In recent years, there have been many warnings about the fragility of New Zealand’s largely imported oil supply.
Now, drivers are seeing the cost of that accident at the pump. Nationwide, gasoline is over $3.30 a liter on average. On Auckland’s Waiheke Island, residents protested after prices at the local station exceeded $4 a litre.
Of course, the cause is the US and Israel’s war against Iran. It has disrupted key supply chains and pushed Brent crude, the international benchmark for oil prices, above $100 a barrel.
There is no sign that Iran is stopping its closure of the Strait of Hormuz, a narrow passage between Iran and Oman through which about 20% of the world’s oil supplies flow.
New Zealand Prime Minister Christopher Luxon called the disaster “one of the most significant oil shocks in our history”.
For his government, this moment should have caused the country to take a serious look at the country’s deep dependence on imported fuels – and what sustainable ways there are to reduce them.
Small country, far from fat
New Zealand is an island economy that is heavily dependent on imported fuel, and any sustained disruption quickly erodes daily costs.
The reason lies in geography and architecture. By 2022, the Marsden Point refinery will supply nearly 70% of the country’s refined oil. Its closure meant New Zealand was now completely reliant on imported petrol, diesel and jet fuel, which is mainly sourced from refineries in Singapore, South Korea and China.
Those refineries also depend on crude oil that passes through the Strait of Hormuz. In fact, New Zealand faces a double exposure: high global prices and the risk of supply delays.
The government says New Zealand currently has seven weeks of supplies, in storage and on ships already on their way to our shores.
Finance Minister Nicola Willis admitted the buffer was dependent on “ships like this continuing to come.” It was designed to mitigate short-term disruptions, not to absorb a sustained global crisis. Officials are already planning for conditions lasting eight to twelve weeks.
Who gets hit first?
Diesel – the fuel that powers trucks, tractors, fishing boats and construction equipment – is a bigger economic problem. Its price has risen faster than gasoline and the impact is far-reaching.
As Luxon said, diesel “boosts our economy a lot” and is “an important thing to speed up.” New Zealand’s economy is running on trucks. Almost everything its customers buy at the supermarket, from milk produced in Waikato to lettuce grown in Pukekohe, is still on the back of a diesel guzzling truck.
In agriculture, the effect is two-fold: farmers need diesel to run tractors and milk tanks, and they rely heavily on fertiliser.
The Strait of Hormuz is also rich in natural gas and organic matter. High fuel costs as well as high fertilizer costs reduce farm margins from both sides.
Food prices follow. Fresh fruit and vegetables are particularly vulnerable: their short shelf life means that there is no room to absorb sudden increases in commodity prices. The Treasury has modeled a scenario in which inflation reaches 3.2% in June.
Airlines are facing their own pressures. Jet fuel is a unique product with no local interference. Air New Zealand has suspended its earnings guidance and warned of fare increases.
What exactly can NZ do?
Price changes affect the rich and the poor differently. The government is looking at relief for those who need it most: about 143,000 working families with children will receive an incentive of $50 a week through the work tax credit as long as gasoline stays above $3 a liter, with a total cost of up to $373 million.
Willis has made it clear that he is giving a wide margin, warning of a negative wave of inflation. Luxon has learned a similar lesson from this epidemic, cautioning against overspending. The government has also expanded the range of fuel suppliers by accepting imports that meet Australian standards.
But this problem also exposes a long-standing structural problem. New Zealand has one of the highest car ownership rates in the world – 815 light vehicles per 1,000 people by 2024.
Road transport consumes about 40% of all energy used in the country, yet electricity accounts for less than 1% of transport energy use. That gap is a problem, but also an opportunity.
Electric cars, electric buses and electrified equipment all reduce exposure to the next oil shock. As fuel prices rose, Auckland recorded 2.25 million public transport journeys in one week: a seven-year high. People make rational decisions when price signals are strong enough.
But change in scale takes time.
Electric vehicles make up about 3% of light vehicles, and electric heavy-duty trucks remain a niche technology. Agriculture, fishing and aviation are not the fastest alternatives to electricity. Even a quick transition could leave much of New Zealand dependent on petrol and diesel for many years.
Finally, New Zealand cannot control what is happening in the Strait of Hormuz. But it can control how much we depend on it. The question is whether it starts now – or waits to find itself exposed when the next crisis hits.
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