution Mining 2.9%

Material fell 4% as BHP and Rio Tinto both lost more than 4% and Fortescue Metals 2.9%. It came as China’s state-backed iron ore buyer has summoned traders and urged them to refrain from buying new BHP Group cargoes to sell to buyers in the country after they were found to be flouting a restriction on the purchases.

Investors continued to buy tech stocks with WiseTech Global up 3.7% and Xero by 3%.

In corporate news, Magellan Financial rose 0.5% after its chairman Andrew Formica wrote to shareholders urging their backing for a planned merger with Barrenjoey before a vote next month. It came as the Lowy family took a 5.1% stake in the group.

SkyCity Entertainment fell 2.8% as it faces potential class action proceedings over its online casino operations in New Zealand. SkyCity said it denies any liability and will actively defend the proceedings.

Tivan fell 2.7% as it agreed to provide up to $1 million in funding to support Indigenous communities in Central Australia through a partnership with the Central Land Council.