EDITORIAL

If you filled up the car this weekend you’d be forgiven for having flashbacks to early 2021 when the inflationary shock of the pandemic first pushed petrol prices past $3 a litre.

Here we
are again. Ouch.

Global oil prices have surged about 25 per cent in the past three months.

Last week fresh production cuts by Saudi Arabia and Russia pushed Brent crude oil (the variety we use in New Zealand) up above US$90 a barrel, the highest it has been since November last year.

This time, though, there is no Government subsidy coming to bail us out of the pump.

The tax break that Labour offered up to cushion the cost of living impact of high petrol prices, was put in place in March 2021 and, after being extended, was removed on June 30 this year.

In a case of fortuitous timing, that subsidy ended just as oil prices were hitting a cyclical low of US$72.

At those lower prices, global oil markets were providing fair winds for the fight against inflation.

Unfortunately, the wind direction has turned and rising oil prices now threaten to add another complication to the already difficult business of getting inflation back below three per cent.

The Saudis and Russians seem intent on cutting production to boost prices – even though the longer-term economics don’t necessarily add up.

While a higher price equals more short-term profit, it has to be offset against the lower volumes they’ll sell.

Higher prices typically depress consumption.

If we step back and think about our longer-term future and the efforts to cut fossil fuel use to address climate change, higher petrol prices aren’t such a bad thing.

They make us think about alternative transport – busing and biking and even walking more.

High petrol prices are one of the big drivers of the transition to electric vehicles.

Ironically the Saudis and Russians may actually be doing the world a favour and hastening their own decline as superpowers on the world energy stage.

So what are they playing at? And why now?

Saudi Arabia does have a Budget deficit to balance and Russia has a war to fund. But there are analysts who see the motivation as political.

More inflation pressure right now is bad news for Western economies and for incumbent governments.

That’s seen some experts conclude this is a play to undermine Joe Biden and the Democrats in the upcoming US election cycle.

It is no secret that both the Saudis and Russians got on much better with Donald Trump.

The oil price rises last week coincided with a local Commerce Commission report that called local petrol companies to task for regional price discrepancies.

It is always good to see regulators keeping price pressure on big industry players.

But in the shadow of an epic geopolitical showdown, Kiwi drivers probably shouldn’t expect too much relief to be coming their way.