Concerns over potential oil supply disruptions and rising prices are prompting discussion about the economic impact on New Zealand, though analysts suggest a worst-case scenario is unlikely. Despite geopolitical tensions and recent attacks on oil-producing infrastructure, there is currently enough oil in the world to meet demand, though logistical challenges could lead to price increases.
Oil Supply Concerns and Potential Price Increases
The current supply shock is not due to a lack of oil, but rather issues with logistics and transportation. While these issues could be resolved over time, even if the Strait of Hormuz were to close, a significant gap in the oil supply chain exists that could impact import levels in the coming months. This could transmit through pricing on oil markets as refiners seek alternative sources.
Oil prices could potentially reach US$200 ($340) a barrel, pushing local pump prices to $4 a litre, though this remains speculative. Brent Crude Oil has recently traded between US$96 and US$119 a barrel, settling at US$107 on Friday afternoon despite recent disruptions.
Lessons from Past Crises
The current situation draws parallels to the COVID-19 pandemic, where external factors significantly impacted the economy. However, unlike the virus, the current conflict involves actors capable of resolution through dialogue. Overly pessimistic forecasts have historically contributed to economic downturns, as seen during the Global Financial Crisis and the COVID-19 pandemic, and can lead to excessive stimulus measures.
Finance Minister Nicola Willis is reportedly striking a balance between transparency and avoiding panic, a challenging task given the emotionally charged nature of supply concerns following the pandemic. It is hoped lessons have been learned from past experiences.
The scale of global oil production is substantial. In 2024, the world produced approximately 194 billion litres of beer, compared to 5.98 trillion litres of petrol – equivalent to 2.4 million Olympic swimming pools.
Despite potential challenges, there is a sense that New Zealand may be more resilient than previously thought, drawing on experiences gained during the COVID-19 pandemic.
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