Think the oil shock is bad in the US? Look here

0:01NPR.

0:11Stacey Vanek Smith:This is The Indicator from Planet Money. I'm Darian Woods, joined today by producer Cooper Katz-McKim. Darian Woods, hello. Welcome to the studio. Thank you. We're now seven weeks into a war focused in the Middle East, yet no one is free from its impact. The closure of the Strait of Hormuz has caused a seismic supply disruption. It makes sense. About 20 % of global oil passes through the Strait of Hormuz. And the impact, oil prices have skyrocketed, with another jump above$100 a barrel after news of the U.S. blockade of Iranian ports in the Strait. Last week, we heard stories of Americans feeling the pinch of high oil prices.

0:48Stacey Vanek Smith:But in other parts of the world, people are facing blackouts, fuel rationing, even concerns of actually running out of oil completely. So in today's episode, how three nations are handling the global oil crisis. We look at New Zealand, where fuel stocks are worryingly low. Zimbabwe, who's facing one of the highest fuel prices in Africa. And China, who is actually handling the situation pretty well.

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2:28Jerry compares rates side-by-side from over 50 top insurers and helps you switch with ease. Jerry even tracks market rates and alerts you when it's best to shop. No spam calls, no hidden fees. Drivers who save with Jerry could save over$1 ,300 a year. Switch with confidence. Download the Jerry app or visit jerry.ai slash NPR today. Our story begins in the homeland of our very own host, Darian Woods. And not just because it's my homeland. Now, we were curious about New Zealand because it's particularly vulnerable. Despite being a higher income nation, it sits at the end of a supply chain for oil.

3:04To learn how they're doing, we actually reached out to someone from your past life, Darian.

3:09Stacey Vanek Smith:Eric Crampton, Darian Woods. It's been some time. And so, full disclosure, you taught one of my courses in undergraduate economics. What did you grade him? You can admit it. Oh, Darian did great. Good to hear. Good to hear he remembers. Let's see the transcripts. Yeah. Eric is now the chief economist at the New Zealand Initiative, which is a pro-market public policy think tank. And Eric explains why New Zealand is so vulnerable to an energy shock like this. We're entirely reliant on refined supplies coming in from overseas. And that's primarily South Korea, Singapore, and then rats and mice from everywhere else.

3:46Stacey Vanek Smith:Is this a New Zealandism? What does this mean? Yeah, rats and mice, small insignificant things, so small amounts elsewhere. So both South Korea and Singapore get oil from the Middle East. And the result is that in New Zealand, diesel prices have gone up roughly 70 % to the US equivalent of$7.27 per gallon. And diesel is critical to the New Zealand economy. It's behind food production, distribution, the movement of essential goods, and there's really no easy alternative. And cost isn't the only concern. New Zealand is also worried about having enough oil. South Korea has already put a cap on how much they'll export.

4:25Stacey Vanek Smith:Yeah, and people in New Zealand are very aware of how much is left in the reserves. In fact, there's several websites devoted to that question. One of them is called Fuel Clock. Yeah, it has this ominous countdown in red, and it shows at current rates of usage, New Zealand only has, as of this recording, 27 days left of jet fuel. It also lists diesel. We're not used to looking at, well, here's a month and a half and then nobody can drive around. More importantly, groceries can't get from warehouses to the grocery shelves. That could be very bad. All right, so oil and gasoline prices, or petrol as we call it there, are high.

5:05Stacey Vanek Smith:Supplies are uncomfortably thin. And meanwhile, the government is facing pressure to take all kinds of action, maybe rationing, cutting the fuel tax or subsidizing fuel. And they've resisted pressures so far to intervene in gas prices or petrol prices, as you call them. Unlike Australia, who's already cut fuel taxes. If you do that, then the government has to say, hey, everybody, we know that the price is now lower, but please, please use less of it, even though the price is lower. Letting prices rise really encourages people to cut back on demand. That said, the New Zealand government has boosted support for low - and middle-income families with children.

5:44Stacey Vanek Smith:So for now, New Zealand does have fuel, but come June, Eric says there is a question. I start seeing risk of things like international flights not wanting to come here because they'd be worried about whether they can refuel. So Darian, you may want to wait a few more months to travel home. Yeah, that's slightly worrying. And while New Zealand is not in a good position, it is a higher-income nation that can afford to bid on higher gasoline prices. That's not the case for lower-income countries like Zimbabwe, who are also reliant entirely on oil imports. Right. So Zimbabwe, much like New Zealand, is at the whim of external forces.

