The benchmark S&P/ASX200 index fell 112.2 points by midday on Friday, to be down 1.27 per cent to 8,707.2, as the broader All Ordinaries tumbled 120 points, or 1.33 per cent, to 8,888.3.
The top-200 is on track for a 3.2 per cent slump since Monday and its worst week since early March's 3.8 per cent plunge, when US-led strikes killed Iran's supreme leader and triggered a broader regional conflict.
Brent crude hit four-month highs just below $US110 a barrel after Iran-aligned Houthis seized Yemen's port city of Mocha overnight, giving them more power to disrupt tanker traffic through the Red Sea.
"On top of that, unconfirmed reports are circulating this morning of multiple tankers being attacked near the Strait of Hormuz and that the Houthis may have scored a direct hit on Saudi Arabia's East-West pipeline," IG market analyst Tony Sycamore said.
The pipeline, which can carry up to seven million barrels a day, has been a lifeline for the global economy since the war began.
Making matters worse, inflation expectations and firming US producer prices sent bond yields to multi-year highs, narrowing bets the US Federal Reserve will hike the federal funds rate next week.
Local mining stocks have been hit hard, with basic materials down 4.3 per cent as commodity prices suffered on multiple fronts.
Copper dived more than five per cent from recent record highs amid US tariff uncertainty, iron ore futures fell on easing demand from China, while US interest rate worries hit precious metals.
BHP shares slumped 4.8 per cent to five-week lows of $60.41, while Rio Tinto traded almost four per cent lower.
Gold stocks were a sea of red as the precious metal sank 1.7 per cent to $4,329 ($A6,042), while silver prices crashed more than five per cent.
The financial sector softened the damage to the broader index, climbing 0.5 per cent as dip buyers bought up banks and major insurers.
The energy sector traded flat as gains in Woodside, Santos and refinery operators Ampol and Viva were offset by steep drops in uranium stocks and Whitehaven Coal.
Good news was limited elsewhere, with narrow early gains in the defensive communications, utilities and consumer staples sectors.
Consumer discretionary stocks fell 0.3 per cent, while real estate and IT stocks continued to face selling pressure, with the sectors falling 1.7 and 2.1 per cent, respectively.
In company news, GQG Partners crumpled by seven per cent after its funds under management shrank $US4.3 billion ($A6 billion) to $US149.2 billion ($A208.3 billion) in August.
WiseTech, CAR Group and Cleanaway went ex-dividend, with Virgin Australia and Credit Corp to follow on Monday.
The Australian dollar was buying 71.56 US cents, down from 72.16 US cents on Thursday at 5pm.
