The global oil shock triggered by tensions in the Middle East has interrupted New Zealand's economic recovery, but Kiwibank economists believe the economy remains resilient enough to avoid a deeper downturn.
Report by elocal
In their latest weekly commentary, "Stuck in a Rally: Markets Eye a Peaceful Break," Chief Economist Jarrod Kerr and Economist Alexandra Turcu argue that while uncertainty remains elevated, financial markets are increasingly looking beyond the conflict and anticipating an eventual return to more normal trading conditions.
Markets Looking Beyond the Headlines
Despite renewed exchanges between Iran and the United States and the continued closure of the Strait of Hormuz, oil markets have remained surprisingly calm.
Brent crude has fallen back towards US$72 per barrel, close to pre-conflict levels, signalling that traders believe global supply chains are adapting rather than collapsing.
Kiwibank notes that several factors are helping offset disruption:
- Additional oil production from the United States, Brazil and Venezuela.
- Alternative export infrastructure, including the UAE accelerating construction of its East-West pipeline.
- Oil tankers that exited the Strait of Hormuz during a brief ceasefire window continue delivering supplies into Asian refineries.
- Businesses worldwide are accelerating investment in electrification to reduce future dependence on imported fuel.
As the report observes:
"The world is adapting around this curve ball of a crisis."
New Zealand Still Feeling the Pain
While international markets appear optimistic, Kiwibank believes New Zealand has already absorbed significant economic damage from higher fuel costs.
The report argues that soaring prices for petrol, diesel and petrochemical products have weakened both business and consumer confidence.
Investment intentions have declined, hiring plans have slowed, and sectors heavily dependent on transport and construction have been particularly affected.
Construction, in particular, remains vulnerable because projects can often be delayed during periods of elevated costs and economic uncertainty.
Encouraging Signs Emerging
Despite these challenges, Kiwibank identifies several areas demonstrating resilience.
These include:
- Continued activity among first-home buyers as house prices stabilise.
- Manufacturing maintaining positive momentum.
- A weaker New Zealand dollar improving export competitiveness by making Kiwi goods more attractive overseas.
The report argues that while the recovery has slowed, it has not been derailed.
Interest Rates Likely to Stay on Hold
One of Kiwibank's strongest conclusions concerns monetary policy.
The economists believe the Reserve Bank should avoid raising interest rates in July, allowing the economy additional time to absorb the effects of the recent oil shock.
They conclude:
"This all culminates to one thing. The RBNZ is less likely to hike rates in July. In our view, that's the right move."
Maintaining accommodative monetary policy, they argue, would support households and businesses while the economy gradually regains momentum.
Financial Markets Shift Focus
Kiwibank's financial markets team believes investor attention is now returning to longer-term fundamentals.
While geopolitical risks remain, markets are once again concentrating on inflation, interest rates and global economic growth rather than reacting to each development in the Middle East.
According to Senior Dealer Hamish Wilkinson, lower oil prices should eventually reduce inflation pressures, although expectations for US interest rate cuts have now shifted further into the future.
Analysis
Kiwibank's assessment broadly aligns with a trend that has emerged across recent economic reporting.
Rather than assuming prolonged disruption from the Middle East conflict, markets increasingly expect global supply chains to adapt through alternative shipping routes, increased production and technological change.
That assessment also reflects themes highlighted in recent NZ Fuel Watch reports, where evidence has shown additional shipping movements, diversified supply routes and growing efforts to reduce reliance on the Strait of Hormuz.
The key question now becomes whether lower oil prices remain sustainable.
Should geopolitical tensions ease further, inflation pressures may continue to soften, strengthening the case for stable interest rates and allowing New Zealand's economic recovery to resume.
If tensions escalate again, however, renewed energy price shocks could quickly alter that outlook.
Source
Original Commentary: Stuck in a Rally: Markets Eye a Peaceful Break
Authors: Jarrod Kerr (Chief Economist) and Alexandra Turcu (Economist), Kiwibank
Published: 29 June 2026