Why is fuel so expensive right now?

Topic of the Week · Issue #001 · Sunday 30 March 2026

The issue

Petrol hit $4 a litre in parts of Auckland last weekend. Diesel has risen nearly 90 cents a litre in a single month. At some stations, diesel now costs more than 91 octane petrol — something almost unheard of.

Everyone's feeling it. Filling up the car. Paying more for groceries. Getting a delivery surcharge. Seeing prices creep up everywhere.

But why? And why so fast?

Here's the full picture.

Article building blocks

Oil prices

Everything starts here.

New Zealand doesn't produce its own oil. We buy it on the global market — and that market is currently in crisis.

In late February 2026, the US and Israel launched military strikes against Iran. Almost immediately, the Strait of Hormuz — a narrow channel of water connecting the Persian Gulf to the rest of the world — became a flashpoint.

This matters enormously. Around 20% of the world's entire oil supply passes through the Strait of Hormuz every single day. When that route gets threatened, the global oil price spikes.

It spiked hard. Crude oil shot past US$100 a barrel within days. Some analysts are now talking about US$200 a barrel if the conflict deepens.

Iran then struck the world's largest natural gas field in Qatar in retaliation. Saudi Arabia took missile hits. The whole region — which produces the majority of the world's oil — became unstable overnight.

One thing worth knowing: you can't easily just buy oil from somewhere else. Almost all global oil trades through the same handful of chokepoints regardless of where it originates. There is no simple workaround. When these routes are disrupted, the whole market feels it — including NZ, at the very end of the supply chain.

Marsden Point

Here's the piece that explains why NZ is more exposed than almost any other developed country.

Until 2022, New Zealand had its own oil refinery at Marsden Point in Northland. It processed crude oil into petrol and diesel right here on our soil. It wasn't perfect, but it was ours — and it gave NZ a buffer between global price movements and what we paid at the pump.

In 2022, it was shut down.

The decision was made by the refinery's private owners — Ampol, Z Energy and BP — with government sign-off. It made commercial sense at the time. It was cheaper to import already-refined fuel from refineries in Singapore, Japan and South Korea than to refine it ourselves. Why run an expensive local refinery when you can buy the finished product cheaper from overseas?

The problem is those Asian refineries source most of their crude through the Strait of Hormuz. When that route gets disrupted, those refineries get squeezed — they process less, produce less, and charge more for what they do export.

With no refinery of our own, NZ has no fallback. We can't process our own crude. We can't reduce our exposure to global price movements. We just pay whatever the market demands.

Closing Marsden Point saved money in calm times. In a crisis, we're paying for that decision every time we fill up.

The NZD

Here's a piece of the puzzle most people miss entirely.

Oil is bought and sold globally in US dollars. Every barrel, everywhere, priced in USD.

That means when the New Zealand dollar is weak against the US dollar, we pay more for oil — even if the global price hasn't moved at all. It's like buying something on a US website when the exchange rate is bad. The sticker price is the same. What comes out of your account is more.

The NZD has been under pressure in 2026. Before the Middle East crisis even hit, the weak dollar was already quietly adding an estimated 10 to 15 percent to the landed cost of every litre of fuel imported into NZ.

The global oil price spiked on top of that. Two problems stacked on top of each other.

Fuel tax

Here's the part that makes the number at the pump feel so brutal.

By the time fuel reaches your car, it has already been loaded up with a stack of government taxes and levies — before the retailer adds their margin on top.

In New Zealand, every litre of petrol includes:

Excise duty — a flat government charge per litre
ACC levy — funds accident compensation
ETS levy — the Emissions Trading Scheme carbon charge
GST — 15% on top of everything else
Regional fuel taxes — in Auckland, an additional local levy on top

These charges don't go up and down with the oil price. They sit there as fixed costs. So when the base oil price spikes, all these charges still sit on top — meaning the total price at the pump rises faster than the oil price alone would suggest.

A 30-cent rise in the underlying oil price doesn't produce a 30-cent rise at the pump. It produces more — because GST alone adds 15% on top of the whole thing.

Why doesn't the government just cut fuel tax?

It's a fair question — and several countries have done exactly this during price spikes. The UK cut fuel duty in 2022. Australia halved its fuel excise during the Ukraine war.

