Key takeaways
- The ongoing conflict in the Middle East and disruption to the Strait of Hormuz is driving sustained cost pressures across the Australian economy, particularly in fuel, freight, insurance and supply chains.
- Rising inflation, weaker growth and higher interest rates are increasing financial distress risks across multiple sectors.
- Directors should proactively prepare for potential liquidity pressures, counterparty insolvency and their own duties relating to insolvent trading.
- Early engagement with restructuring advisers and key stakeholders can materially improve outcomes and preserve strategic optionality.
- The statutory safe harbour regime remains an important, but underutilised, protection for directors facing prospective insolvency risks.
The economic impact of the Strait of Hormuz disruption
Since the conflict began in late February 2026, the effective closure of the Strait of Hormuz has disrupted approximately one fifth of the world’s oil supply and one fifth of global natural gas flows. Brent crude oil prices surged by 51% in March alone, and as at 8 May 2026 remain above US$100 per barrel, at times exceeding US$114, amid persistent volatility driven by sporadic clashes between US and Iranian naval forces in the Strait. National prices for refined petroleum products (diesel and petrol) have reached record highs. Australia is particularly exposed to disruptions in the flow of crude oil, as it imports around 90% of its refined liquid fuels.
The ongoing outlook for shipping transiting the Strait is difficult to forecast. Prices will remain high until long-term supply recovers. Businesses are facing higher costs of freight, insurance and agricultural inputs, as well as broader supply chain disruption and uncertainty.
Inflation, interest rates and stagflation concerns
The Reserve Bank of Australia, in its May 2026 Statement on Monetary Policy, forecast inflation to peak near 4.8% to 5.0% around mid-2026, while GDP growth has been reduced to just 1.3%, raising the spectre of stagflation.
On 6 May 2026, The RBA raised the cash rate to 4.35%, its third increase this year (from 3.60% in January), and signalled that further rate rises cannot be ruled out while inflation remains above target. RBA Governor Michele Bullock noted bluntly that the oil price shock has made Australians ‘poorer and there is no way out of that’.
Government support measures
Drawing on aspects of the COVID-19 pandemic response, state and commonwealth governments have introduced a range of measures aimed at cushioning the financial impact on consumers and businesses.
On 13 March 2026, the Federal Government announced it would release more than 762 million litres of petrol and diesel from domestic reserves by way of a 20% reduction in the Minimum Stockholding Obligation for diesel and petrol.
On 30 March 2026, the Federal Government announced it would halve the fuel excise by 26.3 cents per litre for three months with effect from 1 April 2026. The measure is expected to cost $2.55 billion. National Cabinet also agreed to a further 5.7c per litre reduction in the fuel excise, to be funded by GST revenue gains accruing from higher petrol and diesel prices.
On 30 March 2026, National Cabinet endorsed a four-level plan to coordinate fuel supply management across all levels of government, which provides for escalating government intervention (including potential fuel rationing and supply prioritisation to critical sectors) if conditions deteriorate. Australia currently sits at level two (‘Keeping Australia Moving’).
On 1 April 2026, in a true echo of the pandemic supports, the Federal Government announced a suite of tax measures aimed at supporting small businesses, including:
- delaying recovery of unpaid tax debts for certain industries
- remission of interest and penalties on unpaid debts
- more generous ATO payment plans
- varying PAYG instalments where businesses have been affected by fuel supply issues.
The ATO has also established a dedicated small business channel to access relief provisions.
On 2 April 2026, Prime Minister Anthony Albanese, announced interest-free loans for transport and freight companies as well as fuel and fertiliser producers through the $1 billion Economic Resilience Program.
Financial distress risks are rising
Notwithstanding these support measures, the increased cost pressures arising from the conflict are likely to drive increased financial distress and insolvency for Australian businesses.
Sectors most directly exposed include:
- mining
- agriculture
- logistics and transport
- tourism, travel and accommodation
- construction.
Many of these industries were under pressure before the outbreak of hostilities.
Depending on how long these conditions persist, secondary and tertiary impacts are also likely to emerge across sectors vulnerable to shifts in discretionary consumer spending, including retail, hospitality, the arts and the not-for profit sectors, and in the real estate leasing businesses that rely on retail tenants.
The insolvency outlook is stark. ASIC has identified insolvency-related misconduct as an enforcement priority for 2026, and the Australian Taxation Office has resumed aggressive debt recovery, issuing over 84,000 Director Penalty Notices in FY2024–25 alone, a 136% increase on the prior year.
Corporate impacts are already emerging
The corporate impact is already materialising.
