Liam Dann: The expensive cocktail that could hit Kiwi motorists

We still have a bit of a buffer protecting us from that $3 petrol price mark. Photo / Getty Images

The drone strikes on Saudi oil fields look certain to hit Kiwis in the pocket, after a huge spike in barrel prices on commodity markets this morning.

Crude oil prices jumped 19 per cent in initial trading on commodity markets.

Bloomberg described it as being technically the biggest spike the market has seen since futures trading began in 1998.

Whether this becomes a serious factor in local economic equations will depend on whether it was an isolated terrorist attack or the start of something more ominous.

Right now with rumour and speculation flying, that's impossible to know.

Did Iran do it? If not who did? Is someone trying to frame Iran to create conflict? And how is Donald Trump feeling about all this?

Good luck predicting any of that.

But let's put the price spike into some broader context.

Oil prices have been relatively low since June this year, so this event in isolation isn't going to send the local pump price up to $3 a litre.

As recently as October last year Brent crude oil was trading at US$85 a barrel.

It's currently trading at US$68.43 as at midday (NZT).

The last time it was that high was the start of July when the pump price was around NZ$2.25 a litre.

What's really changed is the value of the kiwi dollar - off almost 6 per cent since then.

That makes imported petrol more expensive, but we have been buffered from the impact by falling oil prices - until now.

Meanwhile, commodity oil prices have already calmed down a bit since the market opened.

West Texas Crude is up 11 per cent at US$60.68 and Brent Crude is up 12 per cent.

US moves to unlock emergency reserves and Saudi efforts to get the oil fields back on stream have offered traders some comfort.

State energy producer Saudi Aramco lost about 5.7 million barrels per day of output after the attack - equivalent to 5 per cent of global supply.

That sounds dramatic.

But Saudi officials say they have about half of that back on stream already.

The risk, of course, is that political tensions escalate from here resulting in more attacks and disruption to Middle East supply.

We've already seen some worrying events this year.

In June two oil tankers near the Strait of Hormuz were attacked, with the US blaming Iran.

In July the British seized an Iranian tanker which they accused of breaking a trade blockade and delivering oil to Syria.

There is potential for things to get very ugly in the Middle East, but then isn't there always.

A worst-case scenario like the Iraqi invasion of Kuwait in 1990 could see oil prices double.

Over several months during the escalation and invasion in 1990 oil rose from around US$20 a barrel to US$40. By the time the US went to war in 1991 it was already falling and it ended 1991 at just US$17 a barrel.

It's also worth remembering that the barrel price has been as high as US$160 in 2008 (prior to the GFC crash).

With a lower dollar, more fuel taxes and the imported crude oil component of the local pump price worth about 75c a litre, we'd certainly be above $3 a litre if that happened.

But broadly the world is now much better placed to respond by boosting production in other regions.

Thanks to advances in fracking and shale oil production the US and Canada have the capacity to unleash enormous reserves of oil if the price makes it viable to do so.

For the planet's sake, let's hope they don't.

We may see a spike of a few cents a litre at the pump in the next week even if there are no further incidents in the Middle East.

That's not great news for business and consumer confidence.

But hopefully it will be short lived.