Iran war sends New Zealand's economy into stagflation risk as fuel prices soar
New Zealand's economy faces growing risks as the ongoing Iran war disrupts global trade. The conflict, which began in early March 2026, has already pushed fuel prices above 2 € per litre by blocking the Hormuz Strait. Experts now warn that prolonged instability could trigger stagflation—rising prices paired with slowing growth. The war's impact on shipping routes has caused fuel costs to surge, directly raising prices across New Zealand. Businesses are already passing these higher costs onto consumers, fuelling inflation. Gareth Kiernan, chief forecaster at Infometrics, noted that this crisis differs from past downturns because it stems from a supply shock—one that simultaneously drives up prices while stifling economic activity.
Even if the conflict ends soon, economists predict up to four more months of disruption. The longer the strait remains blocked, the greater the risk of lasting damage to trade flows. Mike Jones, BNZ's chief economist, described the situation as a 'stagflationary-type shock', where inflation climbs but growth stalls.
A weaker New Zealand dollar and higher export prices may offer some relief, but they won't fully offset the economic blow. Kelly Eckhold, Westpac's chief economist, still expects modest growth this year but admits the outlook could worsen if the conflict drags on. The war's duration remains the critical factor for New Zealand's economic stability. With fuel prices already elevated and supply chains under strain, the country now faces a prolonged period of higher costs and slower expansion. Any resolution to the conflict may take months to reverse the damage already done.
