Analysis from ASB says the economic fallout from the closure of the Straight of Hormuz will be felt way beyond the pump, with supply costs increasing and pressure on household spending.
The US and Israel’s war on Iran, which has seen the Middle East nation largely close the vital shipping route, has seen fuel prices soar.
But it’s not just at the pump where it’s being felt, senior ASB economist Kim Mundy said.
“While the immediate effect has been higher fuel prices, that’s only one piece of the puzzle,” she said.
“The broader story is how the entire cost shock (which includes fertiliser and petrochemicals) spreads through supply chains, lifting the cost of manufactured goods, packaging, freight and farm inputs, and the flow on effects of that to consumer spending.”
She said food, freight, plastic products and other goods with high transport or packaging costs were the areas where initial inflationary pressures would be felt the most.
Fuel costs will hit discretionary spending in areas such as retail, hospitality, arts and recreation.
“The effects of the Strait’s closure reach further into the economy than may have first been apparent, with few sectors likely to escape entirely. Agriculture, manufacturing, construction and transport appear most exposed, but even less fuel-intensive businesses could be hit as households shift spending towards essentials. That creates another headwind for economic growth,” Mundy said.
ASB urged businesses to review where they are most exposed.
“Roughly a quarter of our economy has a high, or very high, exposure to at least two of the key disruptions we analysed in our research so for businesses, the message is to look beyond direct fuel use and assess their exposure across suppliers, freight, packaging inputs and customer demand while the conflict in the Middle East persists.”
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