Middle East flare-up raises fears over petrol prices, inflation and mortgage rates

Friday, 24 July 2026

Households can expect multiple hits to their finances in the coming weeks as a result of the rapidly deteriorating situation in the Middle East, economists are warning.

Westpac chief economist Kelly Eckhold said the bank expected the price of 91-octane petrol would rise back up to between $3.20 and $3.30 a litre over the next couple of weeks, based on the current price of importing refined fuels from Singapore.

On Friday morning the average price was sitting at about $2.94, not yet reflecting a jump in the futures price of Brent crude, which is now just back up over US$100 a barrel.

It had dipped back to just over US$70 a barrel earlier this month, when hopes of a ceasefire holding in the Middle East were at their highest.

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The spike in the oil price was triggered by attacks by Iranian-backed Houthi militants on two Saudi Arabian tankers in the Red Sea.

ASB senior economist Chris Tennent-Brown said colleagues at the bank’s Australian parent, the Commonwealth Bank of Australia, had estimated oil markets could only withstand about another 10 weeks of near-zero traffic through the Strait of Hormuz before oil prices would need to rise “as high as US$150 a barrel”.

A spokesperson for Z Energy said fuel supplies remained secure and the immediate impact would be on import costs.

“However, if disruption in the region continues for an extended period, pressure on global fuel supply chains is likely to increase,” he said.

“While the market has so far been supported by inventory draw-downs, alternative sourcing and other short-term measures, these become less effective over time and could result in higher costs and increased supply risk later in the year.”

Unlike the Strait of Hormuz, which is a cul-de-sac and matters mainly to the oil trade, the Red Sea is a key shipping channel for New Zealand businesses shipping products to and from Europe.

Danish shipping giant Maersk said on Friday that some insurance companies had reduced or withdrawn coverage for shipments into the Red Sea, Gulf of Oman and Persian Gulf regions and that it was also reducing operations in the region.

A spokesperson for Fonterra said it had avoided the Red Sea since the start of the conflict by shipping product to Europe around the Cape of Good Hope.

Eckhold said a 25 basis point rise in the Official Cash Rate was now “very close” to being fully priced in for September 2, meaning financial traders are in little doubt that the Reserve Bank will raise the OCR when it releases its next monetary policy statement.

The Reserve Bank’s recent assumption that annual inflation would drop back to 3.3% in the three months to the end of September quarter reflected an assumption that prices would only rise by 0.4% in the current quarter.

That meant it would have been counting on a drop in fuel prices offsetting increases in local authority rates, which comes through in the quarter.

But that would be “very doubtful now, given what we have seen in the last week or so”, he said.

Confidence in the economic outlook had started to bounce back late last month, with inflation expectations falling noticeably, he said.

“You could really see that reflected in business and consumer sentiment.”

But he expected there would now be a reversal that could be reflected in late responses to July confidence surveys and that would fully show through in August.

The brief period of respite in the Middle East wasn’t sufficient to rebuild global oil inventories “and that’s becoming increasingly apparent in fuel prices globally”, he said.

The response to the negative developments from sharemarket investors was relatively muted, however, with the NZX Top-50 index trading down 0.6% by the middle of the afternoon.

The ASX Top 200 Index was hit harder, trading down 1%.