Fuel markets have experienced one of the most volatile periods in recent history over the past six weeks, driven by disruption through the Strait of Hormuz, a route that typically carries around 20% of global oil flows. For Waikato businesses, the key takeaway is straightforward: New Zealand has remained well supplied throughout, but the cost of fuel has been highly reactive to global geopolitical events.

At the peak of the disruption, refined fuel markets, particularly diesel, became severely constrained. Pricing was no longer being driven by crude oil alone, but by the cost of securing physical supply in Asia-Pacific markets. Singapore diesel prices more than doubled at one point, reflecting intense competition for available barrels and a breakdown in normal supply chains.

This distinction matters. While crude oil often attracts the headlines, New Zealand imports refined fuels, and our pricing is ultimately set by regional product markets. When those markets tighten, as they did through March, the cost of fuel rises sharply regardless of what crude is doing.

Importantly, New Zealand’s fuel system proved resilient throughout this period. Inventory levels remained within normal operating ranges, supply chains continued to function, and importers met forecast demand. There were isolated instances of retail sites running dry, but these were largely driven by distribution constraints and elevated demand rather than any shortage of fuel in the country.

Since then, the global system has adapted quickly. Alternative supply has been drawn from the US Gulf Coast, West Africa, Brazil and Russia, while Asian refiners have increased run rates to capture strong margins. Governments have supported this adjustment through strategic reserves and policy settings, while trade flows have shifted to move fuel along routes that would not normally be economic.

Taken together, these changes have replaced a meaningful portion of disrupted Middle Eastern supply, albeit less efficiently. The result is a system that is functioning, but with longer supply chains, higher freight and insurance costs, and ongoing volatility. At the same time, geopolitical developments, particularly ceasefire discussions between the US and Iran, have driven a sharp repricing lower. Wholesale fuel prices have eased quickly as risk premiums unwind, even though physical flows through Hormuz remain constrained and fragile. This highlights how sensitive markets currently are to political signals, with prices moving rapidly on headlines as much as fundamentals.

Looking ahead, the outlook can be framed in three clear scenarios:

De-escalation and reopening (most positive)
If a binding agreement is reached and shipping through the Strait of Hormuz normalises, fuel prices are likely to fall further. The current geopolitical risk premium would unwind, and by later winter diesel and petrol prices could trend back towards pre-conflict levels. This would provide meaningful cost relief across transport, agriculture and logistics-heavy sectors.

Prolonged uncertainty (base case)
If the ceasefire holds but negotiations drag on and shipping remains constrained by insurance and security concerns, prices are likely to remain volatile but broadly range-bound. The global system can sustain this through alternative supply routes, but at a higher underlying cost base. In this scenario, businesses should expect ongoing price swings and limited sustained relief.

Re-escalation (upside risk)
If the ceasefire breaks down and conflict resumes, prices would move higher again. While the system has now adapted to replace a portion of Middle Eastern supply, a renewed disruption would quickly reintroduce upward pressure, particularly for diesel, which remains structurally tighter than gasoline.

For Waikato businesses, the implications are clear. Fuel costs will remain sensitive to geopolitical developments in the near term, and volatility, particularly in diesel, is likely to persist. Sectors with high fuel intensity, including transport, agriculture, construction and contracting, will continue to feel this most acutely.

The positive is that New Zealand’s supply chain remains robust. Availability is not at risk, and the system has demonstrated strong operational resilience under stress. Over time, as global flows normalise and risk premiums unwind, pricing behaviour should return to more typical patterns.

Until then, businesses should plan for continued short-term swings in fuel costs, while taking confidence that supply itself remains secure.