The rising price of fuel isn't the only thing that could affect New Zealand amid war in the Middle East, with wider supply chain crunches carrying the potential for unexpected and dramatic effects.
The key point of tension is the Strait of Hormuz, a narrow strip of water between Iran to the north, and Oman to the South. Shipping traffic has slowed to a trickle amid the threat of vessels being hit by missiles and drones, either deliberately or by accident.
In peacetime, 11% of all global trade goes through the Strait of Hormuz, including a significant share of the world’s oil and natural gas.
The United Arab Emirates — home to the key global port of Dubai — along with Kuwait, Qatar, Bahrain, and parts of Saudi Arabia’s coast are all on the closed-off side, making it hugely difficult to get key commodities out, and exports to the wealthy region in.
Auckland University professor Ismail Golgeci, an expert on international supply chains and the Gulf, told Q+A with Jack Tame that the disruption resembles a "smaller but more focused" version of the Covid-19 supply chain crisis.
"Of course, the biggest item is energy – petroleum and natural gas," he said.
“What’s more important and perhaps overlooked is that it’s also a very important logistics location. The Port of Jebal Ali in the UAE is the ninth largest in the world. It’s the hub for trade in the region.”
Activity at the port of Jebal Ali itself has returned to normal, according to Dubai-based multinational logistics firm DP World, but operations were suspended earlier in the week after the port was hit by an Iranian projectile.
Golgeci said disruptions at major hubs like this create ripple effects that quickly spread through global trade.
And while New Zealand is geographically far from the conflict, the distance offers no protection from the knock on effects.
"We are lucky here to be relatively isolated and far from the region, but if you think about the ripple effect of supply chain disruptions, eventually it will hit New Zealand as well."
This included New Zealand's exports, he said, with significant meat exports in particular going into the Gulf region.
Another under recognised risk for New Zealand is the flow of fertiliser from the region — especially urea, which is made from natural gas.
Disruptions here could push up global food prices, and Golgeci said fertiliser costs are "already hiking up".
Speaking on a Q+A with Jack Tame panel, Business Desk senior correspondent Dileepa Fonseka noted that while oil prices were crucial for the price of everything else, other commodities will also be squeezed.
"There are a lot of other things we can't predict," he said. "Sulfuric acid – sulfur – about 20% of the world's supply comes out of the Strait of Hormuz. That's important for copper, cobalt – you go further down that you're hitting semiconductors," said Fonseka.
"How long this goes on for is going to determine some of these other effects, which we potentially don't have visibility on."
1News business correspondent Jason Walls told the panel it was highly likely that inflation will rise off the back of the war in Iran, and economic flow-on effects, and that it could push the Reserve Bank into raising interest rates faster and harder.
"We're at a point where the Reserve Bank had thought we'd got things under control. [Governor] Anna Breman was talking about how she was expecting inflation to be down to that 2% midpoint in the next twelve months or so," said Walls.
"That was before what's happened in the Middle East, and she'll be at this and probably thinking this is going to increase inflation, because as Dileepa noted, oil prices are embedded in everything."
Q+A with Jack Tame is made with the support of NZ on Air.
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