The prospect of only approved countries being able to use the vital strait of Hormuz highlights the importance of the geopolitics that is asserting itself over markets in the fuels crisis
Evolving arrangements for transiting the strait of Hormuz sharpen New Zealand’s choices for responding to the fuels crisis, and raise the stakes.
Effectively blockaded by Iran at the outset of the war, the oil artery has in the last two weeks seen a growing number of vessels make the passage following direct country to country negotiations.
And on March 20th Tehran declared a new policy that would see only its “enemies” excluded while it would look to agree terms for safe passage with other nations.
While much remains uncertain, the new approach could well improve New Zealand’s position. However, should Iran retain control of the strait over an extended time and New Zealand fails to make the list as an approved country under new transit arrangements, this would make the nation’s position far more challenging.
That’s because geopolitical factors would amplify New Zealand existing vulnerability to an extended fuels crisis.
Iran’s new test thus sets up a degree of tension between the country’s fuel security interests and its traditional defence ties with the United States (US).
At risk on the fuel security side of the equation are costs arising from potential fuel shortages. When the Sustainability Council reviewed the costs in 2024 in the context of proposing a Resilience Plan for Transport Services and priority actions, we noted that closure of the strait had the potential to generate costs to the country in the billions of dollars, and also risked the nation making concessions that compromised its economic independence.
On the other side of the equation, Japan appears to be charting a course that would set a precedent for differentiating from the US on this issue.
A Selective Blockade
Iran’s initial response to the war was “not one drop of oil” would pass through the strait while it was under attack.
However, what started off as irregular transits by a handful of vessels had by March 20th morphed into an explicit deal with Japan for at least one tanker, with negotiations ongoing.
The significance of what lay behind that particular deal only became clear when Iran commented on it and outlined the basis for a new stance: it would now run a selective blockade.
“We have not closed the strait. In our opinion, the strait is open. It is closed only to ships belonging to our enemies, countries that attack us,” Iran’s Foreign Minister Abbas Araghchi said. .
And by March 23rd Lloyds List was reporting that “Traffic through the Strait of Hormuz is increasingly being diverted into Iranian territorial waters …where the Islamic Revolutionary Guard Corps is understood to be verifying vessel details and, in some cases, extolling a passage fee”. It said that more than twenty ships of various forms had passed through the strait in this way.
In other words, Iran is leveraging its control of the strait by simultaneously rewarding neutrality and raising costs for those attacking Iran or aligning with them.
Iran has further made clear it is not content with just excluding enemies: it has also stipulated that any truce must include guarantees against future attacks, as well as compensation for the damage inflicted during the conflict.
A Hormuz Toll
Lloyds List reports that “Several governments — including India, Pakistan, Iraq, Malaysia and China — are in direct talks with Tehran, coordinating vessel transits via an emerging IRGC-run registration and vetting system”. France and Italy have also reportedly requested talks with Iran
Details of what is unfolding are understandably sketchy, given the diplomatic and commercial sensitivity of the issue. But put Iran’s compensation claim alongside a reportthat one tanker paid US$2 million for the right to transit and an emerging architecture can be glimpsed.
What Tehran seems to be working towards is a Hormuz Toll that sets prices and terms based on a basket of considerations specific to each country.
Its rules would first define which countries and associated entities can transit at all. There may then be a price set for each country to recognise a mix of variables from compensation to diplomatic stances.
But rather than simply maximising revenue, Tehran’s other key goal of ensuring it will not be attacked again means it has to be able to still follow through on its implicit policy of inflicting enough economic pain on the US, and countries that can influence the US, to meet its goals.
And to do that it has to be able to restrict the volume of oil through the strait such that it can, if it chooses, cause oil prices to be high enough.
The tools for price manipulation are clear enough. Iran would maintain the ability to take countries on and off the list of those that can pass, while also adjusting toll rates and conditions by country – all with a focus on its financial, diplomatic, and strategic targets.
What’s less clear is how much of a volume it could open up while still sustaining high prices, and so to what degree the toll window would in fact take pressure off oil import dependent countries like New Zealand.
But if the toll arrangement persists beyond when Iran has established sufficient deterrence to a future attack, then its need to constrict volume drops away and qualifying countries would then expect to get ships through regularly.
All this is of course subject to the caveat that escalated military action against Iran does not remove its control of the strait, as the US has threatened.
