Pain ahead for NZ drivers and investors as Ukraine fears rattle global markets

Saturday, 12 February 2022

Russia's started days of military drills on Ukraine's north-western border, but Moscow denies it's a step towards invasion.

NZX share market investors can expect further losses on Monday and motorists face more petrol price rises, after global markets were rattled by warnings that a Russian invasion of Ukraine might be imminent.

The United States Standard & Poor’s Index, which tracks the share price of major US companies, sank 1.9 per cent by the time trading closed at 10am on Saturday, New Zealand time.

The technology-heavy Nasdaq index also tumbled nearly 2.8 per cent, after the White House warned there was a “very distinct possibility” Russia might invade Ukraine within days.

Oil prices were trading sharply higher at a new seven-year high, with the benchmark price of West Texas Intermediate Crude leaping more than 4.5 per cent overnight to US$93.93 (NZ$141.35) a barrel.

* Russia may invade Ukraine. What's at stake for New Zealand?

A further sharp rise in oil prices on Saturday signals a rough road ahead for motorists.

* Economic impact of Russian invasion of Ukraine on NZ would be 'mostly indirect'

Prices for ‘95’ octane petrol have already risen above $3 a litre in some parts of New Zealand.

Automobile principal policy adviser Terry Collins warned in January that the price of regular 91 could go over $3/litre very quickly if Russia did invade Ukraine “because basically they’re a huge energy exporter”.

The direct impact of an invasion on the New Zealand economy would be limited.

Russia ranks only 25th on the list of New Zealand’s largest trading partners, with exports to Russia worth US$210 million (NZ$309m) in 2020 and imports totalling US$254m, according to Trading Economics.

Trade with Ukraine barely registered, with exports totalling US$10m and imports US$19m.

But an invasion would be expected to trigger strong sanctions against Russia that would push up the price of a wide range of global commodities, including oil, metals and wheat.

Infometrics principal economist Brad Olsen has said the impact on New Zealand of any conflict would be mainly indirect, through financial markets and the impact on global economic activity.

Among New Zealand businesses, Fonterra appears to have the highest exposure to any conflict and sanctions, with dairy products – and specifically butter – New Zealand’s top export to Russia.

In 2018, Fonterra took a 49 per cent stake in a joint venture, Unifood, that it established in St Petersburg with its Russian distributor Foodline despite pre-existing US and EU sanctions against Russia.