Cook Islands Prime Minister Mark Brown has directed senior officials to secure the nation’s fuel and essential supplies, as the government monitors the escalating Middle East conflict and its potential to drive up global energy prices, shipping costs and travel disruptions.
The multi-front war centred on coordinated US and Israeli strikes against Iran over the weekend have triggered widespread retaliatory missile attacks across the Gulf states and a ground invasion of southern Lebanon by Israel.
The latest escalation in the Middle East is rippling through global trade, according to the World Economic Forum.
Oil and natural gas prices have surged following strikes on Iran on 28 February. The conflict has also effectively closed the Strait of Hormuz – a vital maritime chokepoint through which approximately 20 percent of the world’s crude oil and natural gas typically passes.
Cook Islands government is wary of the impact this could have on the nation, which sits at the end of the global supply chain.
PM Brown told Cook Islands News the “fast-developing” situation in the Middle East is causing concern across the international community, adding “we are monitoring developments closely”.
He noted that while the conflict is far from the country’s shores, global events of this nature inevitably affect the Cook Islands.
“One of the most immediate impacts will likely be through global energy markets,” Brown, who is also the Minister for Finance, said.
“Oil prices have already increased and, if sustained, this could lead to higher petrol and diesel prices in the Cook Islands over time.”
“Higher fuel costs can also increase shipping and logistics costs, which may result in higher prices for imported goods. There may also be wider supply chain disruptions affecting shipping and the availability of some imported items.”
Brown said he has directed relevant agencies to maintain a watching brief and keep him informed of developments “to ensure our plans remain relevant and responsive to the evolving situation”.
“I have therefore directed senior officials to consider and put in place any actions necessary to secure the ongoing reliability of our fuel supply, alongside other essential goods and services.”
In a statement issued on Tuesday, the Ministry of Finance and Economic Management (MFEM) highlighted the impact on oil prices, stating that Brent crude oil prices increased by about 10 percent to US$80/barrel (about NZ$170).
“If these prices hold, that would mean an increase in petrol and diesel prices at the pump here in the Cook Islands. A 10 percent change could see prices increase in the order of 15 cent to 20c per litre,” MFEM said.
“However, this wouldn’t be for a few months, as it takes some time for international prices to feed into the price here. Also, oil prices are naturally volatile, and the longer run impact of Middle Eastern tensions can vary by conflict – some see oil prices increase, while others actually saw oil prices fall.”
MFEM said some analysts suggest that if tensions remain high, and Iran restricts supply through the Strait of Hormuz, oil prices could exceed US$100/barrel (NZ$168.95).
According to the Ministry, the longer-term implications of higher oil prices will spread to other products as shipping costs increase with the increase in fuel costs and potentially higher logistics costs such as insurance.
“This could see higher costs for our imported goods such as food and materials.”
Brett Porter, owner of Toa Petroleum, said, “I’m not sure exactly what MFEM is analysing. As explained earlier we sit at the very bottom of a complex fuels supply chain … the last link actually before government price controls.”
“The variable world price … on the increase is but one of the variables that are inevitably increasing tanker rates, freight insurances transfers and storage are just some examples.”
Rarotonga’s power company, Te Aponga Uira (TAU), last week removed its temporary fuel surcharge – three years after it was first introduced in response to high global fuel prices, supply chain disruptions and exchange rate volatility.
“At this point TAU is not planning to reintroduce the fuel surcharge and will be monitoring the fuel situation closely with our supplier,” TAU chief executive Leslie Katoa told the newspaper.
