The S&P/ASX200 fell 60.4 points by midday on Friday, down 0.71 per cent, to 8,465.3, as the broader All Ordinaries faded 68.3 points, or 0.78 per cent, to 8,654.3.
With increasingly mixed messages from Washington, markets were waking up to the fact that actions speak louder than words, Capital.com senior market analyst Kyle Rodda said.
"Amidst the headline risk and he-said, she-said games about whether negotiations between the US and Iran are taking place, the US is moving assets and personnel towards the Middle East to prepare for what looks like a limited ground invasion," he said.
"The markets were caught off guard by the initial US and Israeli strikes at the end of February, which came in the middle of talks that were ostensibly going well but were accompanied by a huge US military build-up in the Middle East.
"The current situation looks very similar, with markets positioning for a potential weekend escalation."
Australian energy stocks lifted, making it the only local sector to trade higher by midday, as Brent crude rose back above $US101 a barrel.
Woodside and Santos edged higher, while coal producers Yancoal, New Hope and Whitehaven jumped between two and four per cent.
Ampol and Viva Energy, which operate Australia's two remaining oil refineries with the support of government subsidies, rose 1.1 per cent and three per cent, respectively.
In what's becoming a common occurrence, the mining sector is the hardest hit by rising oil prices, tumbling more than one per cent in a broad-based sell-off, as BHP (-1.0 per cent) and gold giants Evolution (-1.5 per cent) and Northern Star (-3.0 per cent) weighed.
Gold itself is trading hands at $US4,387 ($A6,381) an ounce, down more than six per cent since the same time last week.
The industrials sector was also heading lower and was down one per cent as Droneshield dived more than 12 per cent after rallying by almost a third since Wednesday.
Qantas and Virgin Australia also handed back some recent gains as investors braced for extended disruptions to Middle East airline travel hubs and jet fuel prices.
The heavyweight financials sector faded 0.4 per cent, with Westpac the only big four bank keeping its head above water on Friday, with most of the sector flashing red.
Suncorp shares slipped roughly half of one per cent as it announced CEO Steve Johnston will take temporary leave to recover from a medical procedure.
The ASX-listed tech sector was trading at its lowest level since May 2023, as it continues to be hammered by poor risk sentiment, weakening global growth expectations and an increasingly hawkish outlook for interest rates.
Consumer discretionary stocks were on track to snap a nine-week losing streak, but the segment is still hovering at its lowest level since June 2024 as rising fuel costs and the impact on inflation continues to drag.
In company news, 4DMedical shares have surged more than six per cent after receiving EU certification for its imaging technology, as it completed an $83 million placement to fund its European expansion, taking its weekly gain to more than 60 per cent.
Enrichment technology Silex Systems was the only uranium stock making good ground on Friday, up more than three per cent after securing approval for US$98.9 million ($A144 million) in incentives to help develop its Paducah laser enrichment facility in Kentucky.
The Australian dollar was buying 68.74 US cents, down from 69.47 US cents on Thursday at 5pm.
