Why officials are 'reasonably confident' of avoiding fuel supply shocks

Regardless of the uncertainties surrounding the Iran war and the US administration, New Zealand officials six months on are hopeful - confident, even - that supply chains will hold. In the first of this two-part series RNZ political reporter Russell Palmer sits down with MBIE's Iain Cossar."Reasonably confident" is how New Zealand's top fuel official rates the country's chances of avoiding fuel shortages.It's a remarkable shift considering the level of exposure for New Zealand which Iain Cossar says is among the highest in the world."As far as markets go, we couldn't be probably more. We were probably one of the most exposed to a Hormuz closure and were rightly quite worried about what that might mean for actual supply."After the US and Israel launched attacks against Iran in February, resulting in the closure of the Strait of Hormuz, the Department of Prime Minister and Cabinet set up an all-of-government response group including 11 agencies.Treasury leads the price response, and the Ministry of Business, Innovation and Employment (MBIE) leads the supply response. At the height of the crisis they were meeting daily at 7.30am.At the time, the world was producing about 106 million barrels of oil a day, and consumed about 104 million a day in 2025. Nearly 20 percent transits the Hormuz Strait - mostly from Middle-East states to Asia.A fine line between too much and not enoughCossar took over in early April as the Ministry of Business, Innovation and Employment's deputy secretary for the fuel supply response, which has drawn on expertise from 180 ministry staff and secondees.He says with New Zealand no longer refining onshore, it is largely reliant on Asian markets with Korea, Singapore, Malaysia and Japan supplying more than 90 percent of the fuel Kiwis used in 2025."We are highly dependent on them getting the raw product to refine and then send to us. We're about three weeks shipping away, give or take," he says.New Zealand runs on a "just-in-time" model where about 50 days of fuel - with about 20 days' of that being offshore - are booked on shipments up to three months in advance.So far, only one shipment has been delayed, because the ship diverted to another destination."It's literally the equivalent of you driving to one petrol station and then deciding you can get a better price at another one," Cossar says."The fuel that was on that consignment ... was sought and bought from another supplier to come to New Zealand within six hours," Cossar says.New Zealand's top fuel official Iain Cossar.RNZ / Samuel RillstoneNew Zealand also needed to worry about the opposite problem: ullage, a term from the wine industry meaning the space left in the tank. With the just-in-time model relying on stable fuel consumption, people buying less to save money could disrupt things."We can only hold so much fuel in the country and if people reduce their consumption of that fuel, what could happen is that a ship arrives with ... jet or petrol and it can't offload," Cossar says."They are then waiting in harbour and because you've got a large tanker sitting at dock doing nothing, you're actually paying quite a price for that."Cossar says the Strait's closure had an impact on the world economy "consistent with, and I think slightly higher maybe, than the supply shock of the '70s", but several factors helped:markets adjusted very quickly, with oil and refined product flows around the globe going to those countries that could afford itmore product was coming out of the Middle East than anticipated, including through other channels and some through the "closed" straitSoutheast Asian markets and poorer countries were affected and responded by reducing consumptionChina reduced its demand considerably, easing global demand (about 5 million barrels per day)more oil production came online in other countries, particularly the US, Kazakhstan and Brazil (about 1.2 million barrels per day)the International Energy Agency ordered 400 million barrels of global oil reserves to be released to market over the course of the crisis (about 300 million were released by early August).Going dark, or over landCossar says markets have always been optimistic the conflict in Iran would be resolved eventually "so they priced that in, but you do see continuing variability with the ever-changing geopolitics".Oil continued to leave the Middle East through various methods: dark transits, ship-to-ship transfers, US military night corridors and alternative land pipelines.In August, the pre-conflict rate of 55 ships a day had dropped to about 10, largely through dark transits where ships "go dark" by shutting off their identification transponders to avoid detection.Sometimes these were small ships that could run the Strait, then transfer oil to larger tankers in the open Arabian sea. Other times, the US military would run convoys at night in coordinated groups.Ways oil was leaving the Strait of Hormuz.Supplied / International Energy AgencyOverland pipelines also played a part, with the East-West pipline across Saudi Arabia and the UAE taking up to 7 million barrels a day; the Habshan-Fujairah Pipeline carrying up to 1.8 million barrels a day from Abu Dhabi to Fujairah; and Saudi Arabia increasingly diverting Yanbu exports via the SUMED pipeline and the Suez Canal.China a big player in supply and demandChina - as one of the world's biggest importers of crude - "played and continues to play quite a critical role" by cutting imports by a third to half."They solved a third of our problem right there, globally. Now, we don't know exactly why they've done that - the price would have been an impact and perhaps they just chose to not import, as they had quite extensive reserves."Beijing did impose export controls on refined fuel for a time but released those again in July, and Cossar says a return would not necessarily mean a shortage.The size of China's reserves is a mystery - particularly below ground - but Cossar says they are believed to be "significant" and demand remains below pre-conflict levels.He says despite the uncertainty, and although New Zealand is prepared in case a supply shock should emerge, he is not expecting that to happen."We're reasonably optimistic we won't face a supply shock because we have seen world markets adjust, new supply has become available, and there is supply getting out of the Middle East that we weren't actually aware of."Some countries will continue to buy for those who can afford it, and those who can't, won't. Put bluntly, New Zealand is in the countries who could probably afford it. We won't like it [when prices are higher] and it will have impacts on us, but we'll still be able to afford fuel."A graph of global fuel reserves.Supplied / International Energy AgencyFurther reassurances come from New Zealand's "robust" regulatory system, the additional reserves loaded up at Marsden Point, continued shipments finding ways out of the Hormuz Strait and out of the Red Sea.By the end of May, the number of staff dedicated to the response had dropped to 110, and today fewer than 12 people remain involved, many splitting their time with other work.In the long term, although global reserves have fallen below 7.9 billion barrels, they are still above 2022 levels "so it's not like we are in uncharted territory", Cossar says.RNZ has also spoken to the Ministry of Foreign Affairs and Trade about the likelihood of a return to full hostilities, being published tomorrow. The Treasury did not respond to requests for comment on the fuel price response.