New Zealand’s Diesel Supply

Stephen Hay and Claude AI  

EXECUTIVE SUMMARY

New Zealand faces a credible and under-acknowledged risk of diesel depletion in late April to early May 2026. This risk arises from a chain of structural failures –  the closure of the Strait of Hormuz following the US-Israel conflict with Iran, the cascading reduction of Asian refinery output, New Zealand’s complete dependence on imported refined fuel, and a regulatory framework that has set minimum diesel reserve requirements below those recommended by the government’s own consultation process.

The official government position – that fuel supply is stable and New Zealanders need not change their behaviour – rests on an assumption of continuous just-in-time shipments from Asian refineries now operating at 50–60 per cent of capacity, with no published recovery timeline. That assumption is not supported by available analyst data.

Should the disruption persist through April, the consequences for the New Zealand economy would be severe and, in some respects, irreversible. Approximately 820,000 workers – around 35 per cent of all filled jobs – are directly employed in the five sectors most exposed to diesel failure. The indirect effects would reach every part of the economy within days.

This paper sets out the full pipeline of risk: from the Strait of Hormuz through Asian refinery capacity, into New Zealand’s reserve position, and across the economy. It concludes with an assessment of the options available to the government and their significant limitations.

1. THE TRIGGER: CLOSURE OF THE STRAIT OF HORMUZ

On 28 February 2026, the United States and Israel launched coordinated strikes on Iran. Within 48 hours, the Iranian Revolutionary Guard Corps announced the effective closure of the Strait of Hormuz. The strait is the world’s most critical oil chokepoint, carrying approximately 20 per cent of global daily oil supply.

The closure was immediate and comprehensive. Major carriers – Maersk, CMA CGM, MSC, Hapag-Lloyd – suspended all transits within days. Protection and indemnity insurance was cancelled from 5 March, making passage commercially unviable even for vessels willing to accept physical risk. Over 150 tankers anchored outside the strait rather than proceed. QatarEnergy declared force majeure on all LNG shipments on 4 March, removing 20 per cent of global LNG supply overnight.

The closure was compounded by the simultaneous resumption of Houthi attacks on Red Sea shipping from 28 February, creating for the first time in modern history a dual blockade of both major Middle Eastern maritime corridors.

Current status

As of 20 March 2026, tanker traffic through the strait remains at near-zero levels, with only 21 transits recorded since the conflict began – compared with over 100 ships daily before. Some limited passage has been permitted for Indian-flagged and Turkish vessels following IRGC announcements on 5 March, but this represents a small fraction of normal traffic and does not signal reopening.

Six European nations (Germany, France, Italy, Japan, the Netherlands and the UK) indicated readiness to contribute to a multilateral safe passage initiative, but made clear this is contingent on a ceasefire – not an immediate proposition. NATO formally declined Trump's call for military support to reopen the strait on 16 March.

Expert assessment is that even a ceasefire would not immediately restore normal flow: Iranian mines suspected on the seabed, damage to production infrastructure, and insurer risk appetite all point to a multi-month recovery horizon rather than weeks. The government is itself planning on a two to three month disruption timeline.

2. THE REFINERY PROBLEM: NEW ZEALAND’S ACTUAL SUPPLY CHAIN

A critical and largely unreported dimension of New Zealand’s vulnerability is the structure of its supply chain. New Zealand does not source fuel through the Strait of Hormuz directly – it imports finished refined product from refineries in Singapore and South Korea, which ship directly to New Zealand’s import terminals.

The supply mix, based on the most recent Stats NZ import data and MBIE analysis, is approximately 51 per cent from South Korea and 31 per cent from Singapore, with the remainder from Japan and other Asian sources. New Zealand’s principal South Korean suppliers are SK Energy, GS Caltex, HD Hyundai Oilbank and S-Oil.

This structure means the Strait of Hormuz closure does not directly interrupt New Zealand’s shipping lanes. What it does instead is cut the crude oil supply to the refineries that produce New Zealand’s fuel – with the same ultimate effect, but with a time lag of four to six weeks as refinery throughput falls and export volumes decline.

Refinery capacity in crisis

South Korea and Singapore source approximately 70 per cent of their crude oil through the Strait of Hormuz. The response has been dramatic:

•       ExxonMobil Jurong (Singapore, 592,000 bpd): cut to approximately 50 per cent capacity or lower, down from over 80 per cent

•       Singapore Refining Co (290,000 bpd): cut to 60 per cent capacity; March naphtha deliveries delayed

•       Pengerang Refining Co, Malaysia (300,000 bpd, Petronas/Saudi Aramco JV): crude unit shut entirely; 70 per cent+ of seaborne crude sourced via Hormuz

•       Several South Korean refiners: reviewing plans to reduce plant utilisation to approximately 30 per cent, close to shutdown levels

No refinery has published a recovery date. S&P Global (December 2025) projected Asian refinery capacity constraints through 2026–2027, prior to the Iran conflict. Fitch Ratings (January 2026) flagged tighter margins for the full year. There is no analyst consensus projecting near-term return to normal output.

