Prime Minister Christopher Luxon remains cautious over a proposed two-week ceasefire between the United States and Iran, saying New Zealand would “wait and see” how the deal played out and continue planning for more disruption.
The proposal, which includes Iran reopening the Strait of Hormuz, a major shipping route, could be reflected in New Zealand fuel prices in a “matter of weeks” if the deal goes ahead smoothly, Luxon said.
However, he stressed “we have seen the price of oil bounce around hourly” in the conflict and “I just want us to be realistic”.
“It is a positive and encouraging move but there is a long way to go here. We are going to keep working to the assumption that we may have a future disruption and we are going to keep being prudent and responsible.
“As with all aspects of this conflict, we will wait and see how this whole thing plays out.”
Luxon and Finance Minister Nicola Willis addressed the latest fuel stock level figures, released today by the Ministry of Business, Innovation and Employment (MBIE), during a press conference at Parliament.
The fresh figures showed New Zealand’s stock of fuel remained stable and sufficient.
Luxon responded to comments from US President Donald Trump overnight that if Iran did not commit to a peace deal, “a whole civilisation will die tonight”.
Luxon said the comments were unhelpful and unprecedented.
“We haven’t seen those remarks being made before.”
Labour leader Chris Hipkins said Luxon needed to take a stronger stance against Trump’s comments, and called them disgraceful and unacceptable.
Hipkins said the ceasefire would be a “huge relief to people around the world” and he hoped it marked a “return to diplomacy”.
“In the meantime, the New Zealand Government needs to continue its work to support New Zealanders through the fuel crisis which even if this ceasefire lasts, the fuel crisis is likely to be with us for some time.”
On reports a toll could be imposed on ships passing through the strait, Luxon said “that is not something we want to see happening”.
“For us, the freedom of navigation is really important. If you think about what could subsequently happen with taxes on bodies of water New Zealand uses very credibly, to move its exports around the world.”
MBIE’s latest figures showed as of April 5, New Zealand had 62.6 days’ worth of petrol either in the country or on ships making their way to the country. This was a slight uptick on the previous update.
Luxon said fuel importers had not reported any issues with orders or shipments. New Zealand remained at phase one of the national fuel response plan.
“Just because we remain at phase one, it doesn’t mean the impacts from the Middle East conflict are not being widely felt.”
Luxon reiterated expectations the conflict would be a hit to inflation and economic growth.
Ahead of the press conference, the Reserve Bank agreed to hold the Official Cash Rate (OCR) at 2.25% and issued commentary on how it sees the events in the Middle East affecting the “balance of risks for inflation and economic growth” in New Zealand.
That included the Monetary Policy Committee updating its forecast inflations for the first and second quarters of the year, projecting 3% in the March quarter and 4.2% in the June.
“This forecast is based on observed higher fuel prices and current futures pricing, which assumes that Dubai crude oil prices drop below USD100 ($175) per barrel by the end of June.“
The committee also assumes some near-term pass through into other consumers price inflation components, particularly transportation, airfares and food prices.
It said there were “significant uncertainties” around this forecast and it will be updated at future meetings.
In mid-March, Willis said the “worst-case” scenario Treasury had given to her at the time was for inflation to reach 3.7%. Since then, she has highlighted the ongoing uncertainty surrounding the Middle East conflict and factors that make forecasting unpredictable.
Asked whether she expected inflation to peak above the 4.2% projected for June by the Reserve Bank, Willis said she was yet to receive Treasury’s final economic forecasts for the Budget.
“I don’t have final forecasting figures that I can speak to. In terms of when inflation will peak, that is utterly dependent on what the trajectory for this ceasefire is and what the geopolitical events are over the coming days and weeks,” she said.
For example, if the Strait of Hormuz was to remain open and supply chains were to quickly recover, there could be a downward pressure on oil prices and inflation figures may be lower than some forecasts.
On the other hand, further price spikes may lead to higher inflation.
“It is genuinely a very challenging question to give a black or white answer to as to whether or not that would be the inflation peak.”
Domestically, the Government has provided a $50 weekly boost via the In-Work Tax Credit, which is expected to benefit about 143,000 families with children.
Others, such as beneficiaries and superannuitants, didn’t benefit from this change but did receive an automatic, annual increase to the amount they receive on April 1.
The Government also announced a temporary 30% boost to the mileage rates of home and community support workers. These are workers who have to drive to homes to provide care.
Luxon has not committed to broadening financial support. He said although he understood the pressure of rising prices for households, he was not willing to get the “cash bazooka” out, saying it may lead to increased inflation.
Air New Zealand says its jet fuel bill has doubled since the conflict began, with the rising costs leading to some flights being cancelled. Schedule changes in May and June were expected to affect about 4% of flights and 1% of passengers due to travel, the airline said.
Julia Gabel is a Wellington-based political reporter. She joined the Herald in 2020 and has most recently focused on data journalism.