6:24They've seen gas prices rise 40 % in less than a month, to one of the highest, if not the highest, in Africa. Gerald Macheka is an economist located in the capital, Harare. He says things are changing fast. Fuel in February was, for petrol, it was$1.52. It's now at$2.23 per liter. That may not sound like a lot, but it is the equivalent of$8 a gallon. And Zimbabweans make less than$2 ,500 per person on average each year.

6:56Stacey Vanek Smith:Diesel prices, too, have gone up nearly 20 percent. And that's a problem when Zimbabwe's economy depends on oil and gas. Its main industries are mining and agriculture, which need fuel to power their machines and transport their goods. And people are feeling the impact. The price of consumer goods is already higher, even the price of public transportation. So imagine using public transportation, but now it doubles or it triples, but your income is not doubling or tripling. Zimbabwe is in a delicate position. The country has been loaded with debt and has little room for external shocks. The government is walking the tightrope between trying to fund itself through things like fuel taxes, while also not putting too much pressure on citizens.

7:41Unfortunately, consumers are already feeling the pain. Zimbabwe's fuel prices are outpacing their neighbors. Across the northern border, Zambia's citizens are paying 40 % less on fuel. That's frustrating for Gerald. The government was quick to respond and reduce the taxes, you know, to cushion their citizens. Whilst in Zimbabwe's case, nothing like that happened.

8:05Stacey Vanek Smith:Right. There are significant taxes on fuel that the government hasn't changed since the oil crisis began. Zimbabwe has cut taxes on diesel, which is big for protecting industry, keeping consumer prices down. They're also considering adding more ethanol to oil in hopes of reducing prices at the pump. New Zealand and Zimbabwe are both at the whim of oil prices and supply chains that extend far beyond them. China, on the other hand, is feeling a little bit more in control right now. We spoke to Shahzad Qazi, the chief operating officer at the China Beige Book, to understand what's going on there.

8:38He says the East Asian country is one of the biggest oil consumers in the world and is very dependent on imports. Plus, China buys up around 80, maybe even 90 percent off Iranian oil. That is wildly high.

8:53Stacey Vanek Smith:All that said, you might think China is in a precarious position. Well, Shehzad disagrees. When you compare China to any other country in the world, and certainly any other Asian economy, they are by far the best situated to deal with the current crisis. And this is no accident. China has prepared itself deliberately against an energy shock like this, in part because they're the factory of the world. You don't want your whole economy to be thrown off because oil prices change. So they built up their oil reserves, buying the resource when it's cheap and building a stockpile estimated to last between three and six months.

9:30Stacey Vanek Smith:Shehzad says China has also protected itself through energy diversity. Much of China's power runs on coal. As we've covered on the show, China has also invested heavily in solar power, electric vehicles, and electrification. China also has the benefit of a unique arrangement in importing oil. Unique because it buys up cheaper oil from sanctioned countries, Russia, Venezuela, Iran. Even though there's a war, China continues to get oil from Iran. The upside of Americans' policy to sanction these countries and trying to crush their economies has had this unintended but yet immensely positive impact for the Chinese economy because it's given them access to this very critical natural resource at prices that are certainly well below what other market players have to pay for it.

10:17Overall, China looks very shrewd right now in the face of a massive global energy shock. If anybody's winning right now, it's most certainly them. And I think it has helped them understand that they were very smart to keep this heavy focus on this economic self-sufficiency. Okay, so Darian, we have New Zealand. Yes. A country pushing back against price intervention as it weathers a supply shortage. We have Zimbabwe, where leadership is figuring out how to ease the burden on its citizens while protecting the economy. And we have China, who is very well prepared

10:49Stacey Vanek Smith:for a moment just like this. Yeah, so just three stories that show that whether or not your country is involved at all with the Middle East, the effects are being felt everywhere. Now, Kufa, this is a particularly exciting week for you. It really is. Because you've been working behind the scenes to create a newsletter for The Indicator, our very own newsletter. Yeah, so it'll basically be a version of The Indicator, but in your inbox. We answer listener questions, put out call-outs, and reveal what we talk about when we're not on mic. It's a fun, bite-sized email, and the first one comes out this Friday.

11:24Stacey Vanek Smith:So listeners can be among the first, and they can sign up right now. The sign-up link is in the show notes. This episode was produced by Corey Bridges and engineered by Kweisi Lee. It was fact-checked by Sierra Juarez. This episode was edited by Julia Ritchie. Cagan Cannon is the show's editor. The Indicator is a production of NPR.

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