The NZ government has so far resisted. The reason is straightforward: fuel tax funds roads, accident compensation and emissions policy. Cut the tax and you either cut those programmes or borrow to replace the lost revenue. In a tight fiscal environment, neither is easy. The government has instead signalled targeted financial support for households — help with the cost rather than a change to the tax structure itself.

Whether that's the right call is debatable. But that's why the tax hasn't moved.

Are fuel companies making money from this?

When prices spike this fast, the first instinct for many people is to ask whether Z Energy, BP and Gull are cashing in.

The honest answer is - it's complicated.

Fuel retailers buy refined fuel from overseas and sell it on. Their margin — the difference between what they pay and what they charge — is published weekly by the Commerce Commission. During the current spike, retail margins have remained broadly in line with historical averages. The companies aren't obviously price gouging.

However, the big fuel companies also have upstream interests — investments in oil production, trading and refining at the international level — where higher oil prices absolutely do increase profits. That's a different part of the business from the pump at your local Z station.

The Commerce Commission monitors retail fuel margins closely. If margins blow out, they have powers to investigate and act. So far, they haven't needed to.

Inflation

Fuel isn't just what you put in your car. It's the cost underneath almost everything you buy.

Trucks move our food from farms to supermarkets. Tractors harvest our crops. Ships bring our imports. Planes carry tourists and export freight. Every single one of those operations runs on fuel — mostly diesel.

Diesel is the one to watch most closely. It powers the freight system and it's the fuel with the least flexibility — you can't switch a Fonterra milk tanker to electric overnight. Diesel has risen nearly 90 cents a litre in a month.

The transport sector has already warned it will pass costs on. Woolworths is monitoring its delivery fees. Restaurants and cafes are doing the same. Ride-share drivers are spending an extra $100 a week just to stay on the road.

This is how fuel prices become inflation. They ripple quietly through every part of the economy until they land on your supermarket shelf, your coffee, your courier delivery, your rent.

We're only at the start of that ripple.

The big picture

The price of fuel in NZ right now is the result of five things hitting at once.

A global oil price shock triggered by war in the Middle East — with no easy workaround because global oil markets are deeply interconnected. No local refinery to buffer us from that shock — a decision made in 2022 that looked smart then and looks very different now. A weak NZ dollar that makes every imported barrel cost more. A tax stack that amplifies every price movement at the pump, and a government that can't easily cut it without cutting something else. And a freight and food system that runs entirely on diesel — meaning high fuel costs don't stay at the petrol station, they spread through everything.

The fuel companies aren't the villains here. The global oil market, NZ's structural vulnerabilities, and a set of decisions made over many years — that's the real story.

This week you're feeling it at the pump. In the coming weeks, you'll feel it everywhere else.

Q&A — Common questions and misconceptions

"The government should just cut the fuel tax." They could — and several countries did exactly this during the 2022 energy crisis. But fuel tax funds roads, ACC and NZ's emissions commitments. Cut it and something else gets cut or borrowed to fill the gap. The government has chosen targeted household support instead. It's a legitimate debate — but cutting fuel tax isn't a free fix.

"We need to reopen Marsden Point." A fair point in the long run — but it won't help now. Reopening or rebuilding a refinery takes three to five years and costs billions of dollars. It's a serious conversation NZ needs to have about energy independence. It is not a solution to this week's prices.

"The fuel companies are ripping us off." Retail margins at the pump are within normal historical ranges and are monitored weekly by the Commerce Commission. The bigger profits from high oil prices are happening upstream in international oil markets — not at your local Z or BP station. If that changes, the Commerce Commission has powers to act.

"Why can't we just buy our oil from somewhere else?" Because global oil markets don't really work that way. Almost all oil — regardless of where it's drilled — trades through the same handful of chokepoints and pricing benchmarks. There's no alternative tap NZ can just turn on. When the global price goes up, everyone pays more.

"Electric vehicles are the answer." In the long run, more EVs means less exposure to oil price shocks — and NZ has been moving in that direction. But 85% of NZ's vehicle fleet still runs on petrol or diesel. Transitioning takes decades, not weeks. EVs don't help the truck driver, the farmer, or the fishing boat today.

"This is the government's fault." The Middle East conflict, the global oil price, and the closure of Marsden Point all have roots that go back years and across multiple governments. This isn't about who's in power right now. It's about a set of structural vulnerabilities that have been building for a long time — and a global event that exposed them all at once.