Australian shares were flat on Monday, as gains in energy and banking stocks were offset by losses in miners, while investors keenly eyed escalating tensions in the Middle East.

The S&P/ASX 200 benchmark index edged down 0.03% to 7,496.3 points.

Energy stocks rose over 2% to close at their highest levels since early November, with Woodside Energy and Santos adding 1.1% and 3.7%, respectively.

Santos finished at its highest level since Oct. 27 after the Australian court approved the construction of an undersea pipeline vital to the oil and gas firm's $4.3 billion Barossa gas project.

Oil prices were volatile as traders watched for potential supply disruptions in the Middle East following strikes by the U.S. and British forces to stop the Houthi militia in Yemen.

"Investors are betting the oil price will stage a bit of rebound for fears of oil supply disruptions in the Middle East with tension picking up again," Jessica Amir, a market strategist at online trading platform, moomoo.

Energy stocks on the ASX will likely have a "surprising comeback this year", Amir said, expecting the sector to be among top five gainers this year.

Rate-sensitive financials sub-index rose 0.3% with the Westpac Banking Corp, Commonwealth Bank of Australia and ANZ Group up between 0.2% and 0.4%.

However, gains were offset by mining stocks, which fell 0.9% to end at their lowest level since mid-December on the back of falling copper and iron ore prices.

Top miners BHP Group, Rio Tinto and Fortescue lost between 0.6% and 1.1%, with the first two scheduled to report their previous quarter production reports this week.

Meanwhile, China's central bank left its medium-term policy rate unchanged on Monday, as Australia's top trading partner continues to experience an uneven economic recovery.

The New Zealand benchmark S&P/NZX 50 index fell 0.7% to 11,772.9 points. (Reporting by Roshan Thomas in Bengaluru; Editing by Varun H K)