The S&P/ASX200 fell 76 points by midday, down 0.86 per cent, to 8,764.7, as the broader All Ordinaries lost 83 points, or 0.92 per cent, to 8,953.9.
The dip puts the top-200 on-track for a 0.4 per cent decline since Monday and would mark a second straight week of losses.
As strikes between the US and Iran dragged on, geopolitical risk remained the biggest threat to markets, Capital.com senior market analyst Kyle Rodda said.
"Both the US and Iran continue to climb up the escalation ladder," Mr Rodda said.
"The risks to energy supply have extended beyond the Strait of Hormuz again, with Iran instructing Houthi forces to block the Red Sea if the US strikes Iranian energy infrastructure."
The ASX-listed energy sector surged 1.4 per cent as Brent crude hovered near $US85 a barrel, supporting strong performances from Woodside, Santos, Viva and Ampol.
Woodside shares jumped roughly three per cent in early trade after Macquarie noted the oil and gas giant remained an attractive candidate for a takeover by ExxonMobil.
Basic materials tumbled 3.1 per cent, tracking with a slump in BHP shares, while gold miners also sold off as the precious metal fell to $US3,985 ($A5,707) an ounce.
Regis Resources came under particular selling pressure, diving almost eight per cent after more than 4391 ounces of bullion were incorrectly reported as on-hand in a recent guidance update.
The major banks were also sluggish, led by a 1.3 per cent tumble in CommBank shares to $170.95, however the financials sector remained on-track for a third week of gains.
In company news, Coles has ditched plans to buy pet care company Greencross from TPG Capital for roughly $4 billion, sparking a 3.6 per cent rally in the supermarket giant's shares to $23.38.
The grocery retailer's move helped lift the consumer staples sector 1.7 per cent higher.
Zip Co fell more than five per cent after announcing it will wind down it New Zealand operations as it looks to narrow its focus on its Australian and US businesses.
Also reducing its NZ footprint was SkyCity Entertainment, which traded higher after locking in the sale of two of its NZ-based commercial properties for $NZ74.5 million ($A62.3 million).
BHP's industrial relations woes continued, after electrical workers voted in favour of work stoppages a day after hundreds of staff took strike action at Port Hedland on Thursday.
Mayne Pharma has appointed Griffin Buchanan as chief financial officer, beginning in August.
The Australian dollar is buying 69.83 US cents, down from 70 US cents on Thursday at 5pm.
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