CLARENCE TSHITEREKE | Rising oil prices could derail South Africa’s economic growth

South Africa’s fragile economic recovery has run into a familiar headwind: a sharp rise in global oil prices.

The recent surge in global oil prices, with Brent crude rising to more than $115 per barrel on March 9 before dropping to around $85/bbl yesterday, poses a significant threat to South Africa’s nascent economic recovery and stability.

The flare-up of geopolitical risk in the Middle East, especially the escalating Israel/US–Iran confrontation and disruptions to shipping in the Strait of Hormuz, has imposed a heightened risk premium on global energy markets.

With 20%–25% of global oil exports and about 20% of liquefied natural gas flowing through the Strait of Hormuz, the disruption to supplies is cause for concern.

Cost of fuel

Fuel is one of the economy’s most pervasive input costs, and when the Brent crude price spikes, the effect ripples quickly. As a net fuel importer, the consequences for South Africa are immediate and multi-layered: transport companies pay more to move goods; producers face higher energy and logistics bills; households see discretionary incomes squeezed.

That dynamic is now visible again, as the latest oil surge will fan inflation just as economic growth is projected to limp along from a little over 1% in 2025 to 1.6% in 2026.

The inflation impulse is particularly concerning because it can spill into broader price categories: transport and energy most immediately, and then diffuse into food and manufactured goods via higher logistics costs.

The department of mineral & petroleum resources adjusts fuel prices monthly based on international oil, product and freight prices and the rand-dollar exchange rate. In early March the department announced an increase of 20c/l for petrol and up to 65c/l for diesel.

While the absolute increases may appear modest, they land on top of cumulative pressures in other essentials, compounding the cost-of-living squeeze for consumers and further tightening margins for small and medium enterprises.

Prudent projections for April suggest a concerning under-recovery, with potential price hikes of R2.41/l for petrol and up to R4.50/l for diesel, all due to the escalating Middle East conflict. At the extreme, an increase of up to R8/l has been forecast if Brent crude breaches the $100/bbl level again and stays there.

Inflation risk

The oil price spike threatens to push inflation above the South African Reserve Bank target midpoint of 4.5%, reversing the gains of 2025 when inflation averaged just 3.2%.

Following the Bank’s split decision in late January to keep the main lending rate unchanged at 6.75% due to a projected fall in inflation, the Bank will have to revise its risk scenarios ahead of the March 26 interest rate decision. The current scenario only accounted for oil at $75 per barrel and a projected weakened rand at R18.50 to the dollar — but the rand has recently strengthened to R16.17 to the dollar.

The Bank’s credibility rests on its willingness to lean against inflation risks, even those sparked by exogenous shocks when they threaten to unmoor expectations and opportunities.

With an oil price over $100/bbl, the Bank would be forced to delay easing and instead consider the inevitability of interest rate hikes. A triple-digit dollar oil price would scramble the Bank’s projections as higher fuel costs remove inflation fetters and drive up logistics and transportation costs, which typically pass through to food and retail prices at the till. This scenario is now no longer distant.

From an investment perspective, past performance is not necessarily indicative of future results. The challenge is that monetary policy cannot pump more oil or reopen shipping lanes.

What it can do is prevent a terms-of-trade shock from metastasising into a general inflation spiral via wages and administered prices. That puts an even greater premium on fiscal and structural levers, particularly those that reduce administered cost pressures and improve logistics, to avoid leaving the Bank as the lone firefighter.

If the war persists and Hormuz-related shipping disruptions endure beyond a few weeks, the budget assumptions will necessarily require reassessment.

Finance minister Enoch Godongwana’s February budget struck a cautiously optimistic tone: debt stabilisation for the first time in two decades and a marginally narrower deficit, with scope to refocus resources on infrastructure and growth. There is no doubt that a prolonged or intensifying Middle East conflict will impose revisions to the fiscal framework.

As a country, we primarily borrow in rand, which insulates us from some currency mismatches, but we remain exposed to risk sentiment and domestic inflation dynamics that determine bond market pricing.

At a basic level, the Treasury’s recent budget improvements were premised on a benign external environment. If the war persists and Hormuz-related shipping disruptions endure beyond a few weeks, the budget assumptions will necessarily require reassessment.

In an ideal world a commodity upswing would function as a partial offset. Indeed, periods of geopolitical stress often see gold and certain metals rally. South Africa’s commodity complex, gold in particular, can soften the blow from oil, at least at the margin.

Double-edged sword

The current cycle shows that double-edged sword again: while oil inflates costs and undermines real incomes, elevated gold prices can improve mining revenues and the external account.

Energy-linked firms such as Sasol may also see improved top lines with higher global energy benchmarks, though feedstock, hedging strategies and operational constraints complicate the net effect.

The rand matters immensely in the pass-through from crude to pump prices. Yet the currency’s relationship with oil is neither stable nor exclusive. Dollar strength, global risk appetite, domestic politics and growth expectations often dominate day-to-day moves.

Even so, when South Africa’s import bill swells due to pricier oil, the trade balance deteriorates, and the currency can weaken at the margin, further amplifying domestic fuel inflation.

South Africa cannot meaningfully influence international oil prices, but it can blunt the domestic impact of oil shocks. Three pragmatic priorities stand out:

• Stabilise logistics and power. A functioning freight system and more reliable electricity reduce the economy’s fuel intensity per unit of output. That lowers the inflation multiplier of any given oil shock and protects tradable sectors’ competitiveness.
• Targeted relief where it counts. Blanket fuel-tax holidays are blunt and expensive. Instead, time-bound, targeted support (for example, temporary transport subsidies for low-income commuters or working capital relief for SMME logistics operators) can cushion the blow without eroding fiscal anchors. Any such measures must be transparent, capped and sunset-dated to preserve credibility.
• Accelerate local energy diversification. Over the medium term, scaling local refining resilience where commercially viable, expanding sustainable aviation fuel trials and accelerating electric mass transit can shave demand growth for imported petroleum products. These are multi-year plans, but every incremental gain reduces vulnerability when geopolitics turns hostile.

The bottom line is that oil shocks are classic “no-one’s-fault” recessions waiting to happen. They sap real disposable income, compress margins and strain policy settings without delivering corresponding domestic benefits. South Africa’s best defence is execution: stabilising logistics and power, maintaining fiscal discipline and protecting the Reserve Bank’s credibility.

If these pillars hold, the economy can weather a volatile 2026 with fewer scars. If they falter, the current oil price could derail economic recovery just as the momentum begins to build.

• Dr Tshitereke, an honorary professor at Unisa’s Thabo Mbeki School of Public & International Affairs, is chief of staff at the mineral & petroleum resources ministry. He writes in his personal capacity.