Iran war: The key debate that will shape New Zealand’s fuel response
Monday, 30 March 2026
As the Government firms up its “National Fuel Plan” there is debate underway between those who see a big role for the Government in rationing fuel, and those who think it should stay out of the way and let high prices do the work.
Finance Minister Nicola Willis addressed this debate on Monday, saying she was doing all she could to avoid the “communism” of the Government deciding who got fuel and who didn’t - and that price would still have a major role at any phase.
The National Fuel Plan suggests some role for the Government in “phases” three and four in rationing fuel to priority customers, but not for any Government-enforced rationing at phases two or one, where we currently sit.
It sets out five “bands” of fuel users for this potential rationing - from the most important “life supporting services” such as emergency services and hospitals in Band A and “economically important” services like road freight for supermarkets in Band B.
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NZ Initiative Economist Eric Crampton told The Post that if the crisis worsened and New Zealand faced severe disruptions, the Government would not have enough information to really work out who needed it and who didn’t.
“In any real crisis, it will be impossible for Government to be able to tell which fuel uses are really critical. Everyone will be pleading for their own case being the most critical. I don’t think any of them will be lying,” Crampton said.
He differentiated between the Government allocating fuel to its own emergency services and deciding who in the private sector needed the fuel, where he said high prices would sort through who really needed fuel and who didn’t.
“Heavy freight is by far the largest user of diesel. If fuel imports drop by half for a few months and fuel prices rise considerably, companies will have to make incredibly difficult decisions figuring out which shipments are so critically valuable that they warrant far higher fuel prices - and which can wait until the crisis passes. It would be impossible for any government agency to know which uses are truly critical.”
“Who is best placed to decide which visit by a sparkie or a plumber is really critical - a government official distributing ration coupons?“
“The problem is hard enough within sectors. If fuel use had to drop by half, how could any official adjudicate between a crop that will rot if not harvested and delivered, groceries that need to reach supermarkets, a roofer taking emergency work after a storm, and someone who needs to get from Wellington to Taupo to see a dying relative?”
He pointed out that a large forestry company was already calling to be added to the critical list, saying this would be just the start.
Crampton suggested that the Government could decide to fund essential services with more money that could be used for fuel or could be used elsewhere, as this would preserve some incentives to lower demand.
Former Reserve Bank Economist Michael Reddell also supported prices doing the work, writing on X that “the list at present is entirely arbitrary: any business beats any consumer use”.
“Economics tells you markets will clear, instantaneously at a price.”
Infometrics chief Brad Olsen wasn’t convinced price alone could do the job. “I’m not sure letting price do everything would be either workable or palatable,” he said.
Part of the issue was that diesel was relatively “inelastic” - meaning the people who needed to use it were not very responsive to price, at least in the short term. This meant many would simply stock up on diesel at almost any price, potentially taking fuel from those who needed it most.
Olsen said the country’s “social infrastructure” - emergency services and the like - would not be able to outbid commercial operators.
“You look at the bands they’ve got and think it would be very hard to disagree broadly with those options.
“Private businesses have a greater ability to spend or find the money to spend to secure their supply and effectively hoard it.”
Westpac chief economist Kelly Eckhold said he also did not back such a “pure” view as price changes could take some time to affect use in a crisis, and would not necessarily match where the fuel was best used.
“There's no guarantee that the distribution of willingness to pay is necessarily the same as the distribution of the ability to provide the core goods and services that we need,” Eckhold said.
Willis said she was doing all she could to avoid getting to rationing and that under levels three and four price would still have a major role.
“The idea of communism, in which the Government divides up the goods, isn't something that appeals to me, which is why I'm pretty determined to avoid us getting to phases three and four,” Willis said.
She said fuel would still go to all users but priority bands would not face a cap on how much they could use.
“You just would have prioritisation for those top bands where keeping life protected and essential services running would mean that you wouldn't want to have any caps on supply, but that you would have to have a graduated approach through the priority bands.”
“Price will still be an important part of that mechanism.”
She noted that more than 500 businesses had already written to the Government about the prioritisation plan.
ACT leader David Seymour said the Government was doing all it could to avoid getting to phases three and four, and instead allow prices to do the work at level one and two.
He was keen to see prices do their work but said in a crisis situation core Government services such as emergency responders needed to continue.
“If you get to a stage where those absolutely core government functions are in danger, then even a dyed-in-the-wool libertarian could say well hey I need those things to continue.”
“Prices work best when there are many buyers and many sellers. The time when you might stop relying on price is when there is not many sellers.”
Labour leader Chris Hipkins said price signals were hard to react to for vulnerable people reliant on services like Meals on Wheels.