Middle East Conflict Sparks Oil Price Fears And Economic Uncertainty For South Africa

This warning comes from North‑West University Business School economist Raymond Parsons, speaking amid the escalating conflict around Iran that is already spilling across the wider Middle East.

The US and Israel have launched large-scale strikes inside Iran aimed at crippling its military and missile capabilities and preventing it from advancing its nuclear programme, and Iran has hit back with waves of missiles and drones at Israel and at US bases and US-aligned countries in the Gulf (including places like Saudi Arabia, Qatar, the UAE, Kuwait and Bahrain).

Says Parsons, "Although it is still early days in the conflict, it is already evident that travel and tourism in the Middle East has been disrupted, with air flights having been cancelled on a large scale. The latest geopolitical developments have raised key questions about the future stability of the Middle East’s political economy."

Fuel cost surge

Parsons cautions that the biggest immediate impact for countries like South Africa will inevitably be the elevated uncertainty about global oil prices, and hence the prospect of higher fuel costs in the months ahead.

"Oil prices are widely expected to spike in the short-term and stay high for a period - depending on the outcome of the war and in the absence of any new supply measures to offset higher oil prices."

He adds that although the Organisation of Petroleum Exporters (OPEC) has undertaken to increase output soon, the bigger unknown factor is whether the navigation and transport of Iranian oil through the Homus strait will be disrupted by prevailing war conditions.

Hormuz shipping risk

Parsons reports there are conflicting reports about the latest status of the straits.

"The global oil price outlook therefore basically remains very uncertain in the highly volatile geopolitical circumstances now existing in the Middle East."

Andre Cilliers, currency strategist at TreasuryoNE unpacks this further. "A huge turning point is that Iran's Supreme Leader, Ayatollah Ali Khamenei, has been reported killed, which creates major uncertainty inside Iran about who is in charge next and whether the country becomes more chaotic or more aggressive.

"The biggest immediate global impact is energy: even if Iran says the Strait of Hormuz is "open," shipping through it has largely paused because tanker owners and traders don't want to risk their ships, and there have been reports of tanker attacks—so in practice the route is close to "effectively shut".

"Because the strait is the main exit for a large share of Gulf oil (about a fifth of global supply), oil prices have jumped sharply and could go much higher if traffic doesn't restart soon. OPEC+ is trying to soften the shock by increasing production quotas, but that only helps if oil can physically get out through safe shipping lanes.

Heightened market caution

Risk aversion is the name of the game as we start March, Cilliers says.

"Markets are now watching two things hour by hour: whether fighting calms down (or talks restart) so tankers move again, or whether the conflict widens and keeps the strait risky—because that's the difference between a short-lived price spike and a more serious global energy and inflation shock."

Gold is back up close to $5,400, with safe-haven buying top of mind as the world reassesses risk amid the war in Iran. The rand and other emerging-market currencies are under pressure as the market assesses how this all plays out.