How could the conflict in the Middle East affect New Zealand?

With conflict once again breaking out in the Middle East, it can be easy for New Zealanders to tell ourselves that it's all too far away to affect us. Yet, while the chance of a rogue missile falling on Auckland is highly unlikely, the broader impact on global systems is already making its presence felt.

As you may have heard, a lot of the world’s oil comes from the Middle East, with about a fifth of it passing through a thin stretch of water called the Strait of Hormuz. Iran’s powerful Revolutionary Guards Corps has said it is now closed, and appears to have backed this up with strikes on at least five vessels. While they might not actually have the ability to sink every single ship, the prospect of a million-dollar oil tanker going down has sufficiently spooked shipping companies and their insurers, with operations grinding to a halt for the time being.

There have also been attacks on the vulnerable infrastructure that pumps the oil up out of the ground and refines it into something you can put in your car, which has combined with the closure of the Strait of Hormuz to drive an increase to costs. Since the start of the conflict, the price of a barrel of oil has crept up to the much-feared figure of $US100, last seen in the months after Russia’s invasion of Ukraine. Speaking to Rova News, the Automobile Association’s Fuel Prices spokesperson Terry Collins says he expects cost hikes to start really kicking in soon as existing supplies start to run low:

“I’m expecting to see the prices start manifesting themselves this week, and the week after. One thing I’m fairly confident of is that if you bought fuel last week, it’ll be more expensive this week, and it’ll be even more expensive next week”

The price of natural gas, something which was already an increasing issue for Kiwi consumers, has also seen spikes since the conflict started. Meanwhile, shipping companies have begun avoiding the nearby Red Sea, due to fears that pro-Iranian Houthi fighters will resume their attacks on vessels attempting to use the vital Suez Canal crossing, which handles nearly a third of global container traffic. Instead, they’ll have to go all the way around South Africa’s Cape of Good Hope, with the added hassle seen as less of a threat than armed men sinking or taking over one of their ships.

As we all learned during COVID, even though it can sometimes seem like much of the global economy takes place on the computer, you still need to get things from A to B, or all the way to Z in the case of a relatively isolated country like New Zealand. Adding extra distance to shipping routes, on top of the increasing price of fuel, will likely be felt by both importers and exporters.

For fans of the stock market, all this uncertainty is also starting to make its presence felt. While shares stayed firm in the first days of the conflict, doubts have begun to creep in as both sides show little sign of backing down. Particularly affected are companies which are highly exposed to rising oil prices, such as travel and logistics firms. On the other hand, big players in America’s weapons-making industry are expected to benefit from the turmoil, so if you can stomach the dubious morality of it, switching to a less ethical Kiwisaver would possibly be the smart choice.

Along with the economic side of things, there is also the hit to what is known as the international rules-based order. Although you can’t use it to pay your rent or fuel your car, the notion that countries should resolve their disputes through negotiation is fairly important to smaller nations such as ours. International politics expert Robert Patman from Otago University told Rova News 

“A country like New Zealand could be directly affected by the erosion of international law. We depend on rules. If we are witnessing a return to the law of the jungle, the majority of countries in the world, including New Zealand, will have to pay the price”

To put this another way, in a worst-case scenario, the impact on your wallet could end up being just the beginning of our woes.

Photo by Georg Eiermann on Unsplash