An early bounce for Australian shares has faded, as hopes of Middle East de-escalation crumbled on reports US Gulf allies were taking steps to enter the conflict.
After spiking 138 points at Tuesday's open, the S&P/ASX 200 ended the session 13.5 points higher, up 0.16 per cent, to 8,379.4, while the broader All Ordinaries gained 18.7 points, or 0.22 per cent, to 8,571.3.
Global equities had surged on easing oil prices, following disputed reports the US was in talks with Iranian officials, but confidence faded after Saudi Arabia reportedly took steps to give the US military access to one of its air bases.
The WSJ also reported videos had shown missiles used in attacks on Iran had been launched from Bahrain.
Whether the conflict's next chapter was one of diplomacy or escalation, the ultimate key for markets was re-opening of the Strait of Hormuz, IG market analyst Tony Sycamore said.
"While that walking backward de-escalation has diffused the immediate 48-hour time bomb, the clock has really just been reset for Friday," Mr Sycamore told AAP.
"You've got that timeline also coinciding US elite marines and a couple of ships arriving in the region, which will certainly bolster the ability to open the Strait of Hormuz if diplomacy fails."
ASX-listed energy stocks eased 0.4 per cent over the session, with Santos weighing heavily after an unexpected outage at its Barossa project in the Timor Sea.
Santos shares dipped 2.6 per cent to $7.84, with no word from the gas explorer on when production would restart.
Elsewhere in energy, coal producers were mixed, while uranium stocks bounced modestly from recent falls.
The basic materials sector rebounded 2.9 per cent during the session, but it remains in bear market territory, down more than 20 per cent from record highs earlier in March.
Dip-buyers picked up Rio Tinto and BHP, both of which were trading at their own record peaks before the conflict.
Gold miners also staged a tentative comeback, as the precious metal recovered from hitting four-month lows on Monday to trade at $US4,358 ($A6,253) an ounce.
Gold prices have been pummelled as the fuel shock bolstered inflation expectations, cutting hopes of monetary easing and central bank gold buying in the US, while making the greenback more attractive to safe haven investors.
Australia's mining sector would likely remain under pressure until oil flowed freely through the Strait of Hormuz, Mr Sycamore said.
"We need our exporters to be able to get fuel in the in the tank to get our iron ore, gold, silver and copper over overseas," he said.
"So we're in a bit of a countdown here, which is obviously very dependent on the Strait, but we're right at the end of the (fuel supply) food chain."
With only two refineries still operating, Australia imports about 90 per cent of its fuel, mostly from key trading partners Singapore, South Korea, Malaysia and Japan.
"Not to be alarmist, but if Singapore gets a bit of fuel, they're probably not sending it here as their first priority, they're keeping it, and that's not a great situation to be in," Mr Sycamore said.
The heavyweight financials hinted at weaker investor sentiment, tumbling 1.3 per cent as ANZ eked a 0.5 per cent lift but its big four competitors tumbled.
The Australian dollar is buying 69.66 US cents, up slightly from 69.63 US cents on Monday at 5pm.
ON THE ASX:
* The S&P/ASX200 gained 13.5 points, or 0.16 per cent, to 8,379.4
* The broader All Ordinaries rose 18.7 points, or 0.22 per cent, to 8,571.3
One Australian dollar trades for:
* 69.66 US cents, from 69.63 US cents at 5pm AEDT on Monday
* 110.51 Japanese yen, from 111.11 Japanese yen
* 60.13 euro cents, from 60.36 euro cents
* 51.98 British pence, from 52.34 British pence
* 119.49 NZ cents, from 120.03 NZ cents
