The main S&P/ASX200 index fell 33.4 points by midday, down 0.39 per cent, to 8760.9, as the broader All Ordinaries dropped 28.6 points, or 0.32 per cent, to 8877.2.
Oil prices have soared to within a few dollars of their Iran war peak as traders mull a broadening conflict and mounting concerns that the US will re-escalate strikes after the midterm elections on November 3.
"Brent crude surged towards US$117 with signs of US preparation for military strikes on Iran and ongoing attacks by the Houthis on Saudi Arabia," Moomoo chief market strategist Tapas Strickland said.
The contract came within 2.5 per cent of its above-$120-a-barrel peak hit late April.
"The sharp rise in oil prices is reviving global stagflation concerns just as central banks reach delicate inflection points."
Local energy stocks surged 1.4 per cent, with strong leads from Woodside and Santos, while refinery operator Viva also rallied.
Recently pummelled uranium stocks caught a bid as part of a broader rebound in miners, which lifted the raw materials sector 1.2 per cent.
BHP gained 1.2 per cent to $55.67 after copper prices rebounded on Friday, while gold stocks outperformed despite the precious metal flailing at $US3990 ($A5677) an ounce.
Battery minerals and rare earths producers also bounced, but their abysmal six-month downtrend remains intact.
Meanwhile, the odds of a Reserve Bank interest rate hike on Melbourne Cup Day have risen to two-in-three, as sticky inflation pressures draw increasingly hawkish comments from RBA officials.
A further 25 basis point increase would take the official cash rate to 4.85 per cent, its highest level in 18 years.
Wednesday's September consumer price index print will be crucial, with analysts expecting annualised headline inflation to increase to 4.2 per cent from 4.0 per cent.
The heavyweight financial sector retreated more than one per cent as some investors took profits on the segment's two-week rally, while consumer-facing segments also came back to earth from recent heights.
Health care stocks were down 1.2 per cent, with CSL losing twice as much after appointing Gordon Naylor to replace Brian McNamee as chair, less than a week after announcing a new chief executive.
Cochlear also tumbled as its leaders struck a tone that was more conciliatory than confident in their annual meeting address, despite holding their 2027 full-year net profit guidance range steady between $330 million and $350 million.
In other company news, NextDC will shake up its board and slash the chief executive's bonus in an attempt to soothe shareholders' concerns after project delays sparked a more than 40 per cent share price wipe-out last week.
The Australian dollar was buying 70.31 US cents, up from 70.12 US cents on Friday at 5pm.
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