South Africa and other emerging markets are bracing for higher energy costs after US-Israeli strikes on Iran jolted oil markets, raising fears of prolonged price spikes and renewed inflation pressure.
The attacks have thrown the Middle East’s political economy into turmoil, with immediate disruptions to regional air travel and a spike in geopolitical risk premiums.
“South Africa must not underestimate the potential negative economic and business implications,” said North-West University Business School economist Raymond Parsons. “The latest geopolitical developments have raised key questions about the future stability of the Middle East’s political economy.”
For South Africa, where fuel prices are closely tied to global crude benchmarks and a weakening rand, any sustained rise in the price of Brent crude oil will translate quickly into higher pump prices, fanning domestic inflation at a time when consumers are already under strain from elevated interest rates and sluggish economic growth.
While South African markets have been affected by the war in Iran, the moves have hardly been dramatic. Shortly after midday on Monday, the rand had weakened 0.42% to R16.06/$, while it was firmer against the pound and the euro. By early evening, it had weakened to R16.15/$.
Gold and the dollar firmed due to their safe-haven status, with the former up 0.76% to $5,309.66/oz and the latter up 0.78% against the euro at $1.1683.
Sasol benefited in intraday trade from the high oil price, gaining as much as 12.5% before pulling all the way back to end almost 0.6% weaker on the day. This followed a 16% gain on Friday. The all share index weakened about 1% by the close.
The yield on the blended 10-year government bond was unchanged from Friday’s close of 7.97% just after lunchtime but weakened to 8.1% in the early evening.
Oil prices were the most affected, with Brent crude rising as much as 10% in intraday trade. By early evening it was 6.9% ahead at $77.92 a barrel.
On Monday, the department of mineral & petroleum resources published the official fuel price adjustments for March, indicating petrol price rises of 20c/l while diesel drivers will see increases of between 62c and 65c.
Shipping disruption
“The main contributing factors are the higher shipping rates as well as the geopolitical uncertainty caused by the tension between the US and Iran, which could result in disruption of crude oil supply in the Strait of Hormuz,” the department said.
If oil prices rise sharply and the rand weakens significantly against the dollar, South Africa’s monetary policy committee is likely to look through the shock — provided it is temporary — and avoid raising interest rates, according to Investec’s Annabel Bishop.
“The severe downside case is one of persistently [embedded] high inflation, a near doubling from the current rate of 3.5% … and higher interest rates, with the repo rate above 12%,” Bishop said.
The conflict does not appear close to ending. President Donald Trump stated that the US intends to continue striking Iran for “four to five weeks”. He said Operation Epic Fury aims to dismantle the Iranian regime and eliminate the nuclear threat, saying it “won’t be difficult” and noting that the US has substantial ammunition stockpiles globally.
The department of international relations & co-operation has urged South Africans across the Middle East to register formally with diplomatic missions so their whereabouts are known. It warned that in-person consular assistance may be curtailed if conditions worsen.
Airports Company South Africa (Acsa) confirmed at least 14 flights between the United Arab Emirates (UAE) and South Africa were cancelled after UAE airspace closures, affecting travellers at OR Tambo, Cape Town and King Shaka international airports. Passengers were directed to contact airlines for updated information.
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