The spectre of $4 a litre petrol: We are about to feel new cost of living pain

Monday, 9 March 2026

Oil prices have surged past US$100 a barrel for the first time since Russia’s invasion of Ukraine as tensions escalate in the Middle East. Analysts warn the conflict could push petrol prices in New Zealand towards $4 a litre.

Finance Minister Nicola Willis has dismissed the suggestion the Government cut fuel taxes, saying such a move would create “long term pain”.

Willis and Prime Minister Christopher Luxon faced questions about the cost of fuel at Monday’s post-Cabinet press conference, as they discussed the inflationary impact that war in the Middle East is expected to have for New Zealanders.

When Russia invaded Ukraine in 2022, the then Labour Government cut fuel taxes by 25 cents per litre. That tax cut came into effect when prices for 91 octane peaked at about $3 per litre.

On Monday, Automobile Association principal policy adviser Terry Collins warned that petrol prices could near $4 per litre.

He said prices would continue to rise, given about a fifth of the world’s oil passed through the Strait of Hormuz - which Iran had closed in response to the war.

AA senior policy advisor explains how rising global oil prices could send petrol prices soaring.

“You won’t be able to get anything under $3,” Collins said, if oil got to US$150 a barrel as predicted by some in the Gulf region.

“And it’ll be somewhere between $3.50 and perhaps $4 if those extreme prices are met,” he added, referring to predictions that a barrel of crude could reach US$200.

Labour leader Chris Hipkins said the coalition should consider another temporary tax reduction if the cost of petrol becomes unaffordable.

He said Labour heard concerns in 2022 that people were unable to afford the petrol needed to get to work. At that point, a litre cost $3.

“Once fuel inflation reached that point where people couldn’t afford to go to work, because they couldn’t afford to fill up the car, we made the decision at that point that the immediate priority was providing support to New Zealand households,” Hipkins said.

That tax cut was temporary. It started in June 2022, with then prime minister Jacinda Ardern saying the tax cut would last three months. But it lasted longer, ending in June 2023 - meaning the price of petrol went up just before that year’s election.

Willis said that 2022/2023 example showed the issue with a temporary tax cut.

“I’d love to be able to say I can take the pain away right now, but I’m conscious that short-term gain could lead to longer term pain,” she told Stuff, when asked about whether the Government could cut the petrol tax.

Finance Minister Nicola Willis at Monday’s post-Cabinet press conference.

“I’m mindful that any immediate actions do come with a longer term cost,” Willis said, listing those “costs” both as the cost of Government borrowing, and also the potential of needing to cut back infrastructure projects which are funded by the fuel tax.

The Government was also relying on increasing the fuel tax next year, to pay for some of those infrastructure projects - such as its Roads of National Significance.

The fuel tax would rise 12 cents per litre in 2027, then six cents in 2028, and four cents per year thereafter, according to a plan laid out by former transport minister Simeon Brown, in 2024.

In total, New Zealanders already pay more than $1.3 in taxes per litre of fuel.

Willis said the Government had not yet legislated to increase the fuel tax. She said that before doing so, Cabinet would be “mindful” of the cost of fuel.