There really are winners out of these high petrol prices, but you’ve probably noticed that you’re not one of them.

Inflation data released on Tuesday confirmed prices in New Zealand are rising as a result of the United States’ war on Iran and are likely to accelerate.

Consumer prices were up 3.1% in the year ended March. Economists expect that number to hit 4.5% in the next release, the highest inflation rate since December 2023.

Prices were rising even before Iran closed the Strait of Hormuz, blocking 8-10% of the world’s oil supply and sending fuel costs sky-high. 

This will cause yet another “temporary” spike in annual inflation, which has only been in the target band for 25% of the past five years.

Mark Smith, a senior economist at ASB, said the longer inflation stays high the harder it becomes to control. The Reserve Bank can hike interest rates but it would be a gut punch to New Zealand’s shell-shocked economy.

“For a central bank, soaring near-term inflation against the backdrop of a fragile economy is a nightmare scenario,” Smith wrote in commentary published by the bank. 

“Negative supply shocks make the trade-offs of monetary policy more acute, and therefore more painful for all New Zealanders. There are no winners in these types of situations.”

There are no winners in Aotearoa, he means, but there are winners, because the huge amounts of money we are suddenly spending on petrol must be going somewhere.

Billions sucked offshore 

ASB has estimated the average household will have to pay $55 a week of additional costs this year as a result of the Iran war and high oil prices. 

That money (perhaps $4 billion or more) gets siphoned straight out of New Zealand and into the bank accounts of international oil companies and their shareholders. Very little, if any, gets captured as extra domestic profits that might be recycled into our economy. 

It’s more insidious than spikes in meat or dairy prices. At least when butter prices reach painful heights, you can take some comfort knowing the profits will contribute to more jobs and higher wages in the future. Not so when the oil price rises.

The only obvious local winner is New Zealand’s small oil export industry, which sold a little less than $600 million of crude in the past 12 months.

All the money we spend buying expensive fuel gets redirected from other parts of the economy, or from household savings (which means less future spending).

Debit and credit card data for March showed a 1.3% uptick in total spending with consumers spending 17% more on fuel. This had to be covered by reductions in other areas, like hospitality down 2% and apparel down 4%.

That was just the first wave. Higher oil prices will flow through to food and freight prices, adding a little extra cost to everything and forcing consumers to buy less.

There isn’t any tax bonus for the government either, by the way. Fuel excise tax is a fixed dollar amount per litre and any extra GST earned will be offset by less elsewhere.

Higher inflation will be a headache for finance minister Nicola Willis. It will increase borrowing costs and trigger higher spending on indexed benefits, without providing any extra tax receipts.

Dark days for NZ Inc

In a recent survey, a net 20% of NZ businesses reported lower profitability in the March quarter and another 15% expect profits to shrink even further this quarter.

A net 4% of businesses now believe the economy will deteriorate in the next six months, down from 48% predicting an improvement in the December survey. 

Westpac NZ economists also reported a darkening tone in their conversations with business customers around the country. 

“Prior to [the Iran] conflict, we were seeing signs of a firming in economic activity. However, much of that momentum has now been derailed,” they wrote in a commentary report. 

The spike in fuel costs had resulted in freight surcharges and urgent price increases from suppliers, which was eating into profit margins as demand also weakened. 

Tourism businesses were reporting cancellations due to higher airfares, while retailers and restaurants found sales were already slowing. 

Local importers of fuel (Z Energy, BP, Gull, etc) appear to be absorbing some of the increased costs for now. This may be to protect their social license, because customers cannot afford full prices, or there’s just some delay in how prices are passed through.

MBIE’s provisional data for March shows importer profit margins taking a beating during the war. Commerce Commission data comparing import costs with retail prices shows a similar but softer trend, with costs up slightly more than prices.

War windfall

Windfall profits are being earned in some places, most obviously by the overseas oil producers that are not affected by the closure in the Strait of Hormuz. Their revenues rise while production costs stay the same, resulting in hundreds of billions in profit. 

American and Canadian companies will make bank for their shareholders, Russia and its oligarchs will get a better price from its sales to China and India, and Norway will get even more money for its US$2 trillion sovereign wealth fund.

Even some companies in the Persian/Arabian Gulf, such as Saudi Aramco, are being more than compensated for their loss in export volumes by the high, high prices. 

In the long term, these benefits get a little foggy. High oil prices slow the global economy which means less oil is used and these companies may have weaker sales in the future.

Still, shares in the world’s 120 largest oil-related companies have risen 24% since the start of the year and were up 36% prior to the ceasefire. 

It’s a clear sign investors see the war – which has caused thousands of civilian deaths as –  a net positive for the oil industry.