Jim Chalmers will tell his counterparts at the G20 finance talks in Washington DC that the conflict adds to pressures already being felt from a softer Chinese economy.
Demand for iron ore is slowing and and prices for critical minerals is volatile.
"All this, as conflict in the Middle East threatens to escalate further," he will say.
"While our focus is on the humanitarian cost of this crisis, we must recognise that there is an economic cost too."
Treasurer Jim Chalmers says the Middle East conflict has both a human and economic cost. (Mick Tsikas/AAP PHOTOS)
Oil prices shot up roughly 10 per cent in the week tensions intensified in October, with the treasurer warning sustained upwards pressure could "prolong the fight against inflation and threaten the soft landing that we all seek".
"An escalation in the Middle East risks persistent inflation for the global middle class," he will say.
Treasury's rough rule of thumb implies every 10 per cent increase in the oil price sustained over the course of a year trims Australia's gross domestic product by 0.1 per cent and adds about 0.4 percentage points to inflation.
Dr Chalmers is meeting with finance ministers and central bank heads, including US Federal Reserve chairman Jerome Powell.
Like many other peer nations, the US central bank has started cutting interest rates while Australia lags behind with comparatively elevated inflation and rates expected to stay high until next year.
Much is riding on September quarter inflation data due next week, with borrowers hoping for a softer set of numbers to pave the way for cuts sooner rather than later.
Hints consumers are mostly saving rather than spending extra income from the stage three tax cuts should be welcomed by the Reserve Bank of Australia alert to the risk of a spending surge pushing up inflation.
Westpac analysis of customer transactions and balance sheets suggests households are spending around 16 per cent of the income boost since July and squirrelling away the rest.
Economist at the bank, Jameson Coombs, said households were broadly using the extra cash to rebuild savings and pay down mortgage debt.
"While it might be that the spending response takes a while to come through, our results also suggest that some of the upside risks to consumption that the RBA has previously highlighted are not coming to pass," he said.
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