As South Africa sees a positive change and stability to the fuel price and the repo rate, the escalation of warfare in the Middle East — if further intensified — could reverse the benefits, say economists.
Just last month, the South African Reserve Bank cut the repo rate by 25 basis points to 8%. This improved the prime lending rate to 11.5%. This week a decrease in fuel prices was announced, and this is bound to give motorists relief.
On Tuesday, Iran reportedly fired almost 200 ballistic missiles, targeting Israel’s military bases. The tension in the region stems from the continued occupation of the Gaza Strip by Israel, the attack that was instituted on October 7 last year by Hamas on Israel, to the assassinations of leaders in the region by Israel.
Last week, Israel allegedly assassinated Hassan Nasrallah, a Hezbollah leader. Three months ago a Hamas leader, Ismail Haniyeh, was also allegedly killed by Israel in Iran.
After the attack on Tuesday, Iranian foreign minister Abbas Araghchi took to X to claim responsibility for the attack, saying they were exercising their right to self-defence and had exercised restraint, but the provocation by Israel warranted the attack on Tuesday.
It can reverse the benefits we have seen in terms of the inflation rate, thus making the cost of living higher for the general consumer. If the likes of Iran are full on in the war it could have implications on the oil prices.
Araghchi said they were mainly targeting “military and security sites in charge of genocide in Gaza and Lebanon.
“We did so after exercising tremendous restraint for almost two months, to give space for a ceasefire in Gaza. Our action is concluded unless Israeli regime decides to invite further retaliation. In that scenario, our response will be stronger and more powerful,” Araghchi posted.
Meanwhile, the US — an ally of Israel — said it supported them and that there would be “severe consequences” for the attack, said American national security adviser Jake Sullivan. He also criticised the attack and said it was “ineffective”.
However, if the situation escalates further, it could have a knock-on effect on the South African economy.
According to Isaah Mhlanga, chief economist at Rand Merchant Bank , the main risk is a broadening of the conflict to a regional war that could disrupt oil markets, among others, which will increase the price of oil and therefore fuel prices in South Africa and other oil-importing countries.
“It can reverse the benefits we have seen in terms of the inflation rate, thus making the cost of living higher for the general consumer. If the likes of Iran are full on in the war it could have implications on the oil prices,” said Mhlanga.
Iran is a major oil producer and “during a war such as this its oil infrastructure could be destroyed”, thus affecting the supply chain.
“The other risk is an increase in risk aversion, which will lead to capital flight from emerging markets including South Africa. This weakens the rand and increases the cost of our imports, including oil. The ripple effects will show up in less moderation in inflation and shallower interest rate cuts than we currently expect,” said Mhlanga.
Dawie Roodt, chief economist of the Efficient Group, said though the oil price had not increased rapidly yet, there is uncertainty that could be brought by the war.
“I expected the oil price to be much higher by now, but it’s not. That was something that came as a surprise to me. This will potentially impact the oil price and inflation in South Africa and can eventually affect things like the Reserve Bank's decision on repo rates.
“The rand appreciated well in the last couple of weeks. I am not too worried about that. It also affects international trade as countries might stop trading with each other,” said Roodt.
He said though it will not affect the average consumer immediately, things can change.
“It can have an impact on us in the future if the war continues and Iran gets pulled in and other countries, and the rand might be affected.
“But for that, you need a much bigger conflict involving more countries. We have seen these wars in the Middle East for many years, and it flares up and dies down, but it’s possible that this one can be the big one,” Roodt said.
On the geopolitical front, Prof André Duvenhage, a political analyst at the North West University, said the conflict has reached its tipping point and the road is closer to a developing countries’ war.
He said what is unfolding is an escalation of conflict and warfare, not only within the context of the Middle East but also concerning the Ukraine and Russia war.
“Several conflicts are going on at the moment, very recently a big conflict in China and India over a borderline, then the China-Taiwanese conflict, Japan against the Russians and the Chinese and adding North Korea to the mix. We have potentially, a very unstable situation,” he said.
The Israelis will concentrate on the weak point, they will try to sabotage in terms of e-warfare or cyber warfare.
— Prof André Duvenhage, a political analyst at the North West University
The most risky conflict, he said, was the conflict in the Middle East.
Duvenhage said he had no doubt Israel was going to retaliate. But it will be a strategic operation.
“I’m expecting them to focus on the leaders within Iran, the military, political leadership, but I see they might concentrate on military institutions and nuclear facilities. That will be the most important strategic part.
“Listening to [Israeli prime minister Benjamin] Netanyahu, when he took to the podium and told the Iranian people himself that this is not a battle against them, what I am picking up is that the Iranian government is very vulnerable due to several factors. They have several years of sanctions against them, women protesting for basic rights, and there has been a lot of dissatisfaction against the regime in Iran.
“The Israelis will concentrate on the weak point, they will try to sabotage in terms of e-warfare or cyber warfare,” he said.
With Iran becoming involved, he says, the world may see other countries redirecting themselves.
“It’s a time when Middle East politics can be reconfigured in many ways. There will be a realignment of political forces.
“What will be interesting will be to see the Russians accepting the war. They might come and add their support. This is where the two conflicts, of Russia and Ukraine on the one side, may be connected in some way to the conflict in the Middle East.
“That could lead to a very dangerous situation,” Duvenhage said.
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