Middle East conflict could impact New Zealand exporters

Iranians hold pictures of Hezbollah leader Hassan Nasrallah, killed in an Israeli air strike, during an anti-Israel protest in Palestine Square in Tehran on September 30. Photo / Atta Kenare, AFP

Escalating Middle East tensions will cause new problems for some New Zealand exporters but won’t greatly harm the economy, analysts say.

Israel in recent days has stepped up attacks on Hezbollah in Lebanon and the Houthis in Yemen, where Red Sea shipping had already been impacted.

The route is crucial for trade between New Zealand and Europe.

Ships unwilling or unable to sail in that region often had to go around South Africa instead.

“A lot have opted to go round the Cape. It does add to the cost and time of moving goods around,” said ANZ agriculture economist Susan Kilsby.

New Zealand’s moves in recent decades to trading more with China and Pacific basin countries had reduced dependence on the Suez Canal and the Red Sea.

But European markets were still important for several producers, including meat and fresh produce growers.

“Europe had always been traditionally the biggest market for venison,” Kilsby said.

She said concerns about over-reliance on Europe led venison exporters to open new markets in China and the US, which had been successful.

Wine and kiwifruit exporters also needed access to Europe, and onion growers did too.

Kilsby said New Zealand imported some fertiliser from the Middle East and machinery from Europe but had other sources for these imports if required.

Even if the Red Sea did not face severe disruption, Kilsby said shipping there was currently at about half the levels since before the Houthi actions of late 2023.

“Basically it really tightens up the supply of shipping.”

Smoke rises over Beirut on Saturday. Photo / Diego Ibarra Sanchez, The New York Times

Produce often had to stay on ships for longer when routes were congested or ships had to travel around the Cape.

Reuters last month reported the costs of insuring a ship through the Red Sea had spiked since early September and some underwriters were pausing cover completely, according to industry sources.

An Israeli ground invasion of Lebanon would likely aim to create a buffer zone about 16-20km wide, security analyst and former consultant to the CIA Dr Paul G Buchanan said.

New Zealand’s biggest export destination, China, was largely indifferent to the Middle East conflict, Buchanan said.

But China did import Iranian oil and export arms to Iran.

Buchanan, also director of 36th Parallel Assessments, said China had an interest in maintaining freedom of navigation and safe passage to the Persian Gulf and neighbouring waterways.

Iran, if desperate, could mine the Strait of Hormuz, a choke point between the Persian Gulf and Gulf of Oman, Buchanan said.

Buchanan said Saudi Arabia and the United Arab Emirates, with whom New Zealand signed a new trade agreement last week, would privately welcome more damage to Iran and Iran’s allies and proxies.

“Anything that weakens Iran improves their geopolitical position.”

Last month’s pager and walkie-talkie attacks devastated Hezbollah’s command and communications, Buchanan said, and may have also degraded its control and intelligence abilities.

“There’s another aspect to this. They’re calling Iran’s bluff,” he said of Israel. “They’re decimating their best proxy.”

Buchanan said public opinion in New Zealand, as in the US, was shifting to a more pro-Palestine stance but it remained an issue of serious concern to only a minority of people and that was unlikely to change much even if conflict escalated.

People gather in front of a building targeted by an Israeli strike in Beirut's southern suburbs on September 20. Photo / AFP

ANZ chief economist Sharon Zollner said the Levant and Persian Gulf had lost some relevance to the global energy situation.

“The biggie is oil prices, but the world’s changed since the 1970s when it was all about the Middle East and Opec had the power to hold the world over a barrel, so to speak.”

Zollner said US shale oil extracted from fracking had radically changed the market in recent years.

Brent crude prices hit US$91 in early April and US$87 in July but for the past month have mostly lingered at US$71 to US$72.

“Concerns about global growth are trumping any concerns about supply at the moment. That said, it’s obviously a volatile situation and anything can happen,” Zollner said.

She said congestion at the Port of Singapore was still a problem for trade and Red Sea tensions were one reason for that congestion.

“We’re not great on the energy security front, particularly now we’ve closed Marsden Point, but we’re not particularly reliant on Middle Eastern oil.

“We’re fortunate we’re relatively buffered. We saw that when Russia invaded Ukraine. Europe was far more exposed to the energy shock.”