Sasol shares dropped the most in five years on Tuesday, with oil prices falling further as investors assessed the conflict in the Middle East.
After an initial rise of 3% following US air strikes on Iranian nuclear sites on Monday, oil prices retreated sharply amid hopes for a ceasefire between Israel and Iran, only to face renewed uncertainty as the fragile truce collapsed on Tuesday morning.
The ceasefire agreement, announced by US President Donald Trump, was aimed at bringing an end to the 12-day conflict, with a phased halt to hostilities allowing both sides to finalise their military missions. However, the truce unravelled within hours when Iran launched missile attacks on Israeli cities, causing civilian casualties. Israel responded with air strikes on Iranian targets and declared the ceasefire void.
Still, global markets showed composure, with oil prices settling at about $67 per barrel.
While geopolitical tension often sparks fears of energy supply shocks and inflation, recent market behaviour suggests a more nuanced outlook, according to Schroders, a multinational asset manager. Markets appear to be reacting to headlines, but reassessing risks once the immediate threat to critical infrastructure seems limited.
The market’s muted response was due to several factors, including the measured nature of the military actions, which did not target oil infrastructure and did not result in disruption to energy flows, according to analysts at Schroders. Additionally, the global oil oversupply at present had seen some stability return to the markets.
“The global economy enjoys a healthy oil surplus, which helps keep prices in the mid to low $70s, a historically moderate range,” said George Brown, senior economist at Schroders. “Despite the events of recent days, there has not yet been any significant disruption in oil flows from the region.”
Schroders fund manager for energy Malcolm Melville said the market has already factored in a 20% risk premium due to potential future disruptions in supply. “With no short-term supply disruption and this additional risk already priced in, the market remains relatively stable for now.”
Regenesys Investment Fund chief economist Annatjie van Rooyen attributed the calm in the markets to the ceasefire and the reduced likelihood of Iran disrupting oil shipments through the critical Strait of Hormuz. As a result, the risk premium previously embedded in oil prices had begun to dissipate.
“This has triggered a broad-based relief on the JSE, with the majority of stocks experiencing gains as market sentiment improves,” Van Rooyen said. The lower Brent crude price boded well for moderating inflation, she said.
“However, safe-haven stocks and Sasol are bucking the trend, with Sasol selling off aggressively due to the decreased likelihood of oil supply disruptions”.
By market close Sasol’s share price had slumped 14.79% to R80.96, the biggest one-day fall since early June 2020, when the world was still locked in the grip of the pandemic.
The Strait of Hormuz sees about one-fifth of global oil supply passing through its waters daily, with Iran having repeatedly threatened to close it in response to Western pressure. It has, however, never acted on these threats.
Analysts from Schroders believed concerns over the strait may be overstated. They said closing it would require aggressive action against international shipping, risking further isolation for Iran and potentially drawing other powers into a wider conflict.
“Moreover, the strait is a wide channel of international waters, making a complete closure highly challenging in practice. Most of the oil transiting the strait originates from Iran’s neighbours, and any disruption would have significant global repercussions — something Iran is likely to avoid unless pushed to extremes,” Melville said.
In addition to the geopolitical risk, investors were also closely watching the potential effect of oil prices rising again on inflation. Schroders believed the threat was contained for now.
“Historically, a material inflationary threat typically only emerges when oil prices rise by 50% or more,” Brown said. “This would require Brent prices to move above $100 per barrel, which would need to happen before we see a pronounced impact on energy inflation rates,” Schroders said, adding that according to their analysis, every 10% rise in oil prices added just 0.1% to wider inflation.
By 6.45pm Brent crude was down 6.11% to $67.11 a barrel.
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