Diesel, Drugs and Data

VIEWS FROM OUTSIDE THE APIARY: IAN FLETCHER

The war between the US, Iran and Israel continues to disrupt globally. Ian Fletcher assesses how New Zealand is being impacted, how we might be impacted by similar events in the future, and what we are doing about it.

By Ian Fletcher

Last month I predicted – perhaps rashly – that the fighting in the Iran war would be over by Easter, but that the subsequent disruption would take some months to work through. Well, I may be proved wrong about Easter (though the Orthodox Easter on 12 April might yet be a decent better bet). But the resulting anxiety in New Zealand about fuel stocks and how to respond to a looming shortage has made me look at the physical risks New Zealand faces when things go awry overseas.

Just about everything we need to live as we do in New Zealand is imported, with few things more important to that than diesel and petrol.

It is often said, but not often really understood, that we are a trading nation. At that point the debate skips on to focus on exports, and market access, and trade missions – all about what we sell.

This avoids the focus on what we import. Which is just about everything we need to live as we do, and then things we need to produce what we are able to export. Covid exposed some of these challenges, but not all. What are the things we import that we really can’t do without? There seem to me to be three: diesel, drugs and data.

Diesel

The debate in recent days has shown a growing realisation that we depend to a very great extent on diesel for the whole food and goods distribution system, as well as emergency vehicles, rural production, trains, ferries and so on. Rudolf Diesel’s first patent for this sort of engine was in 1892. And we still totally depend on it.

As we all now know from the sterile debate about who is to blame for the closure of Marsden Point as a refinery, we can no longer make diesel fuel in New Zealand. In recent years we get ours from Korea, and other Asian refiners. The current dilemma will be repeated every time supplies are seriously disrupted (and this war won’t be the last).

There are two risks: sustained high prices, and (at worst) no diesel at any price. High prices are here now, and will lead to a recession. The Government is now looking to invest in storage (which creates resilience if shipments are irregular) and is hinting at ‘allocation’. That means rationing. Investing in storage is a good idea: fuel companies have no interest in resilience beyond a minimum. They benefit from higher prices. In fact, current pump prices are a toxic compound: the rising price of crude oil, plus the rising costs of shipping and marine insurance, plus the (rising) refiner’s margin, all adjusted by the exchange rate (which is falling, unsurprisingly).

At times of war New Zealand is at risk of having its internet connectivity to the world disrupted, but there are contingency measures being put in place.

Allocation – rationing – would (or maybe will) be a nightmare. So much of the economy is so transport dependent that it would bring normal life to a halt. If I were in Government, I would want to do almost anything to avoid this outcome. As it is, high prices will be sustained for some time (whenever the shooting stops), and a recession is now likely. For the future, electrification of transport (where possible) seems sensible, but will require a big investment in the grid and in generation. If I were Labour, that would be my manifesto in November’s election. It would reduce but not end diesel dependence.

Standing back, what else is a serious risk we haven’t really considered?

Drugs

Legal ones: medication. We import them. Imagine life without antibiotics, anaesthetics, cancer or heart and blood pressure drugs. Or vaccines. Pharmac (the drug import agency) takes resilience seriously and on their published plans can probably manage around a two-month disruption (actually their plans look a lot better than the fuel disruption planning). But drugs are supplied through complex global supply chains, with the so-called Active Pharmaceutical Ingredients (APIs) made in a few places, with a lot of exposure to China. So, disruption in trade with China, or prolonged disruption in China itself, is a big risk, although with only low-medium probability. There’s also exposure to APIs made in India, and elsewhere. But I’m moderately reassured that Pharmac is alive to these risks, and has plans that would help manage things, as far as we can.

Data

The other risk is data – the internet. So much of our economy and social life is organised, managed and conducted online that a significant loss of access or function would be very hard to manage. And a very large amount of what we do is managed offshore – big email systems, all social media (though loss of social media would be a win), and anything that relies on cloud storage.

Here, we are exposed to disruption but the situation is improving over time. Both the laying of extra submarine cables, and the recent development of big data storage in New Zealand means that our resilience (which I would assess as having been low) is getting better. If we see connectivity via Australia as a positive, then that’s improving too, with an extra cable planned over the next few years.

Cables are vulnerable to sabotage in the event of war or near-war conflict (as we have seen in the Baltic in recent years). In the event of disruption, access to cable repair ships is a strategic asset. They do exist (there are 60 or so specialist ships in the world). Making sure there’s one always around in our part of the world would be a good step. Usually, it seems there are ships in our region, which is reassuring.

What does all this mean? I always argue for more planning against the unexpected events. This survey shows that we are moderately well prepared for disruption in drug supply, and that we have growing resilience (and probably growing repair capacity) in keeping access to data and the internet. But diesel (and fuel generally) is less well organised, less prepared and arguably more disruptive. It’s clear there are limits to what markets can (or want) to do to maintain supply at reasonable prices. The Government is acting. It seems late, and tentative.

Time to get a grip. That’s the message we all need to send.

Ian Fletcher is a former head of New Zealand’s security agency, the GCSB, chief executive of the UK Patents Office, free trade negotiator with the European Commission and biosecurity expert for the Queensland government. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.