Source: Radio New Zealand
Much more than just oil may be affected by price rises or even shortages if the Iran war continues to escalate. RNZ / Quin Tauetau
Explainer – As the war between Iran and the United States and Israel enters its second month, New Zealand is feeling the pinch at the petrol pump. But what other everyday items could face possible shortages if the conflict escalates?
We all know about the rising cost of fuel and the immense impact diesel prices will have on the entire country’s infrastructure, but there are several other everyday necessities that could be hit by a prolonged war.
Only 0.6 percent, or $642 million, of New Zealand’s total imports are sourced from Middle Eastern countries, the Ministry of Foreign Affairs and Trade notes in its most recent report on supply chains and the Iran conflict.
But because of the intricate network of supply chains that make up the global economy, there’s no easy way for New Zealand to avoid the impacts being felt worldwide.
Dr Sarah Marshall is a senior lecturer at the University of Auckland business school and director of the university’s Centre for Supply Chain Management.
“I think the Iran conflict has highlighted vulnerability in our supply chains, but in many ways Covid-19 already did that,” she said.
“Since 2020 there’s been a much stronger awareness in New Zealand of what a supply chain actually is and how exposed we are to global disruptions.”
“If fuel prices continue to rise or supply is disrupted, that feeds through into almost every stage of the supply chain. Each stage faces higher costs, and those are eventually passed on to consumers.”
University of Auckland economics professor Robert MacCulloch said if the war carries on, it could potentially be an oil shock on the scale of the 1970s.
“I don’t think it’s overblown to say that potentially the effects are going to be enormous,” he said. “In this country it inspired in the ’70s the government of Rob Muldoon to change the whole national strategy.”
“We can see you can be held to ransom maybe by someone who’s very critical in that supply chain.”
Here are some of the everyday staples that could face more supply and cost issues because of war in the Middle East.
Food supplies could be affected if shipping problems continue. Supplied
Food
One of the biggest impacts we’re already starting to see is how much we pay at the grocery store.
Eat New Zealand chief executive Angela Clifford recently told RNZ’s Nine to Noon that she would like to see more investment in keep locally produced food on the shelves, rather than imported food.
The recently announced closure of plants by food processors Wattie’s and McCain’s was also troubling, she said.
“We have continued to see the lack of ownership of our food system increase over recent years. You know, we have no security plan, no vision to feed our own people.
“In food systems we talk about the need for redundancy – that is so we don’t find ourselves in a situation with just a few manufacturers, because if anything goes wrong, say like a global fuel crisis, it means that you run out of options.”
A food security plan should include a point that “we value feeding our own people first, and we would work hard to make sure that we would continue to have food for New Zealanders.”
And we should all be careful to avoid the kind of frantic panic-buying that left toilet paper shelves empty during the pandemic, Marshall said.
“We saw during Covid that if demand spikes unexpectedly, it can turn a manageable situation into a real shortage. This often gets amplified as that surge in demand moves through the supply chain, so panic buying can make things worse.”
Shortages could most likely come from foods that are imported or require imported products for production.
Which brings us to …
Fertilisers
Fertilisers are essential for food production and New Zealand gets nearly 22 percent of its overall supply from the Middle East, according to MFAT.
Around half of the world’s urea – the most widely used fertiliser – and large amounts of other fertilisers are exported through the Strait of Hormuz.
“There have been shortages before and farmers can use different products, they normally are more expensive but we have never got to the point where we’ve run out of fertiliser,” Federated Farmers arable chair David Birkett told RNZ recently.
“Farmers should start planning ahead – talk with their fertiliser companies to give them an idea of what demand will be like come spring time.”
Unexpected shortages such as helium gas could affect MRI machine use. 123RF
Medicines and medical supplies
Pharmac said this week it was closely monitoring potential medicine supply risks due to the war.
The Iran war has affected the global supply of a range of raw ingredients, and there were warnings recently that the UK is “weeks away” from possible shortages of everything from painkillers to cancer treatments.
