Iraq war will put petrol up 9c a litre, Govt warned

By VERNON SMALL

A war in Iraq would almost immediately push petrol prices in New Zealand up almost 9c a litre.

Advice from the Treasury to Finance Minister Michael Cullen, revealed under the Official Information Act, suggests a "war premium" has already been built into oil prices.

But they are likely to rise sharply when hostilities break out.

The Treasury says a short war could affect tourism - one of New Zealand's largest earners, generating more than $11 billion a year - and the flow of international students.

The warning came the same day as the country's largest tourism company, Tourism Holdings, told shareholders it faced uncertain times because bookings were drying up as the Iraq crisis deepened.

"People have stopped travelling for fear of a major war," said THL managing director Dennis Pickup.

"It's not as though New Zealand is unattractive. It's just that they don't want to be distant from their dependents."

In a television interview to screen tonight, President Saddam Hussein said he would not deliver a jolt to the world's oil supply by setting fire to Iraq's oil wells.

Saddam told Dan Rather of CBS News that Iraq, the world's second-largest oil producer, "does not burn its wealth".

He also said he would refuse offers of asylum.

"We will die here. We will die in this country and we will maintain our honour, the honour that is required in front of our people."

The interview will screen on TV3 at 7.30pm.

The Treasury believes a short war - of less than six weeks - would have a modest impact on world growth and the New Zealand economy, lasting for up to six months.

As well as tourism, it would affect forestry exports, crude materials and non-commodity manufactured exports.

The most immediate visible effect once conflict began was likely to be "a drop-off in visitor arrivals due to aversion to long-distance travel, especially from the United States and Japan".

But New Zealand's remoteness and its reputation as a safe destination could lessen the impact, says the Treasury.

After the war, visitor numbers should recover quickly, as they had after the September 11 attacks in 2001.


The prospect of a long war where the US and its allies became bogged down was more worrying.

Oil prices could rise as high as US$80 ($143.25) a barrel. The long-term average is US$20 a barrel.

This would mean rising costs, inflation and a cut in real wages around the world.

Confidence would dip, unemployment would rise rapidly and a world recession would be a possibility.

The longer the war, the harder New Zealand would be hit.

The Treasury warned of:

* Reduced demand for New Zealand exports and goods, and a slump in tourism.

* Reduced export prices, compounded by higher import prices caused by high oil prices.

* A fall in confidence, which would pull down employment levels, domestic consumption and investment.

* A fall in share prices and more volatile financial markets.

The focus in the crisis yesterday shifted to whether Saddam would comply with UN weapons inspectors' demands that Iraq begin destroying dozens of al-Samoud 2 missiles by Saturday because their range exceeds a 150km limit set by the United Nations.

The Iraqi leader said he saw no reason to destroy the missiles.

"Iraq is allowed to prepare proper missiles and we are committed to that."

The White House quickly rejected a challenge by Saddam in the CBS interview to a debate with US President George W. Bush, saying it was "not a serious statement".