Industry leaders and investors are on tenterhooks as the conflict between the US and Iran unfolds, with many fearing a protracted war could trigger multiple oil price spikes in the coming months.
Discovery CEO Adrian Gore said the impact of the conflict will depend on whether there is a swift resolution.
“If it is a protracted war and oil prices start to spike — and they are already up — that may hit markets. I think if it is resolved quickly, it will be manageable,” he said. “If it isn’t, I think emerging markets like ours will feel pain that could manifest in weaker currencies, rising inflation and rising interest rates. However, I think fundamentals are good; I think we are positioned to manage that.”
Nedbank CEO Jason Quinn said it is too early for detailed forecasts.
“If this is prolonged, the effect on oil and oil supplies will be felt,” he said. “For now, we think it is manageable because there are significant stockpiles of oil ... and a lot is produced in other areas. [If] inflationary pressures grow that could impact South Africa, [that could] put the SARB [South African Reserve Bank] target range under a bit more pressure”.
Speaking on the sidelines of the Africa Energy Indaba in Cape Town this week, mineral & petroleum resources minister Gwede Mantashe told Business Times that South Africa was in a difficult position, having never fully explored or exploited its own oil and gas deposits.
The Western Cape may benefit as a stable and safe destination
— Lesego Majatladi, Cape Chamber of Commerce
“It’s not a concern, it’s a reality,” he said. “The price of oil has already rocketed, and I think that at the end of the month it will spike again. We depend on everybody because we don’t [produce our own].”
AP Moller-Maersk spokesperson for the Indian Subcontinent, Middle East and Africa region, Adhish Alawani, said vessels could still transit the Suez Canal, though some have been rerouted around the Cape of Good Hope due to suspended Red Sea transits.
“In fact, that has been the route followed by all our vessels since the Red Sea transits were halted,” he said. “The situation could affect exports from Persian Gulf countries to South Africa, and we would expect these to be mainly energy exports, not goods on container vessels.”
Woolworths CEO Roy Bagattini said the company’s various segments will be affected differently. While more than 90% of food products were sourced locally through exclusive supplier relationships, indirect costs and oil price volatility were a concern.
“We could see upward pressure on carrier and container costs, congestion at ports impacting container availability, and delivery delays,” he said. “Shipping lines are already rerouting around the Cape of Good Hope. While this hasn’t officially hit us yet, it could do so if things continue to escalate.”
Bagattini said sustained oil price increases would affect inflation and interest rates, and subdue consumer confidence.
Lesego Majatladi, vice-chair of the Cape Chamber of Commerce’s tourism and hospitality portfolio committee, said disrupted routes could cause travellers to reconsider long-haul trips, particularly via Dubai, an important global hub. “However, the Western Cape may benefit as a stable and safe destination.”
Exporters Western Cape chair Terry Gale said the Middle East and the UAE in particular were a growth market for Western Cape fruit, and called for close engagement between the government and industry to mitigate risks.
“The immediate challenge is what happens to containers that are already on the water or in transit,” he said.
About 13-million barrels of crude oil transit this chokepoint every day — that is 31% of all global seaborne crude flows. Iran has already demonstrated its willingness to weaponise this geography
— Bianca Botes, Citadel Global director
Gale said insurance would not cover delays caused by an act of war. “The hope is for a quick resolution so business returns to normal. The Middle East has become a new market for our fruit exports and is well-served by the lines that have now come to an abrupt halt.”
Bianca Botes, director at Citadel Global, noted that the Strait of Hormuz between Iran and Oman was about 33km wide at its narrowest point.
“About 13-million barrels of crude oil transit this chokepoint every day — that is 31% of all global seaborne crude flows. Iran has already demonstrated its willingness to weaponise this geography," she said.
“During the previous round of talks in February, Tehran briefly halted traffic, citing security precautions. This was not an accident; it was a message. Brent crude spiked to a six-month high of $71 a barrel on the back of that move alone.”
Botes outlined four scenarios for the conflict:
- Limited strikes where oil rallies 8%-10% but stabilises within two weeks, and Iran rebuilds as the world returns to where it was before;
- Full military degradation, where Iran’s retaliation includes closing the Strait, strikes on Gulf state infrastructure, and Axis of Resistance activation across Lebanon, Iraq and Yemen, pushing Brent past $90 a barrel. A conflict of this scale would introduce a sustained period of geopolitical risk that markets had not yet priced in;
- Full regime destabilisation in Iran, with long-term recovery that could take decades; and
- A political deal and Iranian crude re-entering global markets in volume for the first time in years, a scenario oil bulls do not want but the global economy arguably needs.
“Brent is hovering around $70 a barrel heading into the weekend ... Omani mediator optimism offers a flicker of hope, but the structural gap between US and Iranian positions has not narrowed enough for confidence,” Botes said. “Early March has been flagged by multiple analysts as a potential escalation window if talks stall.
“For now, watch the Strait, watch the carrier strike groups positioned in the Arabian Sea, and watch the tone from [US special envoy to the Middle East Steve] Witkoff carefully. Because, when the language shifts from diplomatic to declarative, oil will move before the headlines.”
Sanisha Packirisamy, chief economist at Momentum Investments, said (at the time of writing, March 2) financial markets faced three broad scenarios, largely differing in duration and scale but all carrying some inflationary implications.
“In the base case, retaliation remains calibrated. Missile exchanges are likely to continue, but without attacks on critical Gulf energy infrastructure or an extended closure of the Strait of Hormuz. In this scenario, Washington and Jerusalem would declare strategic objectives met, and Tehran would manage a transitional leadership arrangement without a regime collapse.”
She said the international price of oil would bear the first and clearest imprint of escalation, with a risk premium of between $10 and $20 a barrel, likely pushing Brent crude oil prices into the $80-$90 a barrel range.
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