Diesel shortage on the cards for South Africa

South Africa could soon find itself without an adequate supply of diesel for its motorists, not only due to the war in Iran but also the recent diesel export ban by Russia.

On 8 July, Russian president Vladimir Putin officially declared a ban on Russian diesel exports until 31 July as a means to protect and restore its domestic market.

Russia has the refining capacity to produce around 7 million barrels of diesel per day, but this has been greatly disrupted by recent Ukrainian drone strikes.

Russia’s seaborne diesel exports for the first eight days of July sat at just 187,000 barrels per day, down from 535,000 barrels per day a year prior.

Just last year, Russia supplied approximately 11% of global diesel exports, with Turkey and Brazil being its two largest customers followed by Africa.

The announcement of the ban lifted benchmark European diesel margins to a record $60.17 per barrel, significantly raising the price of imported diesel.

This is especially bad news for South Africa, which has no natural crude oil reserves and little capacity to refine diesel on its own, and is thus dependent on imported diesel.

Russia’s ban compounds an existing fuel shock brought about by the breakdown of the ceasefire between Iran and the United States.

The closure of the Strait of Hormuz at the beginning of the war depleted global diesel supply by as much as 13%, with diesel prices reaching record levels.

While the reopening of the Strait on 17 June provided some relief, the collapse of negotiations and potential reigniting of the conflict seeks to negate these gains.

As a result, the price of diesel in South Africa is expected to greatly increase in August, while the price of petrol will likely decrease instead.

Even though South Africa does not import directly from Russia, this could still lead to potential diesel shortages as the price skyrockets and global supply chains are disrupted.

South Africa imports both crude oil and refined fuel products at international price benchmarks, with diesel prices benchmarked at 50% Mediterranean and 50% Arabian Gulf.

“Both reference markets sit inside the affected region caught in these two major developments,” the Centre for Risk Analysis (CRA) warned. “A renewed Iran conflict raises the dollar price of the benchmark.”

“A prolonged Russian diesel absence removes a large volume of physical supply that would otherwise have relieved that pressure.”

Minister said no threat of diesel shortage

Alongside the growing concerns over potential diesel shortages have come questions around whether South Africa has enough reserve supply of oil and fuel in stock.

The country reportedly has no reliable data on its current fuel stock levels, only having rough estimates of its strategic reserves.

Yet even based on these estimates, South Africa’s strategic fuel reserves supposedly still fall far under both domestic and international standards and policies.

A month after the Iran war began, Minister of Mineral and Petroleum Resources Gwede Mantashe assuaged concerns about a potential supply shortage.

The minister claimed at the time that South Africa’s close historic ties with Iran had allowed ships carrying South African cargo to pass through the Strait of Hormuz.

Yet numerous petrol stations across the country began reporting fuel shortages soon after Mantashe made his comments, raising questions around the country’s reserves.

The minister was quick to once again dissuade rumours of a potential fuel shortage, and said the country had enough reserve fuel stocks.

“There’s no shortage of petrol, oil or diesel in the country,” Mantashe said. “It is just expensive. That is the function of the price.”

“But in terms of supply, it is available because we are not an enemy of Iran. That is what saved us. The issue is price, and that is not in our control.”

At the time of Mantashe’s comments, the Central Energy Fund reported that South Africa had around 8 million barrels of strategic crude oil reserves but no refined fuel reserves.

This equated to only around two weeks worth of potential fuel, well under the legally mandated requirement of at least two months of strategic fuel supply held in reserve.

Since then, it has been unclear whether South Africa’s reserve fuel stockpiles have been bolstered or not, leaving many still concerned about potential fuel shortages.

Now, with the compounding effect of both the Iran war and the Russian diesel ban, those fears could find themselves realised within the near future.

“If the ceasefire fails to hold and Russia’s ban extends past 31 July, expect a sharp upward correction in the August Basic Fuel Price, with diesel moving more than petrol,” the CRA warned.

“Transport, logistics, mining and commercial agriculture will feel this first. That Russia will start importing fuel in July suggests Moscow expects the domestic shortage to persist beyond its own refining recovery.”