Pharmac said a small number of supply issues had been identified so far and there were currently no problems stemming from those for New Zealanders. It said it was working with suppliers, Health New Zealand, Medsafe, and the logistics sector to identify risks early and secure alternative products if necessary.
Substances few people would think about may be caught up in the war – for instance, the Middle East is a key producer of helium gas, and supplies for it are used in MRI machines and the semiconductor sector.
“The best example of where it gets delicate is in medicine,” MacCulloch said.
“There was concern that there could be great shortages in helium and MRI scans… We’re reliant on these sorts of gases which we may have to import. We’re not able to achieve total self sufficiency in that sense.”
Aluminium
Good old lightweight aluminium is a key component in transport, construction, electronics and packaging, just to name a few.
New Zealand gets about 9 percent of its aluminium from the Middle East, MFAT says.
And prices for the prized metal have hit four-year highs this week after Iran launched airstrikes at major production facilities in Bahrain and the UAE.
Plastic is all around us. RNZ / Richard Tindiller
Plastics
The famous quote from Dustin Hoffman’s movie The Graduate is “There’s a great future in plastics. Think about it.”
Unfortunately for the immediate future, oil is basically how plastic is made, with 99 percent of plastics and polymers made using fossil fuels.
Prices of plastics used in everything from machine parts to toys have risen to their highest price in years.
Anything that’s made from polyethylene, a petroleum-based material which is the most widely used plastic in the world, is likely to be hit if the war drags on.
“The last 20 or 30 years so many products, components of them, are made in so many different countries,” MacCulloch said.
“And you know, this was lauded as a wonderful success of international trade and free trade. And we’re beginning, maybe, to see the limitations of that.”
Disposable cutlery, bottled drinks and garbage bags could be among the first to rise in the coming weeks, Patrick Penfield, a professor of supply chain practice at Syracuse University, told CNN recently.
Reuters reported that between US$20 to $25 billion (NZ$35 to $43 billion) of petrochemical products pass through the strait annually.
…And so many other oil-based products
Paint, road bitumen, clothing, cleaning products, electronics – it’s all part of the great supply chain that makes the world go round and while alternative energy sources are out there, oil is still the primary grease that keeps that chain turning.
The Warehouse Group chief executive Mark Stirton told The Post this week that the retailers were monitoring the crisis closely. “We haven’t been notified of any major delays, but there’s no stock shortages,” he said.
In truth, the list of things that could end being affected by a prolonged war and supply chain constrictions is close to endless.
For instance, 7.2 percent of New Zealand’s jewellery supply is imported from the Middle East, MFAT says.
Consumers may need to rein in their spending on non-essentials, one expert says. Ke-Xin Li / RNZ
So what should we as consumers do next?
“I think expectations are already starting to shift,” Marshall said.
“For a long time we’ve been used to goods being relatively cheap and consistently available, but that has relied on a fairly stable global environment. What we’re seeing now is not a breakdown of global trade, but more volatility in how it operates.”
Professor Robert MacCulloch Supplied
MacCulloch said successive New Zealand governments of both National and Labour have failed to build supply chain resilience.
“They’ve had 50 years to prepare for this shock, you know, half a century.”
He noted that Labour and the Greens when in power shut down oil and gas exploration and closed Marsden Point, while National and its partners have pulled back on electric vehicles and incentives for alternative energies.
“For government, the focus should be on resilience,” Marshall said.
“That means making sure supply chains are as diverse as possible, thinking about strategic reserves for critical goods, and supporting domestic capability where it makes sense.
“Clear communication is also important. Uncertainty can drive overreaction, so giving people a realistic sense of risk helps avoid unnecessary pressure on the system.”
As a potential inspiration going forward in an uncertain time, MacCulloch cited the work of the late American economist Richard Easterlin, who explored the intersections of wellbeing and economics.
“He was a great believer in the idea that people had gone too far with materialism, buying a lot of consumer stuff they didn’t really need.
“Anything you don’t really need, any consumables that are not really necessary to your quality of life, I think drop. It’s not the time to spend on things that you maybe don’t really, really need.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
