The S&P/ASX200 fell 11.9 points on Friday, down 0.14 per cent, to 8,617.1, as the broader All Ordinaries lost 12.3 points, or 0.14 per cent, to 8,839.1.
More than six per cent has been wiped from the combined value of Australia's 500 largest listed companies since the Middle East erupted, wiping more than $200 billion from its combined $3 trillion market cap.
It was the local stock market's worst two-week performance since an inflation surge prompted global recession fears in June 2022.
"Definitely a steady session today, but in the context of what's been a pretty brutal week, it was much needed," IG market analyst Tony Sycamore told AAP.
Making matters worse for growth stocks, rising inflation expectations have increased the odds of incoming interest rate hikes, with the earliest potentially coming at next week's Reserve Bank meeting.
"It's a massive headwind. You'll see those rate-sensitive sectors be particularly impacted, and it's combined with what's going on elsewhere in the world," Mr Sycamore said.
"It's a dent to confidence, it's a dent to growth, and you've got the double whammy of rate hikes coming through as well."
Energy stocks crept slightly higher as Brent crude prices slipped just below $US100 a barrel after the Trump administration eased sanctions on Russian oil stranded at sea.
Closer to home, the federal government will release an extra 800 million litres of petrol and diesel from domestic reserves to relieve supply pressures at the pump.
The local energy sector has surged more than nine per cent since the US-led air strikes on Iran, sparking waves of tit-for-tat attacks and Iran's effective closure of the Strait of Hormuz, a choke point for a fifth of global oil supply.
ASX-listed mining stocks were under continued pressure on Friday, the sector down more than two per cent as gold miners and BHP sold off.
BHP shares dipped 2.3 per cent to below $50 a share as China's state-run iron ore buyer expanded a ban on one of the miner's products.
Local gold miners were under pressure despite the precious metal firming slightly to $US5,105 ($A7,225) an ounce, as investors squared the impacts of rising fuel costs for producers.
Northern Star tanked more than 18 per cent after it flagged its second production downgrade for the year.
Australia's heavyweight financials sector provided a buffer against weakness in mining stocks, rallying one per cent with help from the big banks and insurers.
The Australian dollar is buying 70.63 US cents, down from 71.22 US cents on Thursday at 5pm, but higher for the week as bets narrow on incoming interest rate hikes.
The week had highlighted the limits to the TACO (Trump always chickens out) trade, AMP chief economist Shane Oliver said.
"The bottom line is TACO can work well when Trump has full control - like he did in relation to the tariffs last year," Dr Oliver said.
"But despite Trump's claim that 'any time I want (the war) to end it will end', that's not the case right now with Iran refusing to play ball."
ON THE ASX:
* The S&P/ASX200 fell 11.9 points, or 0.14 per cent, to 8,617.1
* The broader All Ordinaries lost 12.3 points, or 0.14 per cent, to 8,839.1
CURRENCY SNAPSHOT:
One Australian dollar trades for:
* 70.63 US cents, from 71.22 US cents at 5pm AEDT on Thursday
* 112.60 Japanese yen, from 113.32 Japanese yen
* 61.41 euro cents, from 61.72 euro cents
* 52.98 British pence, from 53.28 British pence
* 121.17 NZ cents, from 120.78 NZ cents
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