Fuel prices are expected to rise by an additional 20 to 30 cents per litre in the coming weeks, driven by the ongoing conflict in the Middle East, which has pushed global oil prices to their highest level since mid-May. The international benchmark for oil, known as Brent crude, reached nearly $110 a barrel before settling just above $108 in late Friday trading. This surge in oil prices has raised concerns about the global economy, prompting investors to move money away from stocks and bonds as uncertainty grows. Adding to these concerns is a proposal by former U.S. President Donald Trump to give every U.S. adult citizen a $5,000 "dividend" after the November mid-term elections, which has raised worries about the U.S. financial situation. This has led to rising U.S. bond yields, reaching nearly 5%—the highest since 2007—due to expectations of higher energy costs and the need for the U.S. Federal Reserve to raise interest rates again. In Australia, the 10-year bond rate has climbed to 5.38%, its highest level in 15 years. Steve Miller, an investment strategist at fund manager GSFM, described the current situation as a "deadly cocktail" of high oil prices, American fiscal policies, and concerns about the independence of the U.S. Federal Reserve. He criticized Trump's $5,000 promise as an example of short-term political gain that could worsen the U.S. deficit. Tai Hui, a chief market strategist at JP Morgan Asset Management, noted that rising long-term borrowing rates typically reduce the appeal of stocks, as investors reconsider the balance between riskier shares and the higher returns available from safer bonds. This trend has been visible in Australia, where the S&P/ASX 200 index is on track to fall by 3% for the week, ending below the level it was at the same time last year. However, Hui pointed out that optimism about the global economy and the growing interest in artificial intelligence are supporting share markets, especially in the U.S. Since the start of the U.S.-Israel war on Iran in late February, the S&P 500 index has risen about 10%, while the ASX 200 has declined by 5%. Investors are now wondering when the steady increase in interest rates will lead to a significant shift of money from stocks into bonds. Economists have warned that we may be entering a new era of higher interest rates, and financial markets have increasingly bet that the Reserve Bank of Australia will raise rates again in September, with an 80% chance priced in. Jonathan Kearns, the chief economist at Challenger, said the RBA would need to respond to any signs that inflationary pressures are not easing as expected, despite the economy's resilience. He noted that the RBA is likely to raise rates in September, emphasizing the central bank's need to control inflation, which is expected to reach 2.5% only by early 2028, marking a potential seven-year period of higher inflation. Vivek Dhar, head of commodities research at Commonwealth Bank, warned that diesel prices could rise by 10 to 30 cents per litre in the coming weeks, increasing from over $2.50 a litre currently. Unleaded petrol prices in major east coast cities could climb from around $2.10 to about $2.30 over the next few weeks, based on a rule of thumb that estimates a 10-cent increase at the pump for every $1 rise in the crude oil benchmark. Dhar, based in Singapore, said conversations with energy producers and traders at a major energy conference revealed widespread uncertainty about the next six to 12 months. He expects Brent crude prices to fluctuate between $70 and $100 a barrel in the near future, until the world adapts to supply workarounds in the Strait of Hormuz. However, he emphasized that the more pressing issue is the supply of refined products, particularly diesel. While crude oil often receives more attention, it is the refined products that have a greater impact on the economy and inflation, and disruptions in their supply are a major concern.