Trade and economic response to Iran conflict

The Government has directed the Commerce Commission to closely monitor the fuel sector, warning that the Commission will publicly "call out" any unwarranted price increases by fuel companies.

The Commerce Commission is publishing regular fuel price monitoring reports in response to the conflict in the Middle East and the impact on global fuel prices, which can be accessed here: Monitoring and focus reports | Commerce Commission. These provide updates on retail fuel price movements and compare them with changes in the cost of importing fuel.

Businesses may also be facing increased costs through the application of fuel surcharges. Fuel surcharges must reflect only the additional fuel costs a business is facing and cannot be used as an excuse to recover unrelated expenses or to increase margins. Any surcharge should be based on real and current cost pressures.

If one of your suppliers decides that they do need to add a fuel surcharge, they must inform you of any surcharges before payment, in line with the Commerce Commission’s Fuel Surcharging guidance. This includes making the surcharge easy to see, understand, and factor into purchasing decisions. If a surcharge is unclear, hidden, overstated or not cost‑reflective, it risks misleading consumers and potentially breaching the Fair Trading Act.

As soon as fuel costs fall below the level being recovered, surcharges must likewise be removed once the underlying cost pressure has eased.

The Commerce Commission has the power to investigate any potential breach of the Fair Trading Act and take enforcement action where necessary.  

The economic disruption caused by the conflict is expected to test the resilience of the global economy, spilling over to weaker global economic growth and therefore risks demand for New Zealand’s exports.

While there is unlikely to be an economy unscathed by the Iran conflict, the impact on our international trading partners is expected to be uneven.

Alongside Middle Eastern markets the economies to face the biggest impacts are key energy import dependent Asian economies such as Korea, Taiwan, Thailand, and the Philippines.

China, New Zealand’s largest export market, and Japan are expected to be relatively more insulated in the short term compared to other Asian economies, due to large strategic energy reserves, higher energy self-sufficiency and diversified supply sources.  Similarly, as a large oil exporter the US (our second largest export market) is less directly exposed to the conflict. Although higher global oil prices are still flowing through to higher fuel prices for US consumers, which may weigh down non-fuel spending.

Europe and the UK have also become important growth markets for New Zealand. Despite lower dependence on oil imports from the Gulf, these economies have become significant consumers of Middle Eastern gas as they diversify energy supplies away from Russia. Rising gas prices are likely to suppress what was already a fragile economic recovery in these markets.

We continue to see ships redirecting away from the Middle East through the Panama Canel and under the Cape of Good Hope – although the Suez Canal does remain open and is starting to build regular traffic.

Following the closure of the Strait of Hormuz and rerouting of shipping, we have also seen rising congestion in several Asian ports, particularly in Singapore, but also Malaysia, India, China, and Japan, with increased waiting times to enter ports. 

Information on fuel stocks and fuel security in New Zealand can be found on MBIE's website.

Overall, New Zealand’s supply chains remain stable despite the Middle East crisis.

The Government has established the Ministerial Economic Security and Supply Chains Group, chaired by Finance Minister Nicola Willis, to coordinate responses to supply chain disruptions caused by the Iran conflict. The group aims to ensure New Zealand's energy security and economic resilience by monitoring risks and protecting essential services.

The group brings together Ministers responsible for energy, transport, trade and economic security to ensure the Government can respond quickly and effectively to any potential disruptions to petrol, diesel, and jet fuel supplies, as well as other key supply chains.

In addition to fuel related responses, the Government is closely monitoring supply chains for key goods across New Zealand’s critical sectors to monitor essential inputs and maintain national resilience. We are also drawing on updates from international partners to assess evolving risks as they arise. Overall, our focus is on maintaining strong visibility across transport networks and essential supply chains as the situation develops.    

We recommend engaging directly with freight forwarding companies to discuss available options. Freight forwarders are in ongoing contact with shipping lines and airlines that are adjusting routes and schedules in response to operational needs and the evolving security situation. They are best placed to advise on emerging price, schedule, and capacity changes.

NZTE and MFAT are also providing regular market data, updates, and analysis on their websites.

At the moment we advise that New Zealanders do not travel (Level 4 of 4) to most countries in the region, including transits through airports including Dubai International Airport, Zayed International Airport in Abu Dhabi, and Hamad International Airport in Doha.  Further travel advice can be found on SafeTravel, including advice on the Middle East security situation.

The Middle East is a critical aviation hub for UK and European passenger flows to New Zealand. Inbound visitor arrivals are being closely tracked by the government and Tourism New Zealand. It is expected there might be  temporary reductions in arrivals from some markets, reflecting observed cancellations and uncertainty around airline routings and pricings. It is still too early to identify the medium-term impacts on tourism and visitor arrivals.  While some flights have resumed on Middle East routes there will be continued disruption.

Volatility in jet fuel prices is increasing airfares and leading to flight consolidation. Given New Zealand is no longer in our peak summer arrival season, the impact on overall visitor arrival volumes is limited. Alongside monitoring connectivity and arrival trends, MBIE is engaging closely with the tourism sector to understand emerging impacts and inform our ongoing assessment.

Continued higher airfares, supply chain pressures and lower discretionary spending are showing early signs of impacting forward bookings. However, some operators are seeing early signs of increased interest from North American and Asian markets for off-peak seasons. It is too soon to see clear evidence of either trend.

The impact is likely to be dependent on the nature of our tech exports.

Tech exports related to digital services (such as the export of software, intellectual property, advisory services) would be expected to show relative resilience to the current crisis. During the COVID-19 pandemic, New Zealand’s Digital services exports (also referred to as weightless exports) showed notable resilience. Given digital exporters tend to rely less on critical inputs currently affected by the crisis (e.g. fuel, and transport) we would expect digital services exports to again demonstrate resilience relative to other exports. However, the Iran conflict poses a downside risk to global economic growth, which would be expected to weigh on demand for all of New Zealand’s exports including digital services.

In contrast, high-tech manufactured exports may face disruptions to supply chains of critical inputs such as plastics, and rising transportation costs like many of New Zealand’s other exporters.