Export restrictions compounding supply

The situation has worsened materially in the week to 20 March. Thailand has banned most refined fuel exports. China has imposed an outright product export ban. South Korea has now capped fuel exports to last year’s levels and is actively considering an outright export ban – confirmed by Argus Media on 19 March. Seven South Korean-owned VLCCs linked to HD Hyundai Oilbank and GS Caltex remain stranded inside or near the strait, each carrying up to two million barrels of crude.

South Korean refiners told S&P Global in early March that they would strive to honour existing term supply contracts. They also warned that if feedstock disruption persisted beyond one to two months, second-quarter contracts could become “rather difficult”. That two-month window expires in late April – precisely the period of greatest concern.

3. NEW ZEALAND'S RESERVE POSITION

Current stock levels

As at midnight 15 March 2026, MBIE reported the following diesel cover:

•       In-country (onshore): 22.7 days of cover

•       On-water (ships en route): 24.3 days of cover

•       Total: 47.1 days of cover

Ten vessels were scheduled to arrive in the week of 16–22 March carrying 14 days of diesel. One vessel is scheduled for 23–29 March carrying petrol only – no diesel. No data is published for shipments beyond two weeks.

The arithmetic is straightforward: 22.7 days onshore plus 14 days arriving in the week of 16 March equals approximately 36–37 days of visible diesel supply from mid-March. At average daily consumption of 10.7 million litres, that supply is exhausted in late April absent further shipments.

The regulatory framework fails the test

New Zealand’s Minimum Stockholding Obligation (MSO), which came into force on 1 January 2025, requires fuel importers to hold:

•       28 days’ cover of petrol

•       21 days’ cover of diesel

•       24 days’ cover of jet fuel

Three features of this framework are critical. First, diesel – the foundation fuel of the economy – has been given the lowest mandatory minimum, seven days below petrol. Second, the MSO can be met with fuel still at sea within the Exclusive Economic Zone – meaning a ship 200 nautical miles offshore in adverse weather technically satisfies the regulatory requirement while being days from usability. Third, and most damning: the 21-day minimum was explicitly set at the level industry was already holding, not at the level warranted by risk.

The government’s own 2022 consultation recommended the opposite hierarchy: 28 days for diesel and 24 days for petrol and jet fuel, recognising diesel’s criticality. The then-Energy Minister stated in the consultation foreword: “I am not satisfied that 21 days’ cover is enough to keep as reserve stocks for diesel. It is our most important fuel.” The increase to 28 days for diesel is scheduled to take effect on 1 July 2028 – two and a half years away. The crisis has arrived two and a half years early.

For comparison: Australia is implementing a 28-day minimum for diesel. EU member states hold a minimum of 60 days. Japan holds approximately 145 days.

4. ECONOMIC IMPACT: SECTOR-BY-SECTOR

Diesel is not primarily a consumer fuel in New Zealand. Households consume 59 per cent of petrol but only a small fraction of diesel. New Zealand’s diesel consumption is dominated by commercial and industrial users, and approximately 29 per cent – some 1,065 million litres annually – is consumed off-road in agriculture and construction.

This has a critical implication for demand-restraint policy: the widely-discussed option of “carless days”, drawn from the 1979 playbook, would be almost entirely ineffective as a diesel conservation measure. Only approximately nine per cent of light passenger vehicles run on diesel. Carless days are a petrol conservation tool. Diesel is an infrastructure fuel and its failure propagates differently.

The five sectors most directly exposed, their workforce size and their failure timelines are summarised in the table below. 

Combined direct workforce exposure across these five sectors: approximately 820,000 workers, or 35 per cent of all filled jobs in New Zealand. 

The transmission mechanism: road freight

Road freight occupies a singular position in this analysis. Despite employing only approximately 40,000–45,000 workers directly – roughly 1.7 per cent of the workforce – it carries 93 per cent of all freight tonnage moved in New Zealand. It is 100 per cent diesel-dependent with zero substitution possible at scale. It is also the mechanism through which diesel failure in any one sector becomes diesel failure in all sectors simultaneously.

When road freight stops, food empties from supermarket shelves within two to three days. Cold chains for dairy, meat and pharmaceuticals break immediately. Construction materials stop moving. Farm inputs – fertiliser, animal feed, veterinary supplies – cannot reach farms. The sector’s direct headcount understates its leverage by an order of magnitude.