On 14 April 2026, Qantas Airways warned that its jet fuel bill for the second half of the financial year could be up to A$800 million (or 32%) higher than previously forecast, noting that jet fuel prices had more than doubled. Qantas responded by cutting domestic capacity by five percentage points, increasing fares and deferring a planned A$150 million share buyback.
On the same day, ANZ Banking Corp announced it had increased credit provisions to their highest level since the COVID-19 pandemic, warning that ‘an expected slowing in economic growth will create a more challenging environment for some customers’.
Why directors need a ‘distress readiness kit’
Boards navigating these pressures must be vigilant to counterparty insolvency and should have a ‘distress readiness kit’ ready to be deployed to manage cash flow volatility and even their own company’s potential insolvency (in particular, having regard to directors’ duties to avoid insolvent trading).
The lesson of every prior economic shock – from the GFC to the COVID-19 pandemic – is that boards that engage restructuring expertise early, and develop contingency plans before a crisis crystallises, consistently achieve better outcomes than those that wait until options have narrowed.
Preventative steps include:
- engaging early with stakeholders including sponsors, lenders, the ATO, key suppliers and lessors
- closely monitoring counterparty risk and contractual exposures
- ensuring security interests are appropriately perfected where relevant
- considering access to available government assistance measures
- seeking restructuring advice early, including in relation to safe harbour protections.
What should a business distress readiness kit include?
Directors familiarising themselves with the relevant directors’ duties and responsibilities, including
- the duty to avoid insolvent trading
- the duty to have regard to the interests of the company’s creditors in times of financial distress.
Directors taking advice from restructuring experts in relation to the statutory ‘safe harbour’ from insolvent trading liability – which can be availed of privately, prior to any actual insolvency, once the directors start to suspect that the company may become insolvent at some future time.
Boards should implement a plan for close ongoing (weekly, not monthly) monitoring of the business’s cash and liquid assets to ensure that the working capital position is sufficient to meet its obligations, including ensuring that:
- the business’s employees and advisers have the required level of knowledge, skill and experience necessary to undertake their functions, and the business is right-sized for any downturn;
- all necessary systems are in place and operating effectively to enable such monitoring to occur, including the prompt preparation of appropriate board packs and other documentation; and
- directors are making active and appropriate inquiries to remain informed about the company’s affairs and financial position.
Boards should continue to maintain corporate governance best practice measures, including conducting regular board meetings, and keeping accurate minutes and contemporaneous records of financial decision-making.
Businesses should engage proactively with key stakeholders, including the ATO, lenders, landlords and critical suppliers. Early discussions may provide flexibility and additional liquidity management options before pressures escalate.
Recognising that current market disruption may create opportunities for some businesses, while creating challenges for others, boards should actively consider strategic disposals, acquisitions or restructures to improve profitability or reduce cost exposure.
Where solvency is under strain, directors should remain alert to potential personal liability risks, including Director Penalty Notices relating to unpaid PAYG withholding, superannuation, GST and other tax liabilities.
Boards should also be prepared to respond quickly if notices are issued, including through the appointment of an administrator where appropriate.
The importance of acting early
Knowing what tools are available and how quickly they can be accessed is critical.
The safe harbour regime under section 588GA of the Corporations Act is one of the most valuable, yet underutilised, protections available to directors. It provides a defence to insolvent trading liability where directors, upon suspecting prospective insolvency, engage appropriately qualified advisers and develop a course of action reasonably likely to lead to a better outcome for the company than immediate administration or liquidation.
Importantly, safe harbour can be accessed confidentially and before any actual insolvency, meaning that early engagement with restructuring advisers preserves maximum optionality and minimises the risk of personal liability.
The current environment rewards preparedness and penalises inaction. For directors, the window between ‘things are getting difficult’ and ‘the company is insolvent’ can close rapidly in an energy-driven cost shock of this magnitude, and the personal consequences of failing to act are severe.
What boards and directors should do now
- Conduct an immediate review of the company’s cash flow forecasting and liquidity management processes.
- Increase the frequency of financial reporting and board oversight during periods of heightened volatility.
- Stress test business operations against continued elevated fuel, freight and financing costs.
- Identify critical supplier, customer and counterparty risks across the supply chain.
- Engage early with lenders, landlords and the ATO where pressure points are emerging.
- Review whether existing security interests and contractual protections remain effective.
- Consider whether strategic acquisitions, divestments or operational restructures may improve resilience.
- Seek restructuring and safe harbour advice early if there are any indicators of prospective insolvency.
If you would like to discuss how these developments may affect your business, or how to strengthen your organisation’s distress preparedness and governance framework, please contact our Restructuring Advisory team. We are helping boards, lenders and stakeholders across sectors navigate financial distress, preserve strategic optionality and respond decisively in an increasingly volatile operating environment.