The return of rising oil prices risks killing off the emerging positive vibes

Analysis - For a brief few weeks in the wake of the ceasefire in the Middle East, it felt as though New Zealand's economy might finally be catching a break.

With oil prices falling back towards pre-crisis levels, businesses and workers had good reasons to feel confident again about investing and spending, as they were at the start of the year.

After peaking at $3.40 for a litre of 91 at the pump in April, prices have been drifting back towards $2.90 a litre.

The data coming through also seemed to suggest that parts of the economy - particularly manufacturing - held up better than expected during the war and may have even grown faster at the start of the year than previously thought.

The Reserve Bank's interest rate hike this month, while clearly influenced by a spike in inflation from oil prices, was partly framed as the need to reduce stimulus to an economy that is set to grow again this year.

These positive vibes are now being put at risk again following renewed conflict between the US and Iran, and the US decision to again block Iranian ports.

Oil prices have surged from around US$71 a barrel two weeks ago to about US$85 a barrel on Wednesday.

Westpac economists think petrol prices in New Zealand could rise back to about $3.10 a litre for 91 - not as high as $3.40 at the height of the war, but still a significant hit to Kiwi drivers' wallets, not to mention the associated flow-on effects to the wider economy through transport, shipping and fertiliser.

The Reserve Bank will also have to watch closely and will not hesitate to act if it thinks inflation expectations are rising again because of the renewed fighting.

I remain hopeful there are enough positive indicators in the economy to suggest we will not be derailed again and will see some good growth this year.

But it was naive, I guess, to hope that Donald Trump's flimsy ceasefire was somehow going to resolve the conflict and all would be well again.

What we have now, with oil prices rising again, is - if we ever needed it - another useful reminder that in the current geopolitical environment, and with Trump in the White House, uncertainty is the norm.

For Kiwi businesses, that means there is little point waiting for the latest crisis to pass before getting on with investments and projects, because as soon as it does, another one will probably come down the pipe.