MAMOKETE LIJANE | SA’s fiscal health in the balance

The war in Iran is likely to have a lingering negative effect on South Africa’s economy and make policymakers’ lives more difficult, even if some resolution is found in the next few weeks.

South Africa’s debt burden renders the country highly vulnerable to external shocks and an external growth problem, which could arise due to the oil price and global geopolitical shock. The Treasury will have to hold the line in balancing priorities for this shock to remain contained.

Oil prices have risen about 50% since the war started at end-February. The reopening timeline for the Strait of Hormuz remains uncertain, but many expect shipping in the Gulf to be restored and oil prices to correct within weeks. Polymarket, a betting platform, puts the odds of the Strait reopening before end-May (three months from the beginning of the conflict) at 50%.

All acknowledge that the current oil price, if sustained, will be a profound negative shock to the global economy. However, markets still reflect an expectation that oil flows out of the Persian Gulf will be restored and that prices will decline to pre-war levels. However, the decline in oil prices will not return the global economy to its pre-conflict status.

The global economy has been subject to material shocks in the post-Covid-19 era. The effects of the oil and food price shocks from Russia’s invasion of Ukraine in 2022 were felt into 2023 and 2024. Donald Trump’s tariffs negatively affected the globe in 2025, and trade policy uncertainty has permanently reset higher.

This war will be yet another shock to digest, and will weigh on demand in the months ahead. The IMF has forecast that global growth will average 3.1% this year, down from 3.8% in 2022, which is mediocre by historic standards. Even before the US adventure in Iran, growth in China was expected to decelerate, and the US showed some fragility.

A global growth shock, which we think this incident will turn out to be, undermines the virtuous economic cycle that has supported positive sentiment in South Africa’s economy in the past few months. Growth, fiscal policy, interest rates and the currency were reinforcing positivity.

It was easy to see the rand stronger, interest rates lower and growth higher this year and next. Commodities had performed outstandingly in the past 18 months, largely due to higher gold and platinum prices. Precious metals prices might remain high in the coming months, especially gold, which will maintain its premium given the heightened geopolitical risks.

However, these are a subset of the commodities South Africa mines and exports. Prices of other commodities, such as iron ore and coal, are more dependent on global growth and will suffer if demand is eroded. This is a problem not just for the currency but also for equities and government bonds.

Finance minister Enoch Godongwana will have to find the extra money somewhere as tax revenues come under pressure. Alternatively, he could allow the country’s debt burden to rise, leading to higher bond yields and lower investment.

At the Reserve Bank, governor Lesetja Kganyago will have to stop cutting rates at a minimum, undermining the monetary policy we expected would support investment and households in the months ahead. The nascent employment improvement is likely to stall and confidence will sag.

How South Africa’s policymakers navigate this shock will be important. Treasury officials thought they were entering a benign few years after wrestling with competing demands on the fiscus in the past few years.

The trade-off tightrope they had been straddling, attempting to balance borrowing, expenditure and revenues, was at its most obvious with the thrice-tabled budget in 2025. Fiscal space emerged last year, from multiple reinforcing sources including higher commodity prices, lower bond yields, and expectations of eventual uplift in growth.

This shock could unwind that breathing room.

• Lijane is global markets strategist at Standard Bank CIB.