Diesel shock from Middle East conflict starts hitting South Island businesses

Wednesday, 18 March 2026

Freight operators say higher diesel costs are starting to flow through to customers as margins come under pressure.

Rising diesel prices linked to the Middle East conflict are starting to hit South Island businesses, with freight operators warning some firms will struggle to remain viable if they cannot pass the increase on.

One of the clearest public examples so far has come on the West Coast, where Westland Mineral Sands has proposed pausing mining at Cape Foulwind and putting 41 roles at risk as higher fuel and shipping costs combine with weaker mineral prices.

The immediate pressure is falling first on transport-heavy businesses, but it is likely to spread wider through freight bills, higher costs for imported goods and, eventually, household costs.

Transporting New Zealand chief executive Dom Kalasih said the pressure was building quickly for freight operators already working on thin margins.

“There will be some that simply will not be sustainable financially if they do not pass those costs on,” Kalasih said.

In an industry where profit margins were often only 4% to 8%, a sharp jump in diesel prices could quickly become a serious cashflow problem.

Kalasih said the pressure would not fall evenly across the industry. Some operators had customers willing to recognise the increase and adjust pricing, but others would be left trying to negotiate cost recovery in a highly competitive market.

He said the bigger immediate issue for many firms was cashflow. The faster fuel prices rose, the faster operators needed to recover the increase, with some moving adjustments from monthly to weekly and, in a few cases, daily.

ANZ said the conflict had already driven a sharp rise in fuel importing costs since late February, with diesel up 55%, crude oil up 42% and LNG up 51%.

Westland Mineral Sands managing director Ray Mudgway says the decision to propose a temporary pause on mining at Cape Foulwind was not taken lightly. (file photo)

The bank said oil shocks tended to hit New Zealand fuel prices quickly, while broader inflation took longer to work through supply chains. A weaker New Zealand dollar would help exporters, it said, but would also make imports such as fuel and fertiliser more expensive.

That suggests the first pain will show up in freight bills and imports costs before it spreads more widely through the economy.

The impact is not yet showing up across the South Island’s major gateways.

Christchurch Airport spokesman Sean Tully said recent fuel price changes had had little effect on day-to-day operations because of the airport’s largely electrified and hybrid vehicle fleet, and had not changed spending or investment plans.

Tully said demand through Christchurch remained strong, with total passenger numbers up 14.5% on February last year, while Air New Zealand’s winter service reductions would affect less than 0.5% of the airport’s schedule.

Lyttelton Port Company chief executive Graeme Sumner said the port had not experienced any significant delays or scheduling issues to date, although there were small delays and backlogs for some cargoes ultimately destined for the Middle East.

The Government said on Wednesday that New Zealand continued to hold healthy fuel stocks, with combined petrol, diesel and jet fuel cover at about 49 days as of midnight on Sunday, down from 52 days a week earlier.

Finance Minister Nicola Willis said the fall reflected normal consumption and shipping patterns rather than disruption, with more than a week’s worth of fuel due to arrive in coming days, and said there was no need for fuel restrictions.

Kalasih said the industry’s bigger concern, if the situation escalated further, would be fuel supply rather than price. In that situation, he said, diesel should be prioritised for freight movement because the wider economy depended on keeping goods moving.