SA exposed as Middle East conflict pushes oil above $100

South Africa’s vulnerability toglobal energy shocksis coming into sharper focus as the escalating conflict involving Iran, Israel and the United States pushesoil prices above $100 a barrel, raising questions about whether the country has sufficient fuel reserves to withstand a prolonged disruption to global supply. The escalation in the Middle East over the past two weeks has unsettled energy markets and injected volatility into oil trading. Much of the concern centres on the Strait of Hormuz, the narrow maritime corridor between Iran and Oman through which roughly a fifth of the world’s seaborne oil passes.

Even the risk of disruption to tanker traffic through the strait has been enough to drive prices higher. For South Africa, which imports the majority of its crude oil and refined petroleum products, theimplicationsextend well beyond rising petrol prices. Energy economistLungile Mashelesaid the crisis highlights a deeper structural vulnerability in the South African economy.

The country remains exposed because it is a net oil importer, she said. It imports more than 20 billion litres of crude oil and refined petroleum products each year, all priced in US dollars using international oil benchmarks. That means geopolitical shocks in global energy markets are transmitted almost immediately into the domestic economy.

[paywall]

“We are deeply susceptible to these shocks and they will become evident in our food, electricity, fuel, medical, clothing, car and building prices,” Mashele said. South Africa’s supply chain also exposes it to instability in the Gulf region. Nearly half of the country’s crude oil imports come from Nigeria but the remainder is sourced from producers in the Middle East.

“The rest of our crude comes from Saudi Arabia and other smaller countries, which means we remain exposed to disruptions around the Strait of Hormuz,” she said. South Africa’s limited domestic refining capacity further increases that vulnerability. Several refineries have shut down over the past decade and the country now relies heavily on imported refined fuels.

“More than that, we import refined products from Oman, Kuwait, Bahrain and Saudi Arabia,” Mashele said. “All of these countries are affected by the disruption around the Strait of Hormuz.” If supply disruptions persist, the economic effects could spread quickly through the domestic economy. “The economic impact for South Africa would be higher prices for goods and services and depressed growth,” said Mashele.

[/paywall]