Government readies for Iran war economic fallout
Thursday, 5 March 2026
Finance Minister Nicola Willis is receiving twice-daily briefings from the Treasury as the Government braces for potential economic fallout from conflict in Iran.
While Willis said that she was closely monitoring the situation, she also said she was not going to “pre-judge” events, but that the Government would be ready to take action if required.
“What I'm thinking about right now is, at what point will the market start to price in an estimation that the conflict is going to be of longer duration,” Willis told The Post on Wednesday.
“What will that mean for oil prices … what impact will that have on New Zealanders, prices that they pay at the pump, but also, more broadly, that they will pay for freight, and the effect that that will have on prices across our economy,” Willis said, who confirmed she had been talking with Air New Zealand about any potential air freight problems.
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“I'm thinking, therefore, about what that will mean for the Reserve Bank's monetary policy settings and how it might respond to that.”
The central bank held interest rates steady in February, but inflation has persisted and was 3.1% for the December quarter.
And Willis’ fears are not ill-founded. Since the US and Israel began bombing Iran on Saturday night (NZT) with the stated aim to getting rid of the Islamic Republic regime, response from markets has been relatively muted.
However, by the time of writing on Wednesday, with the Trump administration unwilling to indicate any end to hostilities, there were more signs of markets grappling with a drawn out conflict.
While some flights have made it out Dubai - although not back to Auckland - Iranian drones have been wreaking havoc across the Gulf states, with concerns about the dwindling amount of ordnance available to intercept the attacks.
Mortgage rates in the US, which Donald Trump has wanted to be lower, have risen over 6% for a 30-year loan since the conflict began. The Australian ASX S&P500 suffered its second biggest drop since Trump’s “liberation day” last April. Panic hit Korean markets after the biggest two-day crash since the global financial crisis. Korea is the world’s eighth-biggest crude oil consumer. Other markets tumbled.
BNZ head of research Stephen Toplis told The Post that while no one knows what the next few weeks hold, at minimum, the conflict will mean higher inflation and lower growth at the margin.
“We're in the midst of another period of absolute confusion in that nobody really knows where this is all going to end,” He said. “You know, all sorts of numbers being spattered around. You know, oil going to US$100 a barrel and the like, but just not at the moment, right?
“I think what we what we can say with some degree of certainty, is at the margin, the world is now more inflationary than it was before, at least in the near term [but] … to some extent that medium term, that's not necessarily the case, because what we're seeing now will reduce growth at the margin, and that's exactly the sort of thing that will be happening in New Zealand.”
Toplis said that if petrol prices at the pump were to stay where they are today, it will likely mean that inflation would take another six months to drop from around the 3% mark.
“If there's still enough economic momentum here that businesses think they can raise prices to cover the costs of that petrol price increase, then it becomes a lot more embedded inflation,” he said.
Earlier on Wednesday Westpac economist Kelly Eckhold had put together some figures around what could happen in the event the Strait of Hormuz was closed from one to three months.
Toplis said that at the moment New Zealand’s shipping routes did not look that affected.
“From a trade perspective, in New Zealand, possibly the biggest risk is that, as a consequence of what we're seeing at the moment, the attacks on the ships in the Red Sea resume, and then that would impact our shipping lines, because that's basically been reasonably settled of late,” Toplis said.
“I don't see any evidence that that's a problem at the moment, but that's something that people will be keeping a very close eye on.”