Israel's war on Hamas has sparked fears that oil prices could hit more than $US100 a barrel within weeks if not days if the situation escalates in the Middle East.

The benchmark Brent crude oil price is sitting at about $US88 a barrel, about 4 per cent higher than what it was before the Hamas attack on Israel.

Current forecasts suggest oil prices will bounce around between $US80 and $US100 a barrel in the coming months.

After Russia's invasion of Ukraine last year, oil prices shot up nearly 30 per cent to a record high of $US128 a barrel within two weeks.

Economists say history might be repeated if Iran is officially implicated in the shock attack from Hamas.

"If we start seeing the United States point the finger at Iran, we could see Iran's oil exports start falling," Vivek Dhar, mining and energy economist from the Commonwealth Bank, told The Business.

Mr Dhar said Iran's oil exports could fall by 500,000 to 1 million barrels a day (equivalent to 0.5 to 1 per cent of global supply) if sanctioned by the US, and that could exacerbate the supply shortage caused by production cuts from top oil producers such as Saudi Arabia.

"And that is our biggest concern right now when we're looking at oil markets and the implication of this conflict," he added.

Petrol stays above $2 per litre

It is not good news for motorists who are already facing surging fuel prices in Australia.

Across the country, fuel prices have averaged more than $2 a litre for the seventh week in a row, at their highest levels since the war broke out in Ukraine.

Average petrol prices hit $2.46 a litre in regional Northern Territory, according to the latest report from the Australian Institute of Petroleum.

Unleaded petrol averaged $2.32 a litre in Brisbane, $2.10 in Melbourne and $2.03 in Sydney, the report also shows.

Mark McKenzie from Australasian Convenience and Petroleum Marketers Association said the high petrol prices were propelled by both international and domestic factors.

"The second factor is a significant increase in the volatility of what we call the refined product price, the benchmark petrol and diesel price through the Singapore hub … that price jumped quite markedly since the first of July as a result of some refinery outages in our region.

"The third factor is the national natural market competition issues that occur in our capital cities."

Mr McKenzie added that because the US dollar was a traditional refuge for investors in times of trouble, the weaker Australian dollar against the greenback meant more pain at the bowser.

But he said the recent price spike would not be felt at the pump until Christmas.

"The oil prices that we're talking about now relate to what we call the December contract price," he said.

Small businesses and consumers feeling the pain

The high petrol prices are another blow to small business owners such as Vanessa Tang who has been doing it tough due to rising costs and customers cutting back on spending because of cost-of-living pressures.

"It's extremely hard for us as a small business to basically absorb the costs now with the high petrol price increase," the 50-year-old, who runs a homeware shop in Cabramatta in south-western Sydney, said.

"I have to charge a [delivery] fee like $15 within the 15-kilometre radius, which has impacted greatly in terms of our business turnover.

Ms Tang said if petrol prices continued to rise, she would have to increase the delivery fees even at the risk of losing business.

The independent member for the western Sydney seat of Fowler, Dai Le, said rising petrol prices added to pressure on household budgets, and many people who were reliant on driving to commute from outer suburbs where there was a lack of good public transport infrastructure could not afford petrol anymore.

"During this holiday period, [the] majority of them have stayed here because they can't afford to travel," she said.

"The federal government has a responsibility to ensure that working Australian families can be given a short-term relief.

"If we're expecting petrol prices to increase due to the conflict in the Middle East, then this is the right time to really bring on the fuel excise tax cut for families, working Australian families."

The fuel excise tax went up 1 per cent in August and Treasurer Jim Chalmers said in late September that reintroducing the fuel excise discount would not be part of the existing relief measures.

Upward pressure on interest rates

Higher fuel prices will also push up inflation and complicate the picture for interest rates when the Reserve Bank board meets next month.

Sally Auld, chief investment officer at JBWere, said she expected another 25-basis-point rate hike in November before the RBA started to cut rates late next year.

"Those two things, in a backdrop of already elevated inflation, are more likely to worry the RBA than the depressing or softening impact that oil prices or petrol prices have on consumption.

"So on net, I think it's more the inflationary impact that the RBA will be concerned about and hence more likely that they will deliver a rate hike in November."

While the markets are watching closely how the situation in Israel will play out, it is likely that major central banks, including the RBA, will keep interest rates higher for longer.

Watch the story on The Business tonight at 8:45pm AEST on ABC News Channel, or stream on ABC iview.