Bad news for South Africans who want to travel overseas

The ongoing war in the Middle East is expected not only to dramatically increase fuel prices for South African motorists but also to push up air travel prices.

This is due to Iran’s effective closure of the Strait of Hormuz, a key shipping pipeline for oil and refined fuels.

South Africa’s biggest airline, FlySafair, has already responded to this development, announcing a temporary increase in flight prices.

The Bureau for Economic Research’s Lisette Ijssel de Schepper unpacked the importance of the Strait of Hormuz and how its closure will affect fuel and air travel prices in the organisation’s most recent newsletter.

Ijssel de Schepper explained that the Strait of Hormuz is a narrow shipping corridor and one of the world’s most important energy “chokepoints”.

She said this corridor carries around 20% of global oil supply, with roughly 20 million barrels of oil per day transported through the Strait, mainly from Gulf producers such as Saudi Arabia, Iraq, Kuwait, the UAE and Qatar.

However, since the start of the US/Israel war against Iran, the latter has effectively closed the Strait of Hormuz by attacking cargo and oil vessels that attempt to pass through it.

Ijssel de Schepper estimated that around 16 million barrels of oil per day are currently taken out of supply by the closure of Hormuz.

However, this has not only impacted oil supply, with disruptions also affecting fertiliser inputs, petrochemicals and refined fuels.

She explained that this has raised the risk of broader supply chain and food price pressures if the war and, therefore, disruptions in the Strait of Hormuz, persist.

The impact of this can already be seen in air travel prices, with Bloomberg reporting that an economy class round-trip ticket from Sydney to London in April has surged by more than 80% in the last two weeks.

“South African prices are increasing rapidly as well,” Ijssel de Schepper said. 

South Africa’s biggest airline, FlySafair, announced on 11 March that it will implement a temporary fuel surcharge to help the airline cope with sharply higher global jet fuel prices.

“This gives customers full visibility into what they are paying for and allows us to remove the surcharge once prices stabilise,” FlySafair chief marketing officer Kirby Gordon said.

The ‘real’ pain is still coming

Ijssel de Schepper explained that South Africa is particularly vulnerable to fuel shortages, as the country is a net importer.

This means higher global oil prices feed directly into local petrol and diesel prices, with a significant price hike of around R3.70 per litre already expected for April.

However, Ijssel de Schepper said this will have consequences that extend far beyond the price motorists pay at the pump.

“Higher fuel costs push up transport, food and other consumer prices (so-called second-round effects), adding to inflation,” she warned. 

“Oil shocks also tend to weaken the rand and increase financial market volatility, amplifying imported inflation.”

She explained that oil demand responds very slowly to price changes in the short term, “meaning even small supply losses can trigger large price spikes”.

Positively, if the supply disruptions are short-lived, she said markets can often absorb the shock through stock releases, rerouted shipments, and temporary demand adjustments.

However, she warned that if the Strait remains effectively closed for months or weeks, the global supply shortfall will become increasingly difficult to offset.

“Strategic reserves are finite, and alternative export routes cannot replace most of the lost volumes,” she said. 

“A prolonged disruption would, therefore, likely keep oil prices elevated for longer, raising global inflation risks and weighing on economic growth.”

For now, she said it appears as though the oil crisis can still be contained. “But if necessary, fertilisers do not reach the farming areas at the right time of the season, harvests could fail, resulting in higher prices and shortages.” 

“While all the focus is on oil because consumers (or at least those with daily-adjusted prices) ‘feel’ it now, the real pain may still come.” 

“A rapid de-escalation remains possible, but appears to be becoming less likely.”