At that point, prices were up around 80% since the conflict began. Prices have since eased back below US$90 as markets began pricing in potential emergency responses, and also amid claims from the White House that operation “Epic Fury” is nearly completed.
Such dramatic moves are not just headlines. Oil remains one of the most important inputs in the global economy, influencing everything from transport costs to food prices. When oil spikes, the ripple effects extend well beyond the energy sector. Financial markets, which had initially held up better than many feared, began to show the strain. Even the resilient NZX50 finally gave ground.
At the heart of the surge is the disruption to supply routes, particularly through the Strait of Hormuz, where roughly 20% of global oil consumption normally flows. With that chokepoint effectively paralysed and tankers warned to proceed with caution, markets swiftly priced in fears of shortages and renewed inflation.
Compounding the shock, several Middle Eastern producers announced output cuts. The strikes have also extended to Iranian oil facilities. The situation remains fluid and highly sensitive to headlines.
For New Zealand, the backdrop is particularly uncomfortable. Since the closure of the Marsden Point refinery, the country has become almost entirely dependent on imported refined fuel. Unlike many nations, we do not hold significant strategic petroleum reserves. Our onshore storage capacity equates to roughly four weeks of supply. Any sustained disruption to shipping routes therefore has a direct and immediate impact here.
The reality for Kiwi motorists is clear: the longer this conflict drags on, the more pain will be felt at the pump. Fuel prices were already a pressure point for households. A prolonged spike in crude intensifies that strain, lifting transport and freight costs and eventually feeding into broader inflation.
High oil prices do not just hurt at the pump – they ripple through the entire economy. Businesses face higher operating expenses, many of which are passed on to consumers. That adds to inflationary pressure just as central banks, including our own, are beginning to regain control. A renewed inflation impulse would complicate monetary policy. For countries like New Zealand, only just edging into recovery after a period of weak growth, a sustained energy shock risks slowing that progress. Higher fuel costs squeeze household budgets, reduce discretionary spending and dampen business confidence, making recovery more fragile.
There is also a currency dimension. Oil spikes typically strengthen the US dollar and weaken smaller currencies like the New Zealand dollar. For New Zealand, a weaker New Zealand dollar makes imported fuel even more expensive, amplifying pump pain and further lifting inflationary pressure domestically.
The knock-on effects are already visible globally. Some countries (such as China and Thailand) have imposed export restrictions to protect domestic supply. Such measures further restrict global supply and amplify volatility, particularly for smaller, import-dependent nations like New Zealand.
Policymakers, however, are not standing still. Energy ministers from the Group of Seven (G7) are discussing a co-ordinated release of emergency reserves, of 300 to 400 million barrels – a meaningful share of available stockpiles. International Energy Agency members may also be called upon to act. The mere prospect of co-ordinated intervention has helped oil pull back from triple-digit levels.
There is debate over whether reserves alone could fully offset a prolonged closure of the Strait of Hormuz. Unlike previous shocks, this situation is more complex because spare Gulf production capacity cannot reach global markets while the Strait remains effectively shut. That reinforces a crucial point: duration matters. A short disruption can be bridged. A sustained one would be far more damaging.
Oil prices could therefore remain volatile in the weeks ahead. Energy markets are highly sensitive to shipping developments, military headlines and diplomatic signals. Sharp spikes can be followed by equally sharp pullbacks as new information emerges. That volatility does not automatically imply a structural crisis – but it does mean markets are likely to remain reactive while uncertainty persists.
It is important, though, to separate what markets are reacting to from what may actually eventuate.
Financial markets do not wait for outcomes – they price in possibilities. In geopolitical crises, they tend to assume worst-case scenarios first. The surge in oil reflects fears about escalation and duration, not confirmed long-term supply destruction.
History shows that those worst-case scenarios do not always materialise. Markets frequently overshoot before recalibrating. Globally, if oil prices spike too far, demand destruction often follows – higher prices dampen consumption, slow growth and ultimately help cap prices. Oil shocks can contain the seeds of their own reversal.
There are several reasons why this is unlikely to resemble the oil crises of the 1970s (a period that saw the New Zealand Government at the time introduce “carless days”).
First, the global energy landscape has changed dramatically. The United States is now a net exporter of oil, thanks to the shale revolution. That flexibility simply did not exist during earlier Middle East crises.
Second, the world economy is far less oil-intensive. Oil consumption relative to real GDP is around 60% lower today than in the 1970s and roughly 35% lower than in 2000. Modern economies generate far more output per barrel than in decades past, making them more resilient to energy shocks. Exposure is uneven – around 60% of Asia’s oil supply still comes from the Middle East – which helps explain sharper reactions in some regional markets.
Third, strategic reserves exist precisely for moments like this. Co-ordinated releases can soften price spikes and buy time for diplomatic or logistical solutions. Oil above US$100 per barrel is widely viewed as an economic “breaking point” if sustained. Historically, oil generally needs to double year-on-year to reliably trigger recession or sustained bear markets. We are not there yet.
Even within Opec (the organisation representing the world’s major oil producers), there is limited appetite for a prolonged surge that destabilises the global economy and ultimately destroys demand. Much of the recent move reflects risk premium rather than confirmed, permanent supply loss.
There is also a strategic dimension. Iran relies heavily on oil revenues. Should the conflict drag on, a prolonged shutdown of regional exports would damage its own economy, creating at least some incentive to avoid an extended chokehold on global supply – even if rhetoric currently remains hard.
None of this downplays the seriousness of the moment. The longer shipping routes remain disrupted, the greater the economic strain. But markets have faced – and recovered from – similar crises before. The pandemic briefly sent oil prices negative. The Ukraine war triggered fears of a lasting European energy crisis. In both cases, markets eventually stabilised and moved on.
Financial history is filled with episodes that felt existential at the time but proved temporary. Crises are not anomalies in markets – they are recurring features.
For investors, the current volatility is a stern test of emotions. Sudden declines in share prices and rising fuel costs can tempt reactive decisions. Yet history consistently shows that staying the course has rewarded patience far more often than panic has protected capital.
This episode is a reminder of both fragility and resilience. Oil’s surge reflects genuine risks, particularly for countries like New Zealand that are exposed to external supply. Kiwi motorists will likely feel the impact while disruption persists.
But unless energy flows remain materially disrupted for months rather than weeks, history suggests this is more likely to be a sharp shock than a structural reset.
Perspective matters. Markets are reacting to possibility, not certainty. And while the headlines are dramatic, the global system remains more resilient than many fear.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 180,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
To see Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, go to www.generatewealth.co.nz/advertising-disclosures/. The issuer is Generate Investment Management Limited.
