08/03/2026
IRAN WAR: 8 WAYS IT COULD AFFECT PNG
Did you know that when the war between Russia and Ukraine started, the cost of flour, bread, biscuits, scones, cakes and other flour based products increased in PNG? Yes. Because Ukraine was one of the major growers of wheat and exporters of flour in the world.
And when all of our sudden, our vanilla, coffee and cocoa farmers make thousands of kina extra when a disaster affects crops in other parts of the world? They suffer but you celebrate here.
Well now you you've seen it in the news. You have your own opinions on who is right and who is wrong. But this war may have an impact on your life. How?
The conflict is happening near the Strait of Hormuz, controlled by Iran, which is the main sea route used to ship oil to the world. About 20% of the world’s oil passes through this area.
Iran’s Navy has just closed the sea passage, blocking the shipment of oil. Any vessel that moves will be bombed. I believe at least 3 oil tankers belonging to the UK and US have already been hit by Iranian missiles, losing hundreds of millions of dollars worth of oil. This means that about 20% of the world’s oil supply, used for diesel, petrol, aircraft fuel, etc. will be cut off. When the supply drops, the price will increase.
PNG sadly does does not produce enough refined fuel for its own use. We import fuel from overseas. This means when the world price goes up, PNG also feels the impact later. If only Napa Napa was operating at top efficiency and we made our oil petrol and diesel. Unfortunately this isn't the case and we have to import oil based products.
The effects will not be seen immediately, but they are likely to reach our country in the next one to two months.
Here is how the war can affect PNG, what it means for our 2026 budget and economy, and what government and businesses can do to manage the situation:
1. World oil prices are already going up
Oil is now more expensive because the war is near the main shipping route.
2. PNG will feel the impact later (1 or 2 months time)
Fuel we use today was bought earlier.
Price changes will likely show in April or May.
3. Fuel price in PNG may increase
The ICCC will decide the new price. If world oil stays high, local fuel prices will also rise.
Current diesel: about K4.20 per litre
Possible increase: between K4.80 to K5.30
Extra cost examples:
• PMVs/Taxi will pay K60+ more per day fuel cost
• Freight truck: +K240 more per trip
• Generator site: +K3,600 more per month, depending on size. (Factories like Lae Biscuit that rely on gensets will have to pay more, meaning the cost of Snax cracker and others may go up).
Result:
• goods prices rise slowly over 1 to 2 months
• biggest pressure on freight and construction
4. Transport and freight costs may increase
Air Niugini tickets may increase along with other road and sea transport. Higher fuel cost makes it more expensive to move goods around the country. If the blockage in the Middle East is for less than a month, then prices could increase only 10% more. If up to 2 months, then 20%. If blockage continues longer than 3 months which in unlikely, then perhaps up to 30% increase or more.
5. Shop prices could slowly rise
When freight costs go up, the price of food and store goods usually follows, but at a lower rate than that of fuel. The prices will be passed on to customers, but ICCC will monitor this carefully and ensure that consumers are not disadvantaged.
6. Government spending pressure will increase
The 2026 Budget already has many commitments.
If fuel costs rise, government will spend more on:
• power generation
• transport for services
• project logistics
This reduces money available for new projects.
7. Government revenue may not grow as planned
If prices rise, businesses slow down.
When business activity slows, tax collection can fall below target.
If govt gives tax concessions on fuel, this will impact government revenue as well. This could be balanced by increased revenue from petroleum companies like Santos who will make more money and may pay more taxes as a result.
8. Inflation risk will increase
Higher fuel cost affects many parts of the economy.
We may have to get more loans.
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WHAT GOVERNMENT CAN DO
Here are practical steps to keep prices stable:
1. Use the fuel price smoothing mechanism
Reduce sudden large price increases.
2. Temporarily lower fuel taxes if needed
This can reduce pressure on consumers.
3. Support foreign exchange supply
Make sure fuel companies can import fuel without delay.
4. Control unnecessary government spending
Focus on essential services first.
5. Improve shipping and logistics efficiency
Lower transport cost where possible.
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WHAT BUSINESSES SHOULD DO
• Plan for higher freight costs
• Reduce fuel waste where possible.
• Conserve cash. Defer any large spending while times are uncertain to see how things go.
• Review budgets for the next 3 months
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ON THE BRIGHT SIDE
PNG is also an oil and gas exporting country. When world oil prices go up, PNG earns more money from crude oil and LNG exports.
This can help:
• increase government revenue through taxes and royalties
• bring more foreign exchange into the country
• support the value of the kina
In the medium term, higher oil prices can help the government pay for services and manage the budget.
However, this benefit comes later, while higher fuel prices at the pump are usually felt first.
So PNG will face short-term cost pressure, but there can be longer-term national revenue gains if high prices continue.
But don't count on this.
SO WHAT?
The war in Iran is far away, but as with other global events, its economic impact can still reach PNG through higher fuel and freight costs. This can place pressure on government spending, slow business activity, and increase inflation if not managed carefully.
The good news is that PNG has tools to manage this. The ICCC can smooth fuel price changes. Government can control spending, support foreign exchange for fuel imports, and focus on essential services. Sadly, this may mean some service providers may not get paid in a timely manner. But good govt planning can reduce the shock to our economy. For businesses and families, don't just watch the news. Plan ahead. Talk about what you will do if prices go up. Don't wait for it to happen and then be confused and react blindly. Let's prepare for it now.
By Des Yaninen
