The benchmark S&P/ASX200 index fell 35.3 points by midday on Tuesday, to be down 0.4 per cent to 8,774.3, as the broader All Ordinaries dipped by 36.7 points, or 0.41 per cent, to 8,966.3.
Fighting has intensified in the gulf, prompting US President Trump to reinstate a US blockade of Iranian ships and threaten to impose a toll for safe passage through the Hormuz Strait.
"The U.S.A. will be, from this point forward, known as 'THE GUARDIAN OF THE HORMUZ STRAIT', but as such, and as a matter of FAIRNESS, will be reimbursed, ​at the rate of 20% on all cargo shipped," Mr Trump posted on Truth Social.
The charge would work out to roughly $US32 million ($A42.5 million) for a fully loaded large carrier at current prices, according to Bloomberg, dwarfing a $US2 million fee proposed by Iran that US officials had previously derided as unacceptable.
"For all intents and purposes, the markets have been thrown back into the tumultuous days of May, with strikes exchanged between the US and Iran as both countries wrestle for control of the Strait of Hormuz," Capital.com senior market analyst Kyle Rodda said.
Brent crude prices have surged more than 12 per cent since Friday, sending local energy stocks more than three per cent higher in the first two sessions this week.
Woodside shares jumped 3.4 per cent by midday, while refinery operators Ampol and Viva each gained more than 2.2 per cent.
Utilities stocks also made gains, as Origin, APA Group and AGL made inroads for the traditionally defensive sector.
The heavyweight financials segment came off the boil from a recent rally, down 0.8 per cent, as the big four banks fell.
Raw materials stocks were under renewed pressure, led by gold miners as the precious metal dipped below $US4,000 ($A5,778) an ounce, on par with eight-month lows.
BHP and Rio Tinto notched modest losses as copper and iron ore futures edged higher.
Retail stocks were mixed, with staples tumbling 0.9 per cent in line with segment giants Coles and Woolworths, while cyclicals edged 0.2 per cent higher, as NAB and Westpac surveys showed consumer and business confidence improved in June.
In company news, Genesis Minerals and Vault Minerals will join forces to become Australia's third-largest gold producer in a $12.6 billion merger.
Insurance broker Steadfast Group has confirmed an Amwins-led consortium has added KKR to its ranks in a $6.7 billion bid for the company, and extended the group's exclusivity for the deal by four weeks.
The Australian dollar was buying 69.21 US cents, down from 69.29 US cents after safe-haven buying buoyed the greenback overnight.
14°C