What can the Government really do to shield us from this oil shock? – Jenée Tibshraeny

The Government is exploring the various levers it can pull to ensure New Zealand keeps importing enough fuel.

However, without knowing how long the conflict in the Middle East will continue for, and how various players in the global fuel supply chain will manoeuvre in response, it is difficult to know how heavily it will need to pull these levers and how effective they will be.

The Government is looking at three things: diversifying where fuel is imported from, broadening the types of fuel that can be imported, and allowing companies to dig into the buffer of fuel they’re required to keep.

Speaking to media on Thursday, Prime Minister Christopher Luxon said the refineries New Zealand imports petrol, diesel and jet fuel from face “challenges” getting the feedstock (crude oil) required to keep production at current levels.

Accordingly, he said the Government was using “diplomatic channels” to understand where else it could import refined fuel from.

Luxon said he had already spoken to leaders of Australia, the United Arab Emirates and Qatar, and had more engagements planned in the coming days.

Currently, around 51% of the fuel New Zealand imports comes from South Korea and 31% from Singapore.

An avenue that could be explored is importing Russian oil, refined in India.

Because the product would be processed in India and exported from there, it wouldn’t contravene the sanctions New Zealand has against Russia.

However, New Zealand importers may want the Government to signal, for social licence purposes, that it is comfortable with them selling fuel with Russian origins.

Luxon declined to do so when asked on Thursday, saying he didn’t want to get into hypotheticals.

He said he was “very comfortable” with the Russian sanctions in place.

The second way the Government is trying to ensure New Zealand has enough fuel supply is by considering relaxing the rules around the types of refined products that can be imported into New Zealand.

Finance Minister Nicola Willis said it could be beneficial for New Zealand to align its specifications with those of Australia, so the two countries could team up and make bulk orders.

However, she said it was difficult at this stage to know how much more fuel could be imported if the specifications were changed.

Willis explained that importers needed to identify a shortage and an alternative type of fuel to fill the gap before they could pinpoint the specifications that needed changing.

She said it was a bit of a chicken-and-egg situation, but the Government was in close contact with importers and was willing to ease the rules.

Looser fuel specifications could, for example, create more pollution.

Finally, Willis said the Government was open to reducing the minimum stock fuel importers are required to hold.

She couldn’t say how bad things would need to get before the Government allowed companies to dig into this buffer, which she likened to a savings account for a rainy day.

Luxon reiterated that the Government was focused on controlling what it could.

He said officials were working on scenarios based on a government response of eight to 12 weeks.

The situation is not yet pressing enough for the Government to try to limit New Zealanders’ demand for fuel.

Should the outlook worsen, Willis provided assurance that she would work with companies to ensure restrictions were practical and workable.

The Ministry of Business, Innovation and Employment cautioned that introducing fuel rationing or restrictions before there is clear evidence of a genuine shortage won’t create more fuel in the system.

“New Zealand doesn’t have large storage capacity beyond the minimum stockholding requirements, so we rely on regular shipments to keep supply steady.

“Bringing in restrictions too early can disrupt normal operations and make it harder to keep fuel flowing to essential services when it really matters.”

The other issue is, how does the Government support those hardest hit by high fuel costs?

Willis suggested support may be provided for low-income, working people via the existing tax and transfer system, including Working for Families.

She didn’t want to create a new scheme or provide blanket support, by cutting fuel taxes for example, saying support would be temporary, targeted and timely.

Indeed, taking the heat out of rising fuel costs would send the wrong signal to the market – remove some of the incentive for households and businesses to reduce usage on their own accord.

The Government is also mindful that its books are still firmly in the red. The conflict is sending its borrowing costs north and is likely to hamper the economy, which was only just starting to show signs of life.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.