Higher oil prices triggered by the ongoing U.S.-Israeli attacks on Iran, coupled with a sharp decline in the value of its currency, are changing South Africa's economic trajectory, putting the country's fragile economic outlook under fresh threat.
Brent crude oil prices are up at least 20 percent since U.S.-Israeli air strikes began on February 28, while the South African rand has weakened by over 4 percent in the last week.
"Price rise comes through into your inflation number because we now have a new inflation target of 3 percent with a 1-percent leeway either side. We probably will breach that 1-percent leeway and that would cause the reserve bank to possibly be forced to raise interest rates even though that's not the right thing to do when you have a supply shock, but it might have to do it because it's establishing a new inflation target," said Viv Govender, a portfolio manager at Rand Swiss.
"South Africa being the net importer of oil and fuel, we know that most of our refineries have closed down. We don't have enough capacity in terms of refining. Even if we did we still need oil to be shipped through the Strait of Hormuz which is almost non-functional. So that's going to have a negative impact. We're going to have to import this oil at a higher price and also import fuel at a very high price," explained Maudi Lentsoane, an independent economist.
Rising oil prices have already started to filter into South Africa’s economy.
"Fuel prices affect every individual. For those commuting with public transport and personal transport, having to fork out an extra cent is quite steep based on the question of inflation that we are encountering in the country," said Olebogeng Lephoi, a resident.
Fuel price hikes feed directly into transport, food and logistics costs, placing renewed pressure on households already struggling with elevated living costs.
For businesses, especially in agriculture, mining and freight, an energy price spike could erode margins and delay investment decisions.
"We are not that far above zero. We have 1.5 to 2 percent growth targets for the next year. I think every 10-dollar oil price increase results in a 0.3-dollar reduction in GDP growth. That really puts us into negative economic growth, so we could be in a recession and this won't just affect us, it will be Europe, it will be the whole world as well," said Govender.
Soaring oil prices put South Africa's economy under pressure
