Pain is inevitable for South Africa

In light of the ongoing and escalating conflict in the Middle East, economic pain is inevitable for South Africa’s small, open economy.

However, this does not mean the country is without recourse, as a well-communicated, coordinated response could buffer the impact on South Africa’s economy.

So far, the government’s response has been undetailed and poorly communicated, adding to heightened uncertainty.

North West University Business School economist Professor Raymond Parsons said South Africa is already feeling the impact of the US/Israeli war with Iran, mostly due to the effective closure of the Strait of Hormuz.

This narrow shipping corridor is one of the world’s most important energy “chokepoints”, carrying around 20% of global oil supply from producers like Saudi Arabia, Iraq, Kuwait, and Qatar.

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.

Parsons explained that the protracted closure of the Strait of Hormuz could push global oil prices to $150 a barrel.

Luckily for South Africa, most of its crude oil comes from West Africa, quelling fears of widespread shortages.

However, Parsons explained that this does not mean South Africa is immune to the much higher global oil price levels that are now likely to prevail.

South African motorists are already expected to see higher prices at the pumps in April, facing a double blow of higher oil prices and the start of higher fuel levies announced in the 2026 Budget.

“Fertiliser costs are also rising for agriculture, and transport cost increases will permeate other sectors of the economy. Air fares have risen,” Parsons said.

“It is therefore not good news for either the country’s inflation outlook or growth prospects at a hitherto otherwise favourable turning point in South Africa’s business cycle.”

He explained that, as the local economy experiences a supply-side shock, “the economic pain is inevitable”.

However, Parsons emphasised that there are ways for the government to mitigate this pain, but it will require a realistic understanding of the problem and a willingness to make hard choices.

Buffering the shock

Parsons explained that South Africa requires a more coordinated policy response and better communication if it hopes to buffer the shocks that could result from the Middle East conflict.

Positively, he said South Africa has some buffers already in place in the form of an ongoing commodity boom, which has boosted precious metals prices.

“The shipping now likely to be rerouted around South Africa is also a positive development, although the anticipated 100% increase in traffic, if realised, would be a serious challenge to the country’s existing limited port infrastructure,” he said. 

“But there are also no grounds for complacency. As a small, open and highly oil-dependent economy, South Africa will now need to address the major economic vulnerabilities that exist.”

Firstly, he said South Africa must grasp the seriousness of its new economic challenges as the global energy situation deteriorates.

He pointed out that these global shocks come as Eskom’s higher tariffs are on the way, which could severely strain South Africans’ disposable income.

In addition, the global environment has made it unlikely that the Reserve Bank will continue its interest rate-cutting cycle at its upcoming meeting at the end of March, further putting pressure on South Africans’ wallets.

Secondly, Parsons said the country must steadily mobilise whatever policies and measures are required to mitigate the impact of the global shock, or be prepared to eventually adjust economically.

Luckily, he said the government has indicated what initial steps it plans to take in the case of rising costs and other supply-side disruptions, though details have been lacking.

“This overall information is now important to promote public understanding and confidence, and to secure balanced decision-making in coping with the new international energy situation,” he said.

“Yet these official plans have so far gained little traction in the public domain, partly owing to their ad hoc nature, partly because of a lack of coordination in implementation, and partly due to inadequate communication.”

He explained that an action-oriented agenda could range from issues such as an update on the role of South Africa’s strategic oil reserves to how the poor can be shielded against higher living costs.

It could also include an indication of whether the higher fuel levy and carbon taxes, set to take effect at the start of April, could be postponed.

Regardless, he said that whatever remedies the government contemplates must be embodied in a cohesive national statement or programme to minimise uncertainty.

“In present circumstances, economic preparedness and clear communication are as important as the policies themselves,” he said.

“A visible ‘game plan’ of appropriately designed support measures would help to soften the immediate shock to the economy.” 

“It would also buy time in the face of the persistent uncertainties that still need to unravel in the months ahead.”