Strait of Hormuz closure significant but not massive blow for NZ economy, new analysis shows

A sustained disruption to global oil supplies would slow New Zealand’s economy but is unlikely to trigger a major recession, according to professional services firm Ernst and Young (EY).

New analysis modelled various scenarios of the potential impact of the closure of the Strait of Hormuz, a critical shipping route for around 20 percent of global oil flows, ranging from a short-lived disruption to a crisis lasting up to 18 months.

The strait has been closed since early March due to the Middle East conflict.

EY’s modelling suggests the economic hit for New Zealand would be significant but manageable, with the impact concentrated in fuel-reliant sectors such as transport, construction, fishing and agriculture.

Overall, the impact on the economy was shown to be smaller than several of the country’s more recent major downturns.

In the mildest scenario, where oil prices spike but ease by the end of July, GDP would be about $1 billion lower, or roughly 0.4 percent of annual output, with the equivalent of around 6500 jobs temporarily displaced.

If the disruption is sustained, lasting beyond the end of August, GDP could be around $1.8b lower, or 0.6 percent of annual GDP, with the equivalent of around 11,800 full-time roles temporarily displaced.

In a more prolonged disruption lasting through to the end of the year, the hit could rise to around $2.9b, equivalent to about 1 percent of GDP, with the equivalent of around 20,900 full-time roles temporarily displaced.

EY Parthenon New Zealand director Adam Naiman said the modelling assumed oil continued to be available, even if it became more expensive.

It showed the oil price shock would act as a drag rather than a derailment.

‘A meaningful drag on growth’

“The modelling suggests the oil shocks create a meaningful drag on growth, but they’re not enough to reorder the New Zealand economy unless the crisis became materially worse or more prolonged,” he said.

While the estimated GDP impact is smaller than the downturns seen during the Global Financial Crisis and New Zealand’s 2024 recession, Naiman said the pressure could feel sharper because the economy has already endured two years of weak growth.

“Households and businesses have less room to absorb higher costs, so even a moderate drag can feel more significant than the headline numbers suggest,” he said.

Although oil would continue to reach New Zealand - albeit at higher prices as global supply chains adjust - those costs would flow through to freight, logistics and production.

Agriculture, which has been central to New Zealand’s recent recovery, could also be affected indirectly through rising fuel, fertiliser and freight costs.

“Agriculture may not face the sharpest direct impact, but the flow-on effects would still be considerable,” Naiman said.

Naiman said businesses should focus on pricing, profitability and cashflow management if elevated energy prices persist.

“Businesses that are flexible, protect key supply relationships and are disciplined will be better placed,” he said.

EY said that a prolonged period of high energy prices strengthened the case for longer-term investment in energy efficiency, supply chain resilience and domestic renewable energy to reduce New Zealand’s exposure to global shocks.

“New Zealand can’t insulate itself from global events,” Naiman said, “but it can decide how exposed it wants to be over time.”

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