Petrol could jump to R26/l if global oil prices stay above $100 – economist
Chief economist at Econometrix, Azar Jammine, says South Africans could face a sharp rise in fuel prices if global crude oil prices remain above $100 a barrel amid escalating tensions in the Middle East.
Global oil markets have surged in recent days, with Brent crude climbing above $100 per barrel for the first time since 2022 amid concerns that the ongoing conflict involving Iran could disrupt supply routes, particularly through the strategic Strait of Hormuz.
Speaking to Jacaranda FM Newswatch, Jammine warned that sustained high oil prices could have a dramatic effect on local fuel costs.
"At the moment, the price of fuel in South Africa is just over R20 a litre. If the price of oil were to stay where it is now, the price of petrol could go up to around R26 a litre, which would be a massive increase for motorists and businesses alike.
"That kind of jump in fuel prices would place enormous pressure on household budgets because transport costs filter through to almost every other part of the economy. It would also raise costs for businesses that depend on logistics and distribution, which ultimately gets passed on to consumers."
The oil price surge comes after military tensions escalated in the Middle East, with US President Donald Trump defending the war effort amid growing concerns about the global economic consequences.
Oil prices may take time to fall
Jammine cautioned that even if the conflict subsides, oil prices may not fall as quickly as they have risen.
"It is possible that the price could fall back quite quickly, but one needs to bear in mind that part of the reason why the price of oil has risen so steeply is because major oil producers have limited storage capacity.
"If they are unable to ship their oil through the Strait of Hormuz, they end up with surplus oil that they cannot easily store, so they have had to cut back production quite dramatically."
He said shutting down oil production facilities creates another challenge when markets stabilise.
"Once a lot of production facilities have been closed, restarting them again later is not an overnight process. It can take time to get those facilities operating at full capacity again, which means supply may remain constrained even after the conflict eases."
Because of this, Jammine warned that global markets should not assume oil prices will return to previous levels immediately.
"So even if the Strait of Hormuz opens again and shipping resumes, one cannot be certain that oil prices will fall back as rapidly as they have risen. It could take several months for the market to stabilise."
Global tensions create uncertainty
Jammine said the current geopolitical situation makes it difficult to predict how long the price pressures will last.
"Unfortunately, I think it is a bit of a waiting game at the moment. The geopolitical environment is extremely tense, and it does not appear as though negotiations are likely in the near future."
READ: Trump defends Iran war decision as oil soars above $100
He said the political situation in Iran suggests that diplomatic solutions may be limited.
"With the new leadership in Iran, it seems unlikely that they will immediately return to the negotiating table. What we may be seeing instead is a prolonged confrontation that could drag on for quite some time."
According to Jammine, the conflict could also have political consequences beyond the Middle East.
"It could have fairly significant political repercussions around the world, including in the United States, where ordinary consumers may soon be confronted with sharply higher fuel prices, which often becomes a major political issue."
South Africa vulnerable to global shocks
Jammine also highlighted South Africa’s reliance on imported oil as a major weakness during global supply disruptions.
"South Africa has many natural resources that it can export, but one of the key commodities that we do not have in any meaningful supply is crude oil.
"That means we are heavily dependent on imports to meet our fuel needs, which makes the country very vulnerable whenever there are disruptions in global oil markets."
He added that the closure of several local refineries in recent years has further reduced the country’s ability to buffer itself against supply shocks.
“Unfortunately, many of the refining facilities that could previously process crude oil domestically and provide a more stable internal fuel supply have been shut down over the last few years. That means we have even less capacity to absorb shocks in the global market."
Inflation and interest rates at risk
Beyond fuel prices, Jammine warned that persistently high oil prices could push inflation higher and limit the chances of interest rate relief.
"If oil prices remain at these elevated levels, the inflation rate in South Africa could rise to around 4.5 per cent from its current level of roughly 3.5 per cent.
"That kind of increase would effectively eliminate any possibility of further interest rate cuts in the near future, because the Reserve Bank would need to keep inflation under control."
READ MORE: Inflation eases in January, meat prices continue to rise
He added that rising fuel costs would ripple through the entire economy.
"When fuel becomes more expensive, it increases transport costs, manufacturing costs and food prices. Those increases eventually show up in the inflation numbers, which is why oil prices are such an important factor for monetary policy."
Jammine said South Africans will ultimately have to watch global developments closely, as the direction of oil prices will depend largely on how the conflict in the Middle East unfolds in the coming weeks and months.
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