The S&P/ASX200 fell 37.2 points by midday on Thursday, down 0.43 per cent, to 8,616.1, as the broader All Ordinaries lost 42.7 points, or 0.48 per cent, to 8,813.7.
"The focus remains firmly on the Middle East after US President Donald Trump stated the United States would 'hit Iran hard' after it attacked US military assets in the region," Moomoo dealing manager Chris Strazzeri said.
"Markets are increasingly concerned that a prolonged conflict will extend the disruption in energy supply routes."
Local energy stocks advanced as West Texas crude surged by $US4 to $US92.80 a barrel, bolstering oil and gas giants Woodside and Santos by roughly two per cent each.
Financials fell 1.1 per cent as dwindling risk sentiment weighed on the big four banks and Macquarie, while QBE led the major insurers mostly higher after appointing Monarch Point Re chief executive Christopher Harris to its board as an independent non-executive director.
Gold miners continued to drag on the exchange as the precious metal slid to $US4,094 ($5,844) an ounce, the metal currently caught between two opposing forces according to trading platform XS.com's senior market analyst Antonio Di Giacomo.
"On one hand, geopolitical uncertainty and inflation risks linked to rising energy prices continue to support demand for safe-haven assets," Mr Di Giacomo said.
"On the other, the possibility of additional interest rate hikes and the resilience of the US dollar are limiting the metal's recovery potential."
Mega miners BHP and Rio Tinto edged roughly 0.3 per cent higher, as iron ore and copper futures rebounded from recent sell-downs.
Defensive sectors were among the best performers outside of energy stocks, with health care, consumer staples and utilities gaining ground.
In company news, Lendlease surged more than four per cent after appointing AustralianSuper head of retail assets and former Macquarie executive Nick O'Neil as managing director and CEO, to take over from Tony Lombardo.
Southern Cross Media shares tumbled more than five per cent, after the group flagged it would cut up to 300 roles in a major cost cutting push, as it downgraded its 2026/27 earnings guidance.
Super Retail Group will ramp up its store footprint as it looks to expand its market share, winning it a modest share price boost following its investor day.
Vinyl Group fell more than eight per cent on exiting a trading halt following its acquisition of Time Out Australia, the latest in a barrage of takeovers for the media group.
The Australian dollar is buying 70.06 US cents, down from 70.17 US cents on Wednesday at 5pm AEST.
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