<div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>The billions of dollars spent on cushioning Australia from the worst impacts of the fuel crisis may not be enough to shield the country from the economic firestorm of a protracted conflict in the Middle East, the government has warned in tonight's </span><a href="https://www.9news.com.au/federal-budget" rel="" target="_blank" title="federal budget."><span>federal budget.</span></a></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Large swathes of the budget papers were dedicated to touting the government's response to the global oil shock triggered by Israel and </span><a href="https://www.9news.com.au/donald-trump" rel="" target="_blank" title="US President Donald Trump's "><span>US President Donald Trump's</span></a><span> war on Iran, including securing one billion litres in extra petrol and diesel and a $7.5 billion investment in local supply and storage.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>But the government is still hanging its hopes on global oil prices declining by mid-way through the year, and stabilisation by the same time in 2027.</span></div></div><div><div id="adspot-mobile-medium"></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><strong><span>READ MORE:</span></strong><span> </span><a href="https://www.9news.com.au/national/federal-budget-2026-winners-losers-workers-first-home-buyers-property-investors-ndis/55ede4e3-2ea7-4315-93f9-0f08ca98d2b3" rel="" target="" title=""><strong><span>WINNERS AND LOSERS: Federal budget 2026</span></strong></a></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><strong><span>READ MORE:</span></strong><span> </span><a href="https://www.9news.com.au/national/federal-budget-2026-tax-refunds-offered-to-small-business-losses/db4828b2-8887-4873-a35c-738c4dbea424" rel="" target="_blank" title="Tax refunds coming for businesses who report losses"><strong><span>Tax refunds coming for businesses who report losses</span></strong></a></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>In case the war in the Middle East is prolonged or escalates, Treasury modelled a "severe" scenario in which oil prices would peak at $US200 per barrel by September and take three years to calm down.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>And if Trump's latest remarks – in which he claimed the fragile ceasefire with Iran is hanging on by a thread and is on "massive life support" – are anything to go by, there is a risk it could be edging closer to reality.</span></div></div><div><div class="OUTBRAIN" data-reactroot="" data-src="//www.9news.com.au/national/federal-budget-2026-nightmare-scenario-for-australians-if-middle-east-war-continues/886d30df-d354-4f3d-a538-498595984a98" data-widget-id="AR_5"></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Under the grim scenario, Australian household budgets and businesses would suffer further as inflation drives up the cost of living.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>"This could occur if the conflict is protracted or if an escalation further damages energy and export infrastructure across the Middle East and shuts off oil supply from the region, including through the Red Sea trade route," the budget papers state.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>"The scenario assumes there are corresponding price increases for related commodities, including (natural gas), fertiliser and petrochemicals. Global risk premia are also expected to be higher, and household and business confidence are expected to be lower."</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>In this case, it would take until June 2029 for oil prices to eventually recede to $US80 per barrel.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Treasurer Jim Chalmers warned Australia's economy would take a nosedive if this scenario unfolds – although says a recession wouldn't come to pass.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>"We would still avoid a recession, but unemployment would spike to pre-pandemic levels and inflation would peak above 7 per cent," he said.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>"As Australians, we confront these serious challenges together from a position of strength.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>"We know there's more work to do because the immediate costs and consequences of this war are already serious and could be severe."</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><strong><span>READ MORE:</span></strong><span> </span><a href="https://www.9news.com.au/national/federal-budget-2026-government-unveils-250-dollar-tax-relief-minimum-tax-on-wealth-trusts/885f4657-b89b-431d-8f0d-330459a1dfe9" rel="" target="_blank" title="More than 13 million Aussies to get $250 tax bonus"><strong><span>More than 13 million Aussies to get $250 tax bonus</span></strong></a></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><strong><span>READ MORE: </span></strong><a href="https://www.9news.com.au/national/federal-budget-2026-whats-in-budget-for-different-generations/1bd719f1-f052-4915-93c4-5d541011b533"><strong><span>Is this budget for the kids? What's on offer for boomers through to Gen Alpha</span></strong></a></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Though a recession would indeed by narrowly avoided, the government predicted that it would result in one quarter of negative growth and "persistent weakness" in the economy.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Inflation would peak at 7.25 per cent this December and it would take two quarters longer to return to the Reserve Bank's target range of 2-3 per cent, compared to current forecasts. Inflation is currently at 4.6 per cent.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Unemployment would also hit five per cent in 2027-28 for the first time since the pandemic and take years to decline to 4.5 per cent in early 2030.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>But in a best-case scenario, Treasury forecasts inflation to peak about five per cent by the middle of this year.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>"For the same reasons, it's expecting growth to come in half a percentage point lower next financial year, to be 1.075 per cent overall," Chalmers added.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>However the treasurer did offer some words of encouragement after the budget's "severe" scenario modelling detailed every Australian's worst nightmare.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>He told the nation that Australia can emerge from this global crisis "stronger, fairer, more productive and more resilient" than before.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>"We didn't decide when this war began and have no control over when it will properly end," Chalmers told Australians during his budget speech.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>"But how we respond is up to us."</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><h3><span> </span><strong><span>Iran War's massive impact on budget</span></strong></h3></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>This year's federal budget was influenced in large part by the impact of the war in the Middle East, a conflict that has triggered severe economic uncertainty and drastically driven up inflation around the globe.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Six key budget initiatives in 2026 are a response to the global oil shock, with $14.8 billion diverted to a fuel resilience package.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>This includes a $3.2 billion fuel reserve, $1 billion in interest-free loans for manufacturing and logistics businesses, the $2.9 billion cost of halving the fuel excise and reducing the heavy vehicle road user charge for three months, and a 20 per cent gas export reserve.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>There will also be a $55 million investment in a pilot program known as the Transport Resilience and Capacity Kickstart, which aims to incentivise greater volumes of local ship and rail freight.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><h3><span> </span><strong><span>Electrifying Australia's car fleets</span></strong></h3></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>There will be an expected 25 per cent fringe benefits tax (FBT) discount for drivers who have bought an electric car which costs over $75,000 by April 2027.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>All electric car owners will be able to claim the FBT discount by April 2029.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Up until now, your car needed to cost less than $75,000 to be eligible for this tax break incentive.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Despite a years-long debate over an EV road user charge, there is no mention of it in the 2026 budget papers.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><em><strong><span>NEVER MISS A STORY: Get your breaking news and exclusive stories first by following us across all platforms.</span></strong></em></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><ul><li><p><em><strong><span>Download the 9NEWS App here via</span></strong></em><span> </span><a href="https://apps.apple.com/au/app/9news/id1010533727"><em><strong><span>Apple</span></strong></em></a><span> </span><em><strong><span>and</span></strong></em><span> </span><a href="https://play.google.com/store/apps/details?id=nineNewsAlerts.nine.com&amp;hl=en_AU&amp;pli=1"><em><strong><span>Google Play</span></strong></em></a></p></li><li><p><em><strong><span>Make 9News your preferred source on Google by</span></strong></em><span> </span><a 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