The S&P/ASX200 fell 43.3 points by midday on Friday, down 0.49 per cent to 8,795.7, while the broader All Ordinaries lost 52.3 points, or 0.58 per cent, to 8,965.8.
The move followed a weak session on Wall Street overnight, after disappointing earnings from Tesla and Google-owner Alphabet, and Brent crude soared to two-month highs as conflict broadened in the Middle East.
The conflict was effectively back to where it was in the middle of May, Capital.com senior market analyst Kyle Rodda said.
"The US and Iran are exchanging threats about targeting energy infrastructure," he said.
Global energy markets were being constricted on multiple fronts, with the US-Iran conflict spreading from the Hormuz Strait to the Red Sea, while the Russia-Ukraine war was disrupting shipping in the Black Sea, Mr Rodda added.
Also weighing on the global growth outlook were looming US tariffs, after President Donald Trump slapped duties of 10 or 12.5 per cent on 60 trading partners over claims of weak forced labour regulations.
From 2pm AEST, Australian goods will face a 12.5 per cent impost under the plan, which was announced after US courts in February struck out the administration's so-call "reciprocal tariffs" as unlawful.
Australia has roughly half the prevalence (1.6 per thousand people) of modern slavery conditions compared to the US (3.3 per thousand people), according to Walk Free's Global Slavery Index.
The soaring oil price weighed on the outlook for the Australian basic materials sector, which tumbled 1.8 per cent, the segment handing back Thursday's gains with interest after gold, copper and iron ore prices pointed lower overnight.
BHP shares eased 1.5 per cent to $59.74, while Rio Tinto's value dipped by one per cent.
Gold miners were under pressure as the precious metal fell to $US4,049 ($A5,802) an ounce, dragging the gold sub-index more than three per cent into the red.
The energy segment gained 1.2 per cent on the back of strong leads from oil and gas giants Wooside and Santos, while coal miners and refinery operators were mixed and uranium stocks handed back some recent gains.
Despite weakening risk sentiment, the heavyweight financials sector advanced almost 0.6 per cent as NAB led the big four banks higher and major insurers improved.
In company news, Cochlear shares advanced as the hearing device manufacturer confirmed it would continue to import its implants into the US duty free.
Life Insurance platform Monvia has launched on the ASX after a $17.5 million capital raise at $1.10 per share and quickly shot to $1.16 after its midday AEST listing.
The Australian dollar is buying 69.76 US cents, falling from 70.05 US cents on Thursday at 5pm as fading risk sentiment boosted the greenback.