Agriculture: an irreversible seasonal window

April and May 2026 represent one of the most diesel-intensive periods on the agricultural calendar – the final peak of the dairy season and the primary autumn harvest window for grain, maize and vegetable crops. Fonterra milk tankers collect from approximately 10,000 farms daily. Any interruption to milk collection spoils product immediately. Unharvested arable crops are a total write-off: the weather window closes and the crop deteriorates in the field.

Agriculture’s losses in a diesel shortage are not deferred – they are destroyed. The economic damage extends beyond the 2026 season because soil preparation, fertiliser application and crop planning for 2026/27 also depend on diesel. New Zealand’s largest export earner faces at least one full season of reduced output with no recovery path until 2027.

Construction: 210,000–270,000 workers with costs running daily

Construction is New Zealand’s third largest employing industry, contributing 6.3 per cent of GDP. It is 85 per cent directly diesel-dependent through excavators, cranes, concrete trucks and site generators. The sector’s workforce is disproportionately composed of owner-operators, contract workers and small firms operating on margins as low as three to five per cent with equipment finance obligations running regardless of whether work proceeds.

A forced work stoppage creates immediate personal financial distress for a self-employed workforce. Sub-contractor defaults cascade into developer insolvencies, and the housing supply pipeline – already severely constrained – freezes.

5.  OPTIONS AVAILABLE TO GOVERNMENT AND THEIR LIMITATIONS

Five categories of intervention have been discussed publicly or in policy documents. Each carries significant constraints.

Widening fuel specifications

Finance Minister Willis has indicated the government could relax fuel specifications to allow importers to source from a broader range of refineries. In practice, this means permitting higher-sulphur diesel. The constraint is twofold: virtually all vehicles manufactured after 2007 require ultra-low sulphur diesel (ULSD), meaning off-spec product could damage engines and catalytic converters across most of the fleet; and the refineries most capable of supplying alternative product – Russian exporters, Atlantic Basin refiners – face either political complications or voyage times of 28+ days from source to New Zealand.

South Korean strategic reserves

South Korea holds 208 days of strategic oil reserves – the fifth largest IEA stockpile – and has released a record 22.46 million barrels as part of the IEA’s 400 million barrel collective action. This provides a bridge for South Korean domestic refinery operations. Whether South Korean refiners use those reserves to maintain export volumes to New Zealand, or prioritise domestic supply, is the critical question. The export cap announced on 19 March suggests domestic prioritisation is already underway.

Demand restraint

The Petroleum Demand Restraint Act – Muldoon-era legislation still on the statute books – allows the government to impose carless days, fuel purchasing limits and other rationing measures. As established above, carless days would conserve petrol, not diesel. Measures that would materially conserve diesel – restricting non-essential freight, limiting agricultural machinery hours, suspending non-essential construction – are economically destructive in ways that carless days are not, and would need to be implemented during autumn harvest and end-of-dairy-season, compounding irreversible losses.

Prioritisation for critical infrastructure

The National Fuel Plan provides for designated fuel outlets and designated lanes for “named critical customers” – currently defined as government agencies and uniformed services. The commercial economy – supermarket supply chains, cold-chain logistics, livestock transport, fertiliser distribution – is not currently designated. Expanding the critical customer list and implementing upstream allocation at the terminal level (rather than at the retail pump) would require real-time negotiation between MBIE, the Fuel Sector Coordinating Entity and industry bodies. No pre-existing mechanism for this exists publicly.

Restricting depot hours

Restricting truck stop and commercial depot hours is sometimes discussed as a supply-slowing measure. In practice, the harm is disproportionate to the saving: the road freight industry operates substantially on overnight and early-morning schedules and restriction of depot access breaks cold chains for perishables immediately. The fuel saving is modest – the spoilage cost is not.

6. ECONOMIC CONTEXT AND RECOVERY

It would be difficult to overstate the fragility of New Zealand’s economic position entering this crisis. The country experienced low to negative GDP growth from 2022 through 2024, driven by inflation, high interest rates and suppressed consumer spending. The current government has been engaged in a programme of fiscal consolidation designed to address what it characterised as excessive post-Covid spending. That consolidation has reduced the government’s capacity for emergency fiscal intervention.

A diesel shock landing on this economy – simultaneously idling three of its five largest employing industries, destroying irreplaceable agricultural output and breaking the supply chains that feed retail – would not produce the V-shaped recovery that follows a normal demand shock. The losses in agriculture are permanent for the 2026 season. The losses in construction compound housing supply deficits already measured in decades. The losses in manufacturing interrupt export contracts with no guarantee of reinstatement.

The government has no domestic refining capacity to activate, no meaningful strategic reserve to deploy beyond the IEA release already committed, no biofuel sector capable of substituting more than three to four per cent of diesel volume and a regulatory framework that set its minimum diesel requirements at the level industry was already holding – and deferred the recommended improvement to 2028.

