Business insolvencies and payment defaults were already at or near their highest-ever levels from mid-2025, before the Persian Gulf conflict lit a match under oil prices and hammered global growth expectations.
Smaller businesses in some of Australia's most essential, fuel-heavy industries such as agriculture, mining, manufacturing, construction and road transport, were most exposed to the shock, CreditorWatch chief economist Patrick Coghlan said.
"Australia's small- and medium-sized businesses are facing one of the most challenging operating environments we've seen in years, with cost pressures, interest rates and global volatility all converging at once," he said.
Without a timely easing in oil prices or government support, insolvencies were likely to grow as higher costs weighed on economic growth.
Businesses would have to pass on the higher costs of diesel, petrol, gas and electricity to trading partners and consumers, fanning inflation, tightening cost-of-living pressures and reducing demand in the economy, Mr Coghlan said.
"A sustained oil price of over US$125-150 per barrel ... will seriously pressure consumers' budgets and business' costs, and substantially increase the probability of recession," he said.
Sticky inflation, already beyond the Reserve Bank's target range ahead of the conflict, prompted the central bank to raise the cash interest rate to 4.1 per cent in February.
"The implications for businesses are quite clear," Mr Coghlan said.
"As long as oil prices remain very elevated, there will be increased pressures on many businesses and unfortunately the likelihood of an increase in insolvencies."
Aussie farmers had also been under significant cost pressure before the conflict began, according to rural and agribusiness bank Rabobank.Â
"Disruptions in global fertiliser markets ... and higher shipping costs for imported inputs, combined with domestic fuel price volatility, are tightening margins at a time when many producers are already managing significant and sustained cost inflation," group executive Marcel van Doremaele said.
Rabobank's first quarter survey found while one in two farmers had expected conditions to remain stable over the next 12 months, an increasing number number tipped things would get worse.
The proportion of producers with an optimistic outlook fell to less than one in five, down from 27 per cent the previous quarter.
Elevated and unpredictable fertiliser and diesel costs were likely to change farmers' cropping practices, Mr van Doremaele said.
"As we have seen before over the years, farmers have navigated geopolitical shocks and challenges such as droughts and floods, followed by adjustment periods," he said.
"And these current challenges present themselves as a new test of the resiliency and adaptability of the country's farmers and graziers."
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