On the question of intervention targeted at simply opening the strait to free passage, a number of independent strategists have said this would not work. “Neither France, the United States, an international coalition or anybody is in a position to secure the strait of Hormuz,” said Adel Bakawan, the director of the European Institute for Studies on the Middle East and North Africa.
And even if the US puts troops on the ground, serious doubts have been raised that control of the strait can be taken.
In one analysis, a comparison is made with the difficulties the ANZACs faced trying to take another peninsula in a bid to also control a strait, the Dardanelles. Trade and international relations specialist Phil Radford writes that “occupying the Gallipoli peninsular doesn’t begin to compare with occupying more than 150 km of Iranian shoreline”, saying it would be “Gallipoli times 10”.
“The war will not be over when the US stops bombing; it will be over when Iran allows free passage through the Strait of Hormuz. And there is nothing the US military can do to change that equation” he concludes.
Implications for New Zealand
Imagining then that Iran remains in control of the strait for some time ahead, the next question is what could a Hormuz Toll mean for New Zealand?
If New Zealand can make the list of countries that are judged acceptable to have its cargoes pass, that would reduce the country’s vulnerability in an extended crisis by allowing more volume of petroleum to be landed here than otherwise – the amount possibly varying at different stages of the crisis in line with Iran’s objectives.
The country would still have to weather the effects of high oil prices but it would at least suffer less damage to the economy arising from supply shortages than would otherwise be the case. And that additional cost could be greater than the effect of higher prices, depending on the scenario.
A decision that would clearly impact New Zealand’s prospects for making the list is whether it would approve or rule out military involvement in the Gulf.
On the same day as the Japanese deal became public, a joint statement from New Zealand and 19 other countries was issued that, while emphasising the need for countries to allow safe passage, also spoke of readiness to assist that to happen.
“We express our readiness to contribute to appropriate efforts to ensure safe passage through the Strait. We welcome the commitment of nations who are engaging in preparatory planning,” the statement added.
However Deputy Prime Minister David Seymour told RNZ that no commitments had been made and it had not been discussed in Cabinet, so options remain open at this point.
And while Australia was notably absent from the countries joining in the statement, also notable is that Japan was included.
What Japan’s Signal Implies for NZ
The more important aspect of Japan’s positioning is that at a time the US has been pleading with allies to commit forces alongside the US to open the strait, one of its closest allies has cut a side deal with Tehran instead.
For Tokyo, the calculus appears to have been dominated by its high level of exposure to imported oil, and middle east crude in particular. Japan imports 94% of its crude from the middle east and 57% of that transits the strait of Hormuz.
This high exposure to oil imports is what drove it to keep large stocks of fuel in the country – 254 days of supply, or over eight months-worth. This is nearly three times the International Energy Agency requirement of 90 days.
That Japan decided to commence negotiations with Tehran even with such a large cushion says a good deal about its response strategy.
Looking back to New Zealand, the picture is even starker. It’s 100% import dependent, has no comparable financial and military muscle to reckon itself a way forward independently, and has only a fraction of the stored reserves – 90 days if counting various pieces that are contingently available, or about 28 days if counting what’s onshore.
So on a first pass, if New Zealand is even more exposed than Japan, and if Tokyo believes its interests lie in cutting a deal with Tehran at this stage, that suggests New Zealand should attempt to do the same.
But that’s only half the story.
If New Zealand Does Not Make the Approved List
The other half is what happens if New Zealand does not make the approved list and the toll arrangement does become formalised.
Prime Minister Chris Luxon last Friday announced that the government is now “preparing for the worst-case scenario” on fuel supply and this one is a contender for that title, from New Zealand’s perspective.
Explaining why not making the list would be dire in this scenario involves first going back to what is shaping the crisis
While it’s fast being recognised as the ‘biggest” oil crisis in history, what exactly is so big is still underappreciated globally.
“Politicians and markets are underestimating the scale of the disruption” the long-time executive director of the International Energy Agency, Fatih Birol, told the Financial Times.
Its most obvious scale measure is the amount of oil currently being blocked from transiting the Strait of Hormuz. That waterway normally carries 20% of global oil production or 20 million barrels a day, though around a third of that is now being rerouted through pipelines to ports beyond.
But as Birol further points out, even if the strait were open today, the closure meanwhile has led to oil wells being shut down and “it could take up to six months to restore oil and gas flows from the Gulf”.
