The S&P/ASX200 fell 65.4 points by midday on Thursday, down 0.74 per cent, to 8,778.2, as the broader All Ordinaries lost 60.4 points, or 0.65 per cent, to 9,015.8.
The local bourse shrugged off a record-breaking Wall Street session overnight, despite little movement on a peace deal and with US and Iranian blockades of the Strait of Hormuz firmly in place.
"Every day that passes without a deal, the markets get closer to the energy cliff that awaits the global economy," Capital.com analyst Kyle Rodda said.
"For now, market participants are sanguine, willing to bet that not only does the ceasefire hold, which according to the Trump administration no longer has a definitive end date, that a peace deal will get done and the strait will reopen soon."
The ongoing situation in the Persian Gulf has weighed on local airlines Qantas and Virgin all week, with each carrier down six per cent and nine per cent respectively since Monday.
But ASX-listed energy stocks gained more than two per cent, with strong leads from oil and gas giants Woodside and Santos, after the latter notched up a lift in first-quarter production.
Coal producers and uranium stocks also improved.
Ampol advanced 1.7 per cent after it lodged a final remedy offer with the competition watchdog for its proposed EG Australia takeover.
Fellow refinery operator Viva Energy traded flat, finding some support roughly seven per cent short of its price ahead of the fire that broke out at its Geelong facility on April 15.
The 10 remaining sectors were trading lower by lunchtime, with a one per cent slip in the financials sector weighing heavily, with the big four banks, major insurers and most investment managers in the red.
Raw materials stocks were edging lower, despite BHP's 0.6 per cent lift providing a ballast against weakness elsewhere.
The mega miner announced on Tuesday it had concluded price negotiations with China's state-backed iron ore buyer, ending a months-long stand-off that included informal bans on certain BHP products.
Gold miners were broadly lower as the precious metal slipped on Wednesday alongside fading hopes of US interest rate cuts.
Spot gold is trading near $US4,730 ($A6,610) an ounce.
Retailers were in the red, with both discretionary stocks and staples down 0.9 per cent or more.
Online retailer Temple & Webster tumbled 7.7 per cent after announcing co-founder and chief executive Mark Coulter will transition to executive chair, with private equity executive Susie Sugden to take over as boss.
IT stocks were also under pressure, with segment giant WiseTech tumbling more than two per cent after lead independent director Andrew Harrison confirmed his plans to depart the board, his exit date now slated for June 30.
The Australian dollar was buying 71.57 US cents, easing from 71.73 US cents on Wednesday at 5pm.
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