The two-week pause in hostilities sent oil prices tumbling \u2013 but economists, the Reserve Bank and the government all agree the crisis is far from over, writes Catherine McGregor in today\u2019s excerpt from The Bulletin.<\/p>\n
To receive The Bulletin in full each weekday,\u00a0sign up here<\/a>.<\/p>\n OCR firm, outlook shaky<\/p>\n Wednesday was already a significant day for the New Zealand economy before the ceasefire broke.\u00a0The Reserve Bank held the official cash rate steady<\/a>\u00a0at 2.25% but issued a stark warning that the Middle East conflict had \u201cmaterially altered the outlook and the balance of risks for inflation and economic growth in New Zealand\u201d. The Monetary Policy Committee now projects inflation spiking to 4.2% in the June quarter, up from 3.1% at the end of last year. If inflation rises further above medium-term expectations, the committee warned, \u201cdecisive and timely increases in the OCR would be required\u201d.<\/p>\n Finance minister Nicola Willis underscored how fast-moving the situation had become. Much of what the Monetary Policy Committee had based its deliberations on, she noted at a media briefing, was \u201calready out of date\u201d.<\/p>\n Fog of war<\/p>\n The questions still to be answered about the ceasefire are myriad.\u00a0As The Post\u2019s Luke Malpass writes<\/a>, \u201cit is not clear at all what the current deal is, or what a negotiated end to the war might be\u201d. In the hours following the ceasefire, Israel has continued to strike Lebanon, claiming the country to their north was not covered by the deal, which mediator Pakistan prime minister Shehbaz Sharif disputes. Meanwhile, only two vessels made it through the Strait of Hormuz before Iran reportedly closed it again,\u00a0according to the NZ Herald<\/a>.<\/p>\n For New Zealand, the key issues regard the Strait of Hormuz. Will it actually reopen \u2013 and will tankers be willing to use it, given the ongoing risk and related insurance problems? Will Iran\u2019s reported demands for a $US2 million ($NZ3.5m) toll per vessel become entrenched into the global oil trade? And if so, what will that mean for the price we pay at the pump? The full 10-point peace plan, which includes US reparations for reconstruction costs and a lifting of all sanctions, is, Malpass writes, \u201cclearly a non-starter\u201d, though Trump has described it as a workable starting point for negotiations.<\/p>\n Fuel: some relief, but not yet at the pump<\/p>\n Markets reacted sharply to news of the ceasefire. Brent crude fell around 12.5% to roughly $USD95 a barrel, while West Texas Intermediate was down around 16%. Westpac chief economist Kelly Eckhold\u00a0told RNZ\u2019s Susan Edmunds<\/a>\u00a0the oil price drop could be consistent with petrol prices falling about 20c per litre, to roughly $3.30 a litre for 91.<\/p>\n But Infometrics\u2019 Gareth Kiernan urged caution. \u201cThere\u2019s still the month-long \u2018air bubble\u2019 in the oil supply that needs to work its way through the system before supply conditions can be considered to have returned towards normal,\u201d he said. The Brent price quoted is effectively a futures price for June oil, not barrels physically delivered today \u2013 and Asian refining margins (known as the crack spread) have been rising, meaning diesel prices could still go higher before they fall.<\/p>\n Willis herself acknowledged that while NZ prices \u201ctypically respond quickly to oil market moves \u2013 usually within a week or so\u201d, the current volatility meant \u201cthis may take longer in this instance.\u201d Oil and gas facilities across the region have been damaged and will take time to come back online. Even if ships begin transiting freely, the disruption to refinery supply chains means a return to anything approaching normal is, at minimum, several weeks away.<\/p>\n The things unsaid<\/p>\n Prime minister Christopher Luxon welcomed the ceasefire<\/a>\u00a0as \u201cthe most encouraging news I think we\u2019ve had in this conflict, absolutely\u201d, but said there was \u201cno escaping the fact there will be a hit to inflation and economic growth\u201d. On Trump\u2019s threat that \u201ca whole civilisation will die\u201d \u2013 issued just hours before the ceasefire \u2013 Luxon would only call it \u201cincredibly unhelpful\u201d, resisting calls to go further.<\/p>\n Foreign minister Winston Peters was in Washington meeting with US officials including secretary of state Marco Rubio when the ceasefire news broke.\u00a0As new World Bulletin editor<\/a>\u00a0Anna Fifield told Toby Manhire\u00a0on Gone By Lunchtime<\/a>, Peters appeared conspicuously focused on economics and freedom of navigation, not human rights. \u201cHe didn\u2019t raise the continued suffering of 93 million people in Iran, the basis for the war, any of that kind of stuff, which, frankly, as a New Zealander, I find really disappointing, because this rule of law is the thing that keeps us safe and keeps us able to play on something like a level playing field in the international community.\u201d<\/p>\n Subscribe to +Subscribe<\/p>\n","protected":false},"excerpt":{"rendered":"The two-week pause in hostilities sent oil prices tumbling \u2013 but economists, the Reserve Bank and the government…\n","protected":false},"author":2,"featured_media":371600,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[25029,42,169108,43,6042,42033,14465,40,38,41,39],"class_list":{"0":"post-371599","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-headlines","8":"tag-fuel-crisis","9":"tag-headlines","10":"tag-iran-war","11":"tag-news","12":"tag-newsletter","13":"tag-reshuffle","14":"tag-the-bulletin","15":"tag-top-news","16":"tag-top-stories","17":"tag-topnews","18":"tag-topstories"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/371599","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=371599"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/371599\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/371600"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=371599"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=371599"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=371599"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}