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As I write this, the situation around Hormuz remains uncertain. Do we have a deal or not? The surge in oil, petrol, diesel and derivative products have highlighted a key point of vulnerability for many countries, including New Zealand. Petroleum and related product imports exceeded $10 billion in the past 12 months. New Zealand is vulnerable to price movements, and that petroleum bill weighs on the trade balance and current account (our national cheque-book) as it literally siphons money out of pockets.

Pre-Hormuz, the world was already shifting. The rules-based system was being challenged with countries exercising power. Security had become a major theme; security in food, energy and technology. New Zealand’s point of vulnerability is energy. Households, businesses and the entire economy depend on energy.  

New Zealand has benefitted from improvements in our terms of trade in recent decades as the world globalised and trade with China increased. When export prices for dairy, meat, and wool exceed what we pay for imports, national income grows even without productivity gains. This foundation is under growing pressure from two structural forces.

Geopolitical instability and a shift to onshoring as opposed to offshoring mean increasingly volatile and potentially shifting commodity and manufacturing markets. The recent trend in the terms of trade may change. New Zealand has a chronic dependence on imported fossil fuels. The 2026 Iran War fuel shock illustrates the economic risk this dependence creates. Energy price spikes propagate through every household and business in the economy, widening the trade deficit, adding to inflation and business costs, compressing growth and hitting living standards. 

With many economically and politically powerful countries around the world actively moving away from globalisation and looking inward, to maintain and improve our standards of living New Zealand must build resilience back into terms of trade, reducing unnecessary reliance on expensive and volatile imports and look for sustainable and cost-effective energy alternatives.

Electrifying New Zealand's homes and vehicles is one mechanism that can help address this vulnerability. At a macroeconomic level, electrification improves New Zealand's balance of trade, reduces exposure to global price shocks, and improves the economic foundations that declining terms of trade and rising import costs are currently eroding.

We are currently facing a cost of living crisis, but the bigger problem is an income crisis, a by-product of weak productivity growth over a sustained period. The income and productivity crisis has magnified the cost of living crisis. 

Electrification can help both with short term cost of living problems, and also assist in building a more productive energy system underlying a more productive economy in the long term.

We have passed a key inflection point, where the economics of solar have become compelling.

Households represent the country's largest energy-consuming sector, and shifting that consumption onto domestically generated renewable electricity reduces the import bill, keeps spending within the New Zealand economy, and delivers further savings through the inherent efficiency of electric machines.

Electrification is not the sole answer. More change is needed as New Zealand’s economy is literally ‘re-wired’. Electrification offers the potential to take a major step forward.

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