A sharp conflict escalation in the Middle East has sent fresh tremors through global markets, raising concerns about fuel prices, inflation and growth in South Africa.
The US and Israel’s attack on Iran has forced the latter to respond by threatening oil shipment along the most critical sea route, the Strait of Hormuz, through which 20% of the world’s oil and gas passes, causing an immediate shock, sending oil and gas prices on a surge and crashing stock markets around the world.
Handré Retief, portfolio manager at Novare Holdings, said the immediate market shock is awkward for South Africa being a net importer of oil. This has led to the immediate increase in fuel prices on Wednesday.
He explained that brent crude prices feed directly into petrol and diesel costs, which make up a meaningful portion of the consumer inflation basket. He warned that a sustained oil price above $80 to $90 per barrel could add between two and four percentage points to inflation over the coming quarters, if disruptions persist.
Retief said that would complicate the outlook for South African Reserve Bank, which has worked to contained inflation below the 4% mark. A renewed spike in fuel and transport costs, he said, could force the central bank to adopt a more cautious stance on interest rates.
“The rand weakened on Monday to trade around R16.10–R16.17/$, illustrating classic EM (emerging markets) risk-off behaviour. A stronger dollar, driven by Fed caution on rate cuts, and capital outflows from emerging markets amplifies this.
“A weaker rand raises the cost of all imports, not just oil, and can widen the current-account deficit if prolonged,” said Retief.
However, he said gold prices continued to firm up as investors sought safety, while riskier assets such as equities and emerging market currencies sold off.
If tensions in the Middle East persist beyond three to four weeks, brent crude oil could spike to $100 or even $200 per barrel. Retief estimates this could shave between 0.5% and 1% off South Africa’s GDP, push bond yields towards 10% to 11%, and weigh heavily on cyclical sectors of the economy.
He said in such a scenario, resources, gold and dollar exposure would serve as important protection within investment portfolios. On the other hand, a swift de-escalation could see oil retreat back to the $70 to $80 range. That would ease inflation pressure, potentially reopen the door for rate cuts, support the rand towards R15.60/$, and lift banks and consumer shares as risk appetite improves.
Economist Mandla Maleka said the Middle East conflict calls for panic as the economic gains may be reversed if this persists. He warned that uncertainty around the duration of the conflict makes the outlook particularly difficult to assess, noting that South Africa has already begun to feel the negative effects.
Maleka pointed to the rand as the most vulnerable channel of impact. Although the currency has been supported by higher commodity prices, recent weakness could feed into the inflation basket through more expensive imports.
He added that with crude prices climbing, it will be a hard sell to convince monetary authorities to cut interest rates. If inflation accelerates, he said, borrowing costs could remain elevated for longer, placing further strain on consumers and businesses.
In his assessment, the economy faces a threefold risk, including a weaker currency, higher inflation and sustained high borrowing costs, all of which could lower growth outcomes.
Ross Compton, senior director of global policy at the EnerGeo Alliance, said the crisis highlights South Africa’s structural vulnerability as a net importer of brent crude and refined fuel.
But he argued that the country has significant upstream energy potential that could help break this cycle if properly developed.
“By developing proven assets like Oryx and Sable, alongside discoveries at Ibhubesi, Brulpadda and Luiperd, and tapping into the 390 TCF of shale gas in the Karoo, South Africa can secure its own supply.”
He said existing infrastructure, including Shell and BP Southern African Petroleum Refineries in Durban, the Mossel Bay Gas-to-Liquid plant, Transnet’s pipeline network and crude oil storage hubs at Saldhana Bay could form the backbone of a more self-sufficient energy system if revived and fully utilised.
“The rewards are both strategic and economic: the Block 11B/12B project alone could boost annual GDP by nearly R23-billion. The current situation in the Middle East highlights that it is imperative to prioritise these domestic projects which can help insulate South Africa from external shocks.”
