Iran War: The long tail of the Iran war is economic and oily
Thursday, 12 March 2026
OPINION: As the cost of oil continues to gyrate all over the place, the long-run costs of the war in Iran are becoming clear.
Crude oil prices, which shot up a couple of days ago, are now back down to around the US$85 mark at the time of writing.
The Australian Institute of Petroleum, which produces benchmark prices for petrol and diesel in Australia (and reflects the situation in New Zealand), has shown the price spike for refined fuels. While crude has fallen back, unleaded petrol is still about A$125 per barrel. That probably translates to about a $3 base price for 91 petrol.
Prior to the Iran war, that same A$125 barrel was trading in the mid-A$70s to early A$80s for petrol. For diesel, the price was in the early A$90 range and is now about A$160.
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These are prices that include the effect of the fall in crude oil prices in the past 48 hours.
The issues facing the global fuel market — which also includes liquefied natural gas, since the largest exporter, Qatar, has stopped shipping — are now becoming clear.
It is all but impossible to get insurance to ship fuel through the Strait of Hormuz. At the time of writing, basically no ships were going through. Prior to the strike on Iran, about a fifth of the world’s oil went through there.
Even if hostilities were to cease tomorrow, it is unlikely that global shipping insurers would see it as prudent to cover any shipping through the region.
Meanwhile, South Korea — where New Zealand gets nearly half of its fuel by volume, and Australia also gets about a quarter of its fuel from — is considering export controls on its refined oil exports and imposing a price cap on domestic fuel for the first time in decades.
South Korea is a large producer of refined fuel.
Associate Energy Minister Shane Jones, when asked about it, said that “if South Korea decides to introduce some restrictions, they're just looking after their own interests in a way that the former Labour Government didn't look after our interests when it closed down the refinery”.
He is, of course, talking about the Marsden Point refinery, which closed during the term of the previous Labour Government. The shortage, although probably bad for the Government, speaks directly to the sorts of concerns New Zealand First has raised for years.
Jones said he was meeting with officials yesterday afternoon to get a better steer on the situation.
This will also have downstream consequences for the production and price of fertiliser and, of course, it will affect jet fuel and make flying more expensive.
This will not all end when the current conflict does, although its effects might be limited.
The real political question now is about the ability of this Government to turn that into an opportunity to shake things up, make some changes, and seize back the initiative.
But that, of course, is problematic in an election year. There are three parties battling for many of the same votes (before even starting on trying to win more off Labour), and getting agreement around the Cabinet table will be difficult.
One thing is now pretty clear from this war. Finance Minister Nicola Willis warned about it last week and again on Monday, and economists have also been warning about it.
This will be inflationary. It will likely raise prices and it will hit growth. Already equities have taken a hit and markets are down. New Zealand bond yields have also moved higher.
Just as things were looking a little brighter, it will now likely be another hard political and economic year.
The sharp end of the conflict could come at any time. But the long tail of risks in the region is unlikely to disappear.