Then there is the damage to oil production and loading infrastructure from Iranian drone and missile attacks. At least 40 energy assets in the Gulf region have been severely damaged and estimates for repair times stretch into years.
Their combined impact means the size and duration of the disruption could well be enough to result in meaningful shortfalls of supply. Stocks of fuels held to cushion production cuts would in that case be run out before enough oil production resumed.
It’s still too early to tell how large the shortfall will be in the weeks and months ahead as much first depends on how the war proceeds. It also depends on market factors operating globally such as: how much rising prices will dampen demand, what effects rationing will have, and how much oil producers outside the Gulf states can squeeze out above normal output.
However as a useful indicator of the scale of the problem, the IEA reported in mid-March that Gulf countries had cut total oil production by “at least 10 million barrels a day” – or a 10% cut as a result of the conflict.
A 10% cut for an extended period would be a large effect on any scale. But our particular circumstances mean there is also risk that whatever level of global level cut unfolds, this is amplified in New Zealand’s case due to its particular vulnerability to an extended crisis.
Vulnerability and Falling Between Two Stools
New Zealand is exposed physically because it’s 100% dependent on imported fuel and is small, isolated, with minimal oil production, no refinery, and very low onshore reserves.
It’s also exposed geopolitically because it’s not a very powerful country in military or financial terms, makes very little exclusively that others depend on and could be leveraged in a negotiation for oil (though food does come in under an extreme scenario), and its closest ally Australia is not much better off in fuel security terms, producing only about 20% of its needs.
So if tolling did emerge as an ongoing arrangement and New Zealand did not make the list of approved countries, it would become part of an excluded group that could not access Gulf oil via the strait. And the global shortfall in supply would disproportionately affect those excluded countries that were not self-sufficient (eg the US) or didn’t have reliable supply from other oil basins.
At that point New Zealand would essentially be competing with other excluded countries for access to the relatively thin production surpluses available to it elsewhere and particularly in North America. How much that amounts to are questions of geopolitics as well as physical availability.
US Interior Secretary Doug Burgum told a Tokyo conference on March 14th that US “energy dominance” means “we have the ability to sell energy to our friends and allies”.
However, anything like a 10% cut in oil production globally would far exceed the North American surplus, so its availability to allies and friends under any scenario would become subject to allocation.
Even a pro rata allocation at that point would create challenging circumstances for New Zealand. But whatever the degree of friendship this country considers it has with other like-minded countries, it would not be prudent to bank on a pro rata sharing – so allocation by negotiation is the default.
At that point, it’s weak negotiating position could translate into not just an allocation that was less than others. Depending on which party or parties New Zealand was negotiating with, it could also involve demands for unrelated concessions that could erode the country’s independence on a range of issues.
So under a tolling scenario where New Zealand didn’t make the list, it could end up facing supply cuts that are significantly deeper than the global average shortfall due to two stages of amplification.
It might have aligned with traditional partners in the belief that its best protection lay there, only to find that it fell between two stools in the end.
Amplification of Cuts Does Not Depend on Tolling
This problem of potential amplification of any global level cut is not confined to the tolling scenario.
It can arise regardless should a tipping point be reached where the expected supply shortfall is bad enough that oil markets start to be overtaken by geopolitics.
As noted in our 2024 analysis: “The conventional wisdom is that the world has enough stocks of oil to ensure that current levels of use would still be met during the time needed to fix the problem. … However, if a major crisis runs too long, the rules of the game would change. At that point, geopolitical interests would come to the fore and these rather than price would tend to dominate who gets the scarce supplies.”
In other words, once a point is reached where governments believe their national security and economic interest have reached a threshold for action, government to government arrangements will increasingly set the high level architecture for the allocation of oil, even if markets subsequently trade around that while giving effect to it.
Our lack of geopolitical muscle means that if the production shortfall is bad enough, such that who gets the available oil is largely determined by government to government deals, what starts off as a global shortfall of X% could end up as a cut in supply to New Zealand that is considerably greater than X%.
So this ‘non-linearity’ in how the crisis can develop for New Zealand is important to thinking about how to respond in general, and in particular with respect to the “worst case scenario” the government is preparing for.
This article was written by the Sustainability Council’s Executive Director Simon Terry and first appeared in Newsroom on 27 March 2026.
