Almost half a billion dollars is being held in reserve by the Government in Budget 26 to address further shocks caused by high fuel prices amid an ongoing and unpredictable conflict in the Middle East.

A total of $450 million has been allocated for the 2026/27 financial year, which Finance Minister Nicola Willis is describing as an “emergency savings account” she hopes the country won’t need as she points to forecasts of falling fuel prices, including a predicated average petrol price of $2.71 per litre.

The United States/Israel war with Iran had caused global fuel shocks, almost completely choking supply through the Iran-controlled Strait of Hormuz where about 20% of the world’s oil originates.

While ceasefire talks have increased in recent weeks, the threat of ongoing strikes hasn’t abated, meaning the global disruption could persist.

The $450m fund, limited to the 2026/27 financial year, added to already announced fuel support and resilience measures from the Government, which included a $50 weekly increase to the In-Work tax credit, $150m to increase fuel storage and increases in mileage rates for home and community support workers and patients who are travelling for treatment.

The tax credit and mileage rate increases are temporary and are set to expire after 12 months or when the price of 91 Octane petrol falls below $3 per litre for four straight weeks.

Willis, speaking to the audience in the Budget lock-up, said she hoped the $450 wouldn’t be required but acknowledged worst-case scenarios could occur.

“It is prudent to be prepared for a downside scenario and if that occurs, I want New Zealanders to have the confidence the Government has the fiscal buffer to respond.”

The Budget has also devoted funding in several areas to address cost pressures caused by the fuel crisis, however some of the sums have been withheld as officials cite “commercial sensitives and to avoid prejudice during negotiations”.

Police has been given $2.2m for the next financial year, alongside about $1.8m for the remainder of the current year. Fire and Emergency has received a similar amount for the coming financial year, as well as about $1.3m for the current year. Corrections was given $2.6m for the next financial year.

The cost pressures for health had been withheld, likely a reflection of the health contracts held to access supplies from the Middle East region. Education’s cost pressures were also withheld, however Treasury officials noted the funding would support the maintenance of education provision “once other options to manage fuel price pressures have been exhausted”.

Customs has been given $1m of capital funding to replace its petrol and diesel vehicles at the “end of their useful life” with electric or hybrid vehicles. It would also fund additional vehicle charging stations.

The Budget Economic and Fiscal Update (Befu) gave new detail regarding Treasury’s fuel price forecasts amid the Middle East conflict.

Using oil spot and futures prices as at April 21, Treasury assumed Brent crude oil prices had now peaked and would gradually ease to about $77 per barrel USD by mid-2027, slightly above pre-conflict levels.

Fuel prices were assumed to fall with the price of petrol expected to fall from an average of $3.12 per litre in May to $2.71 per litre by December, which was slightly above late 2025 prices.

Diesel prices were expected to average $3.14 per litre over May and end the year about 10% higher than in December last year.

The Government’s new fund had been informed by concern about the worst-case scenario considered by Treasury, which assumed oil would spike to $135 per barrel USD.

Under that scenario, inflation would surge to 5.4% and unemployment at 5.8%. With a reduced tax take, the Government’s predicted surplus in 2028/29 would reduce to about $2.1b from its current $2.6 expectation.

Adam Pearse is the Deputy Political Editor and part of the NZ Herald’s Press Gallery team based at Parliament in Wellington. He has worked for NZME since 2018, reporting for the Northern Advocate in Whangārei and the Herald in Auckland.