An Israeli attack on Iran overnight sent oil prices rocketing to $78.50 a barrel early on Friday morning — a jump of 13% — prompting warnings of a July fuel price hike and renewed pressure on inflation.
Concerns are mounting that the incident could trigger a broader conflict in the Middle East — a region central to global oil and gas flows.
Though prices eased to about $74 later on Friday, economists said the geopolitical shock had added fresh uncertainty to SA’s inflation outlook.
Independent economist Elize Kruger said motorists should brace for a potential reversal in the recent trend of falling fuel prices.
While the lower oil price in recent weeks softened the effect of the fuel levy increase, renewed upward pressure could undo that benefit.
“If sustained at these elevated levels, motorists in SA can expect an increase in fuel prices in early July, after four consecutive months of price declines,” she warned, adding that increases could likely be between 30c/l and 50c/l.
Kruger warned that higher pump prices would likely feed into July’s inflation rate, raising the base for the second half of the year.
On Friday, Sasol’s share price surged more than 10% during intraday trade — its strongest rally in over a year — as the spike in oil prices buoyed the petrochemical group. The stock outperformed the broader market, which came under pressure as investors weighed the effect of rising geopolitical tension.
Old Mutual chief economist Johann Els said the situation injected significant uncertainty into both the inflation and interest rate outlook.
The Reserve Bank’s monetary policy committee is due to announce its next interest rate decision on July 31.
However, Els said much depended on how long the conflict lasted and whether there was any escalation.
A swift de-escalation could see oil prices settle below $70 again, limiting the economic fallout, he said.
“I think there will be lots of pressure from Europe and from the US on Israel to stop this as soon as possible. There will also be pressure to make sure that it doesn't escalate into a wider Middle East conflict.”
Els warned that a broader regional conflict could send oil prices surging to $130–$150 per barrel, albeit temporarily.
“Because inflation is a year-on-year base effect type thing, oil prices will fall (again). That creates much more volatility in inflation globally and in SA, and in interest rates.
“Central banks — including our own Reserve Bank — will be cautious. I still think there’s an opportunity for rates to be cut in July, but it will clearly depend on how things unfold over the next few weeks.”
Els said a July fuel price increase now seemed likely, noting that even a moderate hike could push his inflation forecast for the month from 3% to 3.1%-3.2%.
He said inflation could still remain mild for the rest of the year, provided oil prices calm down.
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