Chief Economist at PSG Financial Services, Johann Els

What it means for South Africa

The recent escalation in the Middle East has reintroduced a geopolitical risk premium into global markets, as investors price in the chance of supply disruptions and wider regional instability. For South Africa, the transmission channel is primarily through oil prices rather than direct trade exposure, since the country is not a major direct exporter to the Gulf and has limited investment linkages to the affected region. This means the impact will be felt more via imported fuel costs, inflation, and the external balance than through direct balance‑sheet shocks to South African companies or banks.

Oil prices: The key risk channel

For South Africa, the main economic impact of the conflict is likely to come through higher oil prices. Oil accounts for roughly 18% of the country’s imports, meaning that a sustained rise in crude would feed through into domestic fuel costs and, in turn, the broader cost of doing business.

• ‍Fuel Price Pressure – Higher crude prices push up the petrol and diesel bench price, which filters through transport, logistics, distribution, and ultimately consumer-facing sectors. This can feel like an added “tax” on households and corporates, particularly if elevated prices persist for several months. ‍
• Impact on Headline Inflation – With fuel embedded in transport and many services, higher oil prices tend to lift headline inflation even if underlying inflation pressures are moderating. This could temporarily push inflation closer to, or above, the South African Reserve Bank’s upper target band. ‍
• Trade Balance Effects – Rising oil import costs, combined with slowly growing export volumes, can weaken the trade balance component of the current account, placing short-term pressure on the rand. ‍
• Monetary Policy Implications – If inflation expectations drift higher and the exchange rate softens, the South African Reserve Bank may need to adopt a more cautious approach to interest-rate cuts, even if economic growth remains modest. ‍
• Offset from Higher OPEC Production – Higher OPEC output is likely to ease some of the upward pressure on oil prices. Several Gulf producers have signalled a willingness to increase supply if needed, which should help limit both the magnitude and duration of any spike — unless the conflict escalates materially and directly disrupts key shipping chokepoints such as the Strait of Hormuz.

That said, higher OPEC production is likely to ease some of the upward pressure on oil prices. Several Gulf producers have signalled a willingness to increase output if needed, which should help limit both the magnitude and duration of any spike, unless the conflict escalates materially and disrupts key shipping chokepoints such as the Strait of Hormuz.

The important offset: Strong commodity prices

The impact of the conflict is not one-sided. Elevated geopolitical tension typically supports gold and other precious metals, which form a meaningful part of South Africa’s export basket. Gold is especially sensitive to safe-haven demand, while platinum group metals (PGMs) often track risk-off sentiment and industrial cycle expectations.

Stronger gold and PGM prices can have several stabilising effects:

• ‍Support export earnings – Higher rand-denominated export prices for gold and PGMs directly boost revenue for mining companies and, indirectly, tax receipts for the fiscus. This helps cushion the economy from more expensive oil imports. ‍
• Help cushion the current account – Improved terms of trade, where export prices rise faster than import costs, can stabilise or even improve the current account balance, reducing vulnerability to external funding shocks. ‍
• Partially offset higher oil import costs – In effect, the economy benefits from a partial “automatic stabiliser”: higher revenues from key exports help mitigate the impact of more expensive fuel imports.

This terms-of-trade buffer reduces the net macroeconomic impact for South Africa compared with a scenario in which commodity prices were weak or falling.

Risks and likely path

The key downside risk is a significant escalation, particularly if major oil supply disruptions occur, for example through attacks on key export infrastructure or shipping routes. In such a scenario, oil prices could rise sharply, placing additional pressure on inflation, real incomes, and corporate margins, with a more pronounced impact on growth.

That said, there is strong global economic and political incentive to prevent a prolonged disruption. Major oil consumers, central banks, and key producers all have an interest in avoiding a sustained price spike that could derail fragile global growth. From a base-case perspective, and consistent with market behaviour in past episodes, the most likely outcome is that the conflict remains relatively short-lived, with oil prices gradually easing as tensions subside and supply normalises.

South Africa is better positioned

South Africa is now in a considerably stronger position to withstand global shocks than a few years ago, thanks to a combination of policy adjustments and market-driven improvements. Fiscal consolidation has strengthened credibility, with authorities taking meaningful steps to stabilise debt-to-GDP ratios and reduce the primary deficit. These measures have anchored long-term expectations, boosted investor confidence, and lowered the risk of sudden funding crises. Public debt growth has slowed, and the government’s medium-term fiscal framework is more credible than during the peak of post-2020 fiscal stress, giving policymakers greater flexibility to respond to shocks without jeopardising market confidence.

Inflation expectations are also better anchored. Following the sharp spike after Covid, both headline and core inflation have moderated, while the South African Reserve Bank has maintained a credible inflation-targeting framework, reinforcing confidence that inflationary pressures will remain contained. At the same time, the external position is more balanced. The current account deficit has narrowed as mining exports have held up and imports have moderated, reducing vulnerability to sudden capital flow reversals and supporting a more stable currency outlook.

While a temporary rise in inflation is possible if oil prices remain elevated, the macroeconomic framework today is far more resilient than in past episodes.  

Bottom line

While some near-term inflation pressure is possible, particularly if oil prices remain elevated, any delay to interest-rate cuts would likely be tactical rather than structural. Geopolitical shocks typically introduce volatility rather than lasting economic damage, and market history suggests that initial reactions are often sharp but tend to stabilise as uncertainty clears and outcomes prove less severe than feared.