Risk to New Zealand’s fuel security still elevated, Govt 'actively preparing' for the possibility to move up phases, says PM as IMF sends warning

The risk to New Zealand’s fuel security is still elevated and the Government is “actively preparing for the possibility" of moving up the response phases if there were widespread fuel shortages, Prime Minister Christopher Luxon said on Wednesday.

While the country is still at ‘phase one’ and the latest fuel stock data remained above minimum levels, the Ministry of Business, Innovation and Employment (MBIE) noted the departure to New Zealand of one small fuel shipment was delayed as; “some countries have closed their export facilities, more vessels are using Singapore as their primary loading hub - leading to congestion and delays.”

“The fuel companies have confirmed that supply chains continue to operate, although these types of delays are likely to become more common,” a statement on the MBIE website said.

It comes after International Monetary Fund’s chief economist Pierre-Oliver Gourinchas warned the closing of the Strait of Hormuz and serious damage to critical energy facilities in the Middle East, "raise the prospect of a major energy crisis, should a durable solution not be found soon.”

“Our reference forecast assumes a short lived conflict and a moderate 19% rise in energy prices in 2026 - still some damage will not be avoided. Global growth falls to 3.1% this year, a downgrade from January, forecast and headline inflation rises to 4.4%," he said. 

“Our adverse scenario assumes further disruption leading to higher energy prices and inflation expectations and tighter financial conditions throughout the year, growth falls to 2.5% this year and inflation rises to 5.4%.

“Our severe scenario assumes that energy supply disruptions extend into next year with greater macro instability. Global growth falls to 2% this year and next while inflation exceeds 6%, downside risks are clearly very elevated with rising public debt trajectory, fiscal space is much thinner than before."

'We know there'll be an impact on inflation'

Luxon said as the ceasefire was fragile and the Strait of Hormuz remained effectively closed, "the risk to New Zealand's fuel security is still elevated, and while we remain at phase one, we are actively preparing for the possibility that we need to move up the response phases in the event of widespread fuel shortages".

In reference to the IMF warning, Luxon said, “we know there'll be an impact on inflation, we know there'll be an impact on growth”.

“What we're doing is minimising that impact, and that's why we've got timely, targeted, temporary support to people, but we're also keeping an eye on the long-term, to say we do not want to repeat the Covid mistakes with the cash bazooka...”

Luxon said he would “love to be able to tell Kiwis that those prices will come down, but that is not something that anyone can accurately predict, given the unpredictability and the volatility of the situation in the Middle East.”

“The price issue will impact our economy as more of people's budgets are being spent on fuel and less on discretionary items, but the far greater risk to our economy is a fuel shortage, and that is why we are shoring up our supply.”

He had not been advised of any changes following the US’ blockage.

“…There hasn't been a significant increase in ships moving freely through the Hormuz Strait, and that's what we need to be able to encourage all parties to be able to get the free flowing of those ships, freedom of navigation, so that those supplies can get, ultimately, up to refineries.”