Australian shares plunged on Monday, wiping about $130bn from the value of the ASX midway through the trading session, after a sharp rise in oil prices caused by the Middle East conflict sparked concerns of a breakout in global inflation.

The benchmark S&P/ASX 200 was down 4% in lunchtime trading to dive below the 8,500 point mark, marking the single biggest one-day drop since the announcement of Donald Trump’s “liberation day” tariffs last year.

The selldown is linked to disrupted oil supplies, the single biggest contributor to global inflation, which make almost all goods and services more expensive, from petrol and groceries to utilities and travel.

Global oil prices surged past US$100 a barrel shortly before the Australian share market opened for the week, spooking investors.

Archival Garcia, chief executive of Melbourne freight technology company Fluent Cargo, said the market fallout from the conflict was extending beyond energy markets.

“Fuel costs rise, war-risk insurance premiums increase, vessels slow or reroute, and freight rates climb – particularly across energy-dependent supply chains,” Garcia said.

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The energy price shock followed a weekend of escalating violence in the Middle East, intensifying concerns around a sustained supply crunch that has propelled crude prices to their highest level in four years.

The ASX was a sea of red on Monday, with the exception of the energy sector which has profited from the upheaval.

The market fallout from the conflict was originally subdued due to expectations the war would be short-lived. Losses in global markets have accelerated in recent days after the conflict expanded across the region and hopes of a quick resolution faded.

Tony Sycamore, market analyst at IG Australia, said “local markets are mirroring the intense global risk-off mood” in his report published shortly before the market opened on Monday.

Sycamore also noted that the Reserve Bank’s aggressive stance against inflation through anticipated rate rises – referred to as “hawkish signals” – added to downward pressure on the markets.

If the RBA raises rates at its March meeting next week, many Australians will find themselves paying increased mortgage rates at the same time as petrol and other households costs rise, hampering spending.

Elevated interest rates are one of three traditional triggers for a selldown in equity markets, along with rising unemployment and some sort of exogenous shock, such as a war.