The S&P/ASX200 fell 118.2 points by midday Thursday, down 1.35 per cent, to 8,625.3, as the broader All Ordinaries lost 128.7 points, or 1.43 per cent, to 8,847.9.
The slump wiped all but 25 points from the All Ordinaries' past two sessions of gains, and erased roughly $44 billion from its $3.06 trillion combined market value.
Volatile energy markets continue to dictate market direction, with crude swinging in a 10 per cent range overnight as headline risk whipsawed prices, Capital.com senior market analyst Kyle Rodda said.
"While the war rages on and the flow of energy out of the Middle East is all but halted, keeping a lid on energy prices will be like holding the proverbial balloon beneath the water," he said.
"US President Donald Trump continues to jawbone the market and promise the war will be over soon, even though it's not entirely in his control."
Group of Seven nations will release roughly 400 million barrels from strategic reserves to plug a 20 per cent supply gap due to the blockaded Strait of Hormuz, but this was ultimately a band-aid solution until a permanent end to the crisis was found, Mr Rodda said.
Brent crude was trading above $US96 a barrel, still below Monday's spike above $US115, but up almost a third on its pre-war price.
Local energy stocks made up the only sector trading higher on Thursday, up 1.4 per cent as the remaining 10 segments sold off.
Woodside and Santos posted modest gains, while coal producers surged and uranium stocks fell our of favour.
Plunging confidence hit the heavyweight financials sector, which dived as NAB and ANZ led the big four banks lower.
Basic materials tumbled 1.4 per cent as the dimming outlook for global growth weighed on industrial metals producers, with BHP, Rio Tinto and Fortescue all dropping 1.2 per cent or more.
Gold miners also sold off as the precious metal eased 0.5 per cent to $US5,152 ($A7,213) an ounce.
Ora Banda Mining bucked the trend, beating out the top-200 with a 5.3 per cent boost after drilling revealed better-than-expected mineralisation at its Little Gem prospect.
The safe haven asset has mostly held its ground since dipping at the start of the Iran conflict, while producers have been under some pressure as investors weigh the risk of higher energy costs.
Lithium miners PLS and Liontown each dropped more than two per cent, as the former posted another interim loss but promised shareholders that surging revenue and production was paving a path to profitability.
Lynas Rare Earths was a lone success story in the sector, soaring to five-month highs after locking in a favourable supply contract extension with a Japanese buyer.
Interest rate-sensitive stocks were under particular selling pressure, with the IT and real estate segments dropping 4.4 per cent and 2.4 per cent respectively, as markets brace for a potential interest rate hike at next week's Reserve Bank meeting.
Economists at all big four banks are tipping back-to-back hikes in March and May (with the RBA not meeting in April), which would make it three hikes in as many meetings in 2026.
The Australian dollar was buying 71.43 US cents, down from 71.74 US cents on Wednesday at 5pm.
18°C