What happens if oil hits US$200 per barrel? This is how much petrol, groceries and flights could cost
Saturday, 14 March 2026
The new Iranian leader, Ayatollah Mojtaba Khamenei, has warned the world to expect oil prices to reach US$200 per barrel as he keeps the Strait of Hormuz firmly shut.
So what will happen in New Zealand if this worst-case scenario does come to fruition in the coming months?
It will start with local petrol prices.
With oil hovering around US$100 per barrel, we’ve already seen unleaded 91 surpass $3 per litre, rising 33 cents since the start of the war.
A good rule of thumb often used is that for every $10 increase in the price of oil, you have a 10-cent increase in the price of fuel in New Zealand.
Terry Collins, a policy director at the AA, has suggested the price of fuel could hit $4 per litre as we trend up toward US$200.
Filling the tank of a small car (40 litres) will rise from around $120 today to $160. It will be even worse for an SUV (55 litre), which will go from $165 to $220. And if you’re in a real gas guzzler with an 80-litre tank (Hilux or Ranger), you’re looking at the cost rising from $240 to $320.
But that’s only part of the equation when it comes to the fuel issue.
If this chokehold is prolonged, the Government could start to put in measures to prioritise fuel for key industries and sectors.
Petrol stations could face limitations in terms of how much fuel they’re allowed to sell to the average consumer as rationing takes effect.
We can expect human behaviour to shift quite quickly. Some people will panic-buy and look to hoard fuel in a bid to maintain a personal supply. Some of the impulses we saw during Covid could return.
Shelf shock
Fuel at $4 per litre would ripple through the entire economy. Anything that needs to move from A to B will cost more.
Westpac modelling suggests a worst-case scenario — if the war drags on for three months or more and oil exceeds US$185 per barrel. That’s well beyond the four-to-six-week timeline the US had originally expected.
If that happens, the bank estimates New Zealand’s Consumer Price Index (CPI) would rise by 3.2%.
That doesn’t mean everything gets 3.2% more expensive. The biggest increases would hit products heavily reliant on fuel, particularly agricultural goods.
In New Zealand, food would face a double hit. Higher fuel prices push up transport costs, while also raising the price of energy-intensive inputs such as fertiliser. (Some of these costs will, however, take a little longer to feed through into pricing)
For businesses, petrol rising from $3 to $4 a litre represents a 33% increase in fuel costs. That eventually flows through to consumers, often as petrol surcharges — typically several months after fuel prices spike.
Historically, every $1 increase in fuel costs generates about $0.30 of indirect inflation across the wider economy.
That could translate into food price increases of around 12%, meaning your supermarket trolley might start to look something like this:
A two-litre milk: rises from $4.92 to $5.51
White bread: rises from $2.21 to $2.48
Beef mince: rises from $18.50 to $20.72
Butter (500g): rises from $6.20 to $6.94
Block of cheese: rises from $12.50 to $14.00
Dozen eggs: rise from $9.80 to $10.98
For a typical family for four, the weekly grocery bill could rise from approximately $480 to $537.
That 12% increase has been used for the basis of simplicity. Some supermarkets might keep their prices lower for promotional purposes, while other products could rise faster than the 12% rate (depending on how their costs are impacted). Dry goods that can be stored for longer might also take a lower hit from this inflationary pressure.
Westpac senior economist Satish Ranchhod says previous oil shocks have delivered grocery inflation to those levels before, but this is contingent on demand for different products.
As Westpac notes, our staple products have what’s called “inelastic demand”, which means shoppers will have to foot the bill as prices rise – whereas other products might have more “elastic” demand, meaning consumers might swap them out for alternatives.
Travel becomes a luxury
Not all fuel prices rise at the same rate. Since the outbreak of the war, jet fuel prices have risen at an extraordinary rate.
The price per barrel has lifted from around US$90 in February to more than US$150 at the time of writing.
We’ve already seen air travel prices lift in response to surge in pricing.
Air New Zealand has raised its one-way economy flights across the board, applying $10 increase per one-way fare on domestic flights, $20 per one-way on short international flights and $90 per one-way on long haul international flights.
In addition, the national carrier has also cancelled approximately 1,100 flights in a bid to keep costs under control – a measure that reduces supply and thereby increases demand for the remaining seats.
If oil surged upwards to US$200 per barrel, we’d be looking at a situation where jet fuel could cost between US$250 and US$300 per barrel.
The surcharges for flights would rise rapidly, creating a worst-case scenario where:
An average one-way flight from Wellington to Auckland could rise from $95 to $160
An average one flight from Auckland to Sydney could rise from $285 to $550
An average one-way international flight from Auckland to New York could rise from $1000 to $2100
The caveat behind all this is that the modelling is based on the worst-case scenario. After 12 days, it’s clear that no one really knows how this war will pan out. The whiplash responses we’re currently seeing in the oil market is evidence that market is responding to the daily progression and the comments we’re seeing from politicians.
As the unrest drags on, it becomes patently clear that wars are far easier to start than finish.