Russian invasion could have wider ramifications for Northlanders

Protests have erupted around the world in response to Russia's invasion of Ukraine. The action is likely to impact fuel prices and transport costs here. Photo / AP

Russia's invasion of Ukraine could impact on Northlanders in a number of ways including further hikes in fuel prices, transport costs, and commodities like fertiliser used across the primary industry sector.

Leading economist Brad Olsen said contrary to the thinking by many that fuel price increase would only be felt at the pump, the ramifications of any such hike would mean the cost of delivering goods and services would go up and he expected certain businesses to start increasing their charges.

"Watch for 91 in NZ to increase to above $3 a litre, with discounted fuel up to $2.85 a litre or so," he said.

PriceWatch showed the price of 91 across Northland yesterday was retailing at between $2.516 per litre and $2.759, 95/96 was between $2.537 and $3.019, while the cheapest price for diesel was $1.757 and the dearest $2.009.

Russia's full-scale invasion of Ukraine has seen airstrikes on cities and military bases, and troops and tanks enter the country from three sides in an attack that could rewrite the post-Cold War security order.

Ukraine's Government pleaded for help as civilians piled into trains and cars to flee.

There were 23 New Zealanders registered on SafeTravel as being in Ukraine as of Thursday morning, according to the Ministry of Foreign Affairs.

"We know farmers and the primary sector in general are facing an increase in costs in the last wee while and the invasion of Ukraine will only exacerbate the situation for them," Whangārei-born Olsen said.

Economist Brad Olsen is warning an increase in the price of fuel and transport costs will likely result from the Russia/Ukraine dispute. Photo / Tania Whyte

"There's been a 53 per cent increase in the cost of fertiliser in the year to December 2021.

"While Russia and Ukraine are not New Zealand's primary import market for fertiliser, wheat and grain, there will be an indirect effect because it will become hard to find these commodities on the global market as New Zealand will have to compete with others."

Farmers would welcome dairy giant Fonterra lifting its 2021/22 farmgate forecast price by 40 cents to a mid-point range of $9.60 per kilo of milk solids, he said, but their operating costs would put a dent in their earnings.

Fonterra this week lifted its milk price range to between $9.30 and $9.90 per kgMS, up from NZ$8.90 - $9.50 per kgMS.

This increases the midpoint of the range, which farmers are paid off, by 40 cents to NZ$9.60 per kgMS.

The lift in the forecast reflects the increase in global dairy prices since Fonterra's last milk price update in January, and good levels of ongoing global demand for dairy.

Fonterra is, however, cautioning there are a number of factors to keep a close eye on, including the potential impact on demand from rising interest rates and inflation, increased potential for volatility as a result of high dairy prices, geopolitical issues and economic disruptions from Covid-19.

Matt Long of Federated Farmers in Northland says a lift in the forecast price of milk is positive but things could change rapidly. Photo / Michael Cunningham

Federated Farmers acting diary chairman for Northland, Matt Long, said there was still a high degree of uncertainty on the global dairy market in light of the conflict between Russia and Ukraine.

"Everyone is wondering how the dispute will play out. I've been watching the global milk trade and international prices have been moving up lately so the latest lift in the forecast price does not come as a surprise.

"Fonterra is still forecasting a 25 cents dividend on top of the forecast price. It's very positive but the last time dairy prices went higher, they halved in the following season," Long said.

Fuel price hikes in Northland are among repercussions likely to be felt from Russian's invasion of Ukraine, warns economist Brad Olsen. Photo / NZME

On fuel prices, Olsen said after the Russian invasion on Thursday, oil prices hit more than $US100 ($149) per barrel but fell slightly to just over US$99 yesterday, which was still expensive.

"That will still put pressure on the global supply. Russia is a major supplier of oil and even though New Zealand doesn't necessarily import from Russia, motorists here would expect to see the price of 91 hit $3 a litre. Opec has been resistant to increasing supplies from other countries so there's not a huge advantage for us there."

With Refining NZ at Marsden Point turning into an import-only terminal from April, Olsen said security of supply could be one of the challenges for New Zealand as the country did not have massive fuel reserves sitting in tanks.

Given the inflationary pressures not seen in New Zealand in the last 30 years, Olsen said any increase in fuel prices could trigger a "perfect storm" with hikes in transport costs, and prices of high-demand items such as building supplies and homeware goods.

"If there's a substantial shift in demand in other forms of transport such as rail which has limited freight capacity, that will exacerbate the situation and the price of transportation will rise."

Fuel retailer Gull offered a discount of 15 cents per litre on all fuel this week. Photo / Tania Whyte

Fuel retailer Gull offered a discount of 15 cents per litre on all fuel on Thursday and yesterday.

The average price per litre for 91 was $2.557, 98 was $2.807, and $1.787 for diesel.
In Europe, Ukraine ranks number one in proven recoverable reserves of uranium ore, second in titanium ore and explored reserves of manganese and mercury ore.

The Eastern European country has the second-largest explored reserves of manganese ores (2.3 billion tonnes, or 12 per cent of the world's reserves) in the world and is also number two in iron ore reserves (30 billion tonnes).

Energy Minister Megan Woods said Russia's invasion of Ukraine and any resulting restriction of Russian oil supply would not affect New Zealand's fuel supply.

"New Zealand does not purchase any oil or oil products from Russia so would not be directly affected if Russian oil supply is curtailed."

She said the International Energy Agency (IEA) has assessed world oil production capacity as more than sufficient to meet demand due to any disruption that may arise from the situation in Ukraine.

As New Zealand was a member of the IEA, she said it held strategic reserves offshore to manage potential disruptions in the oil market that could have an impact on the price of oil.

But Maritime Union of New Zealand said global energy markets have been thrown into turmoil by the outbreak of war.

"The problem is New Zealand is relying on assumptions and assurances from petrol companies that look pretty flimsy when you measure them against the current global situation," union national secretary Craig Harrison said.