Rising oil prices threaten African economies, new analysis warns

Sub-Saharan Africa’s heavy reliance on imported oil leaves the region exposed to economic shocks as the escalating conflict in the Middle East drives up global energy prices,new analysisbyZero Carbon Analyticshas found. After strikes by the US and Israel killed Iran’s Supreme Leader, Ali Khamenei, Iran responded by closing theStrait of Hormuz, a key shipping route for global oil and liquefied natural gas (LNG), and launching strikes against major oil and gas infrastructure in Saudi Arabia, Qatar and elsewhere. “Iran is effectivelyhalting roughly 20% of global oil and LNG tradeby blockading the Strait of Hormuz and has succeeded in curbing the production of liquid fuels,” the international research group, which provides analysis on climate change and the energy transition, said.

Sub-Saharan Africa faced multiple knock-on impacts, the analysis said. The cost of importing oil had climbed, with Brent crude rising 18% in the first four trading days of March. “Along with a sell-off of African currencies as investors flee to the US dollar and other safe-haven assets, this will push up import bills across the region.” That was particularly problematic for countries that were both reliant on foreign oil and had low foreign exchange reserves, the analysis said.

The crisis could also push up food prices through higher fertiliser costs. “Synthetic nitrogen fertilisers are usually produced using fossil gas, the cost of which has jumped since Iran blocked the Strait of Hormuz and forced an LNG production halt in Qatar.” While Africa’s fertiliser use was low compared with other regions, previous price shocks had reduced fertiliser use on the continent and worsened poor crop yields, exacerbating food insecurity. Zero Carbon Analytics analysed import data and international reserves for 29 Sub-Saharan African countries to assess the impact of higher oil prices on import cover — an economic indicator measuring the number of months a country can pay for its imports using its international reserves. The analysis found that Senegal, Benin, Eritrea, Burkina Faso and Zambia could experience the greatest economic shocks during the period of elevated oil prices, based on their baseline import cover ratios, projected drain on reserves and the incremental oil cost as a percentage of GDP.