The question of whether the New Zealand economy could recover from a prolonged diesel depletion event – as distinct from a short supply interruption – is not one the available data allows an optimistic answer to. The combination of seasonal irreversibility in agriculture, the self-employed composition of the construction workforce and the just-in-time dependency of retail supply chains means that damage accumulates faster than any available policy response can offset it.

7. CONCLUSION

New Zealand entered the current crisis with structural vulnerabilities that have been known, partially documented and largely unaddressed for years. The closure of the Marsden Point Refinery in 2022, the deferral of the 28-day diesel MSO to 2028, the pausing of Crown procurement of reserve stocks and the framing of minimum stockholding requirements around industry convenience rather than national risk – these are policy choices that predate the current conflict and whose consequences are now arriving simultaneously.

The immediate priority is honest public communication about the supply position – specifically, the distinction between the MBIE’s 47-day “total” figure and the approximately 22.7 days of diesel held onshore against a minimum obligation of 21 days that can be met with fuel still at sea. The gap between official messaging and the underlying arithmetic needs to close before the arithmetic closes it.

Beyond that, the options available to government are limited and each carries costs. The window for building the administrative architecture to implement them with any precision – sector prioritisation lists, upstream terminal allocation, modified fuel specifications – is measured in weeks, not months.

The most consequential variable remains outside New Zealand’s control: the duration of the Strait of Hormuz closure and the speed at which South Korean refiners can secure alternative crude. If the strait reopens and South Korean refiners maintain term contracts through April, New Zealand's current stock plus arriving shipments may prove sufficient. If neither condition holds, the late-April depletion scenario is not a worst case – it is the central case.

NOTES AND SOURCES

1  IRGC announcement of Strait of Hormuz closure, 2 March 2026; confirmed by multiple shipping intelligence sources including Lloyd's List and TradeWinds.

2  Bloomberg Tanker Tracker data; S&P Global Platts shipping intelligence, 5–10 March 2026.

3  Argus Media tanker transit count, 19 March 2026.

4  Reuters reporting on European multilateral initiative, 14–16 March 2026; NATO statement, 16 March 2026.

5  Columbia University Center on Global Energy Policy analysis, cited in Reuters; IEA assessment of mine clearance timelines.

6  Stats NZ international merchandise trade data (12 months to March 2025); Infometrics analysis; MBIE energy statistics.

7  S&P Global Platts refinery run rate data, Singapore and Malaysia, March 2026.

8  S&P Global interviews with South Korean refinery product managers and marketing executives, 3–11 March 2026.

9  S&P Global Commodity Insights (December 2025): Asian refinery capacity outlook; Fitch Ratings (January 2026): Asian refiner margin outlook; ReportLinker: Singapore refinery capacity CAGR forecast.

10  Argus Media, 19 March 2026: South Korea fuel export cap confirmed; Reuters, 18 March 2026: export ban under discussion.

11  Reuters shipping intelligence, March 2026: stranded VLCC positions.

12  MBIE Fuel Stocks Update, published 18 March 2026 (data as at midnight 15 March 2026). Published weekly each Wednesday at mbie.govt.nz.

13  MBIE average daily diesel consumption: 10.7 million litres (12-month average ending 4 months before reporting period).

14  MBIE Regulatory Impact Statement on Minimum Stockholding Obligations, 2023: "The minimum stockholding levels chosen broadly reflect the average stockholding levels that the fuel industry would hold regardless of government intervention."

15  MBIE consultation document on increased diesel stockholding, 2023–2024. The 28-day diesel minimum is scheduled under the Energy (Fuels, Levies, and References) Amendment Act for 1 July 2028 (importers with >10% market share).

16  IEA member country oil stock data (2025): Australia implementing 28-day diesel minimum; EU Directive 2009/119/EC: 90-day minimum; Japan Agency for Natural Resources and Energy: approximately 145 days.

17  Transporting New Zealand (Road Transport Forum): Road Freight Statistics 2025; Stats NZ freight modal share data.

18  Fonterra annual report data; MPI dairy sector statistics.

19  Stats NZ National Accounts: construction sector contribution to GDP; Stats NZ Business Demography 2024.

20  Finance Minister Nicola Willis, media comments, 17 March 2026.

21  IEA press release, 11 March 2026: collective reserve release of 400 million barrels; South Korea Ministry of Trade, Industry and Energy: 22.46 million barrel release confirmed as record.

22  Petroleum Demand Restraint Act 1981 (New Zealand). See also MBIE National Fuel Plan, Level 3 demand restraint measures.

23  MBIE National Fuel Plan (current version); Fuel Sector Coordinating Entity operational protocols. 

This paper is prepared for media background purposes. All data sourced from publicly available MBIE, Stats NZ, IEA, S&P Global, Reuters and Argus Media reporting as at 20 March 2026.