The war in the Middle East will put pressure on South African Reserve Bank governor Lesetja Kganyago later this month.
Image: ChatGPT
The ongoing war, with spillover effects on the rand and oil markets, has some analysts pricing in a 0.25 percentage point interest rate hike later this month.
The currency has come under pressure as escalating tensions in the Middle East push investors towards safer assets such as the US dollar and away from emerging market currencies.
Trading Economics said the rand was approaching its weakest level since mid-December 2025 as hopes for a quick resolution to the conflict fade. In mid-afternoon trade, the local currency was at R16.65.
“Ongoing missile exchanges between the US, Iran and Israel raise concerns that the conflict may persist, leaving South Africa particularly exposed due to its heavy reliance on imported oil and petroleum products from the region,” it said.
At the same time, global oil markets have been shaken by disruptions to supply routes in the Middle East.
Trading Economics said Brent crude oil futures surged more than 10% to above $100 a barrel on Monday, after earlier rallying by as much as 29% amid production cuts from major Middle Eastern producers following disruptions in the Strait of Hormuz.
With tanker traffic heavily restricted and exports backing up, Trading Economics said several major producers had begun curbing output as storage facilities rapidly filled.
Trading Economics said Saudi Arabia had reportedly started cutting production, joining the United Arab Emirates, Kuwait and Iraq in reducing supply.
The disruption has intensified concerns about global energy shortages and inflation pressures. Prices briefly approached $120 before retreating as leading economies from the Group of Seven considered releasing emergency oil reserves to calm markets, the commodity tracking website noted.
South Africa imports most of the crude oil and refined fuel it consumes, meaning global oil prices and the rand-dollar exchange rate play a central role in determining local fuel costs.
Fuel prices in South Africa are adjusted once a month based on a formula that reflects global oil prices and the rand exchange rate against the US dollar.
When oil prices rise at the same time as the rand weakens, the impact on local fuel prices is amplified because import costs increase in dollar terms and again when converted into rand.
The current ‘best case scenario’ from the Central Energy Fund predicts a petrol price spike of R2.41 per litre, while diesel prices could soar by R4.50 for the 50ppm variant.
Market commentators say that combination is one of the main reasons economists are watching global energy markets closely as the Middle East conflict unfolds.
Annabel Bishop, chief economist at Investec, said global markets had shifted into a risk-off environment as the conflict intensified.
“The risk is for further rand weakness with the US dollar a safe haven now, running stronger on the severe escalation in geopolitical tensions in the Middle East,” Bishop said.
Bishop added that “safe haven flows on substantial global financial market risk aversion, from the intensifying US/Iran/Israeli war, have strengthened the US dollar and gold price as usual, with outflows from risky assets such as equities and those of emerging markets”.
Oil prices have shot up to $100 a barrel.
Image: Trading Economics
A sustained rise in oil prices could also feed through into broader inflation if higher transport and input costs begin filtering through the economy.
Fuel is a key cost in almost every stage of the supply chain, from transporting raw materials to distributing finished goods to retailers. When transport costs rise, companies often pass those increases on through higher prices for consumers.
That means rising fuel costs can eventually affect everything from grocery prices to airline tickets.
Agriculture is particularly sensitive to energy costs because fertiliser production and farm transport rely heavily on oil and gas. Higher shipping costs and energy prices can therefore add pressure to global food prices as well.
Bishop said oil prices of about $110 per barrel or higher, combined with a weaker rand – which she noted is not the expected case – could push consumer inflation above 4% year-on-year in the second quarter of 2026.
“The oil price shock would likely be looked through by the MPC if short-lived, and without second round effects flowing into other prices, leaving interest rates unchanged, but higher food and other prices would increase the chance of a hike.”
Trading Economics noted that “these developments may prompt the South African Reserve Bank to take a more conservative approach to monetary policy and keep rates on hold at the upcoming meeting later this month. Some analysts are pricing in the possibility of a 25-basis-point hike.”
The rand is under pressure as people move money out of emerging markets.
Image: Trading Economics
Andre Cilliers, currency strategist at TreasuryONE, said markets remained highly sensitive to developments in the Middle East as concerns grow about potential disruptions to global energy supply.
One of the biggest risks markets are watching is the Strait of Hormuz, a narrow shipping channel through which roughly one-fifth of the world’s oil supply passes.
“Until there is clarity on the duration and scale of the conflict, markets are likely to remain volatile with investors favouring defensive positioning,” Cilliers said.
For South Africa, the direction of the rand and global oil prices will remain key factors in determining whether the geopolitical tensions translate into higher costs for consumers in the months ahead.
IOL BUSINESS