Fuel prices, airfares and stock market returns are all at risk amid the Middle East upheaval, threatening New Zealand’s fragile economic recovery, writes Catherine McGregor in today’s excerpt from The Bulletin.
To receive The Bulletin in full each weekday, sign up here.
Pressure at the pump – and across the economy
Oil prices surged as much as 13% when markets opened on Monday, before easing back somewhat – but the pressure on New Zealand wallets from the conflict in Iran is real. In The Post (paywalled), the AA’s Terry Collins warned that a US$10 rise per barrel would translate to about NZ10 cents per litre at the pump. “It would be a wise idea to fill your car up, but you shouldn’t have to rush out today,” he said. Iran controls about 20% of global oil supply through the Strait of Hormuz – a critical chokepoint for world energy markets. Some analysts warn prices could reach US$100 a barrel if the strait is effectively closed.
The flow-on effects extend well beyond petrol. As Stuff’s Damien Venuto writes, the potential impacts include “manufacturers importing parts, retailers shipping goods [and] exporters moving product offshore. “That’s inflation pressure, just when the Reserve Bank is trying to contain it.” Yet economists stress the key variable is duration: if the conflict ends quickly, the impact could be minimal.
Airfares, Air NZ and your KiwiSaver
For airlines and their passengers, the challenge isn’t just the immediate disruption to routes through the Middle East. There’s also the potential longer-term impact on jet fuel prices – and on fares. As John Weekes reports in the NZ Herald (paywalled), many airlines use hedging – locking in fuel prices in advance – to buffer against oil price shocks. Air NZ is one of them, making higher fares unlikely for now. But after posting a $59 million loss last week, the national carrier could do without another shock to its operations.
Meanwhile personal investors, particularly those in growth funds, “might see a bit of red ink” as the stock market reacts, Infometrics’ Brad Olsen tells The Post. Yet, talking to the Herald’s Liam Dann (paywalled), Westpac’s Kelly Eckhold says so far markets seem fairly “relaxed” – “remarkable given this is probably the biggest thing in that part of the world [since the Iraq war]. There’s plenty of potential to go wrong.”
The New Zealanders stuck in the Middle East
The Post’s Henry Cooke reports that more than 1700 New Zealanders have registered with SafeTravel as being in countries caught up in the conflict – a figure almost certainly an undercount, as it only captures those who’ve voluntarily signed up. The largest group, over 1091, are in the UAE, which has seen hundreds of missiles strike targets including Dubai and Abu Dhabi airports. A further 71 are registered in Israel and the occupied Palestinian Territories, with hundreds more in Qatar, Saudi Arabia, Bahrain and Kuwait.
The government’s advice is to shelter in place and await the resumption of commercial flights. But speaking to media on Monday, foreign minister Winston Peters offered a more improvisational steer to those not in cities: “If you’re out in the countryside and can get away, give it a go.” He was less sympathetic about the broader predicament. New Zealanders in the region had been warned for weeks to prepare to leave, he said. “Maybe next time, listen to the Government of New Zealand, who does care what their future might be.”
The art of saying nothing
On Sunday, Peters and prime minister Christopher Luxon released a joint statement calling for international law to be respected – without directly criticising either the US or Israel’s strikes on Iran. At Monday’s post-cabinet press conference, Luxon again “tried to thread the needle”, in the words of Hayden Donnell – “condemning Iran’s regime without offering a view on whether bombing and assassination campaigns were a legal or moral response”.
Writing in The Spinoff this morning, Donnell argues New Zealand’s approach amounts to “the closest thing possible to having no response while still technically saying words and making sentences”. Though New Zealand has historically taken bold foreign policy stances – on nuclear weapons, on the Iraq war – something has shifted. As Donnell concludes: “New Zealand’s firmest recent commitment has been to being non-committal.”
