The US and Israeli strikes on Iran, which killed supreme leader Ali Khamenei, have led to the closure of the Strait of Hormuz and a surge in oil and gold prices. This escalation is threatening South Africa's inflation control efforts and interest rate cuts. While higher oil prices pose risks, rising gold prices offer some economic benefits.
The recent military actions by the US and Israel against Iran have intensified tensions in the Middle East, resulting in the death of Iran's supreme leader Ali Khamenei. Iran has retaliated by warning vessels against passing through the Strait of Hormuz, effectively halting traffic and leading to attacks on at least three ships. Insurers have withdrawn coverage, turning the strait into a no-go zone and disrupting 15% of global oil supply and 20% of LNG supply.
Oil prices have reacted sharply, with Brent crude rising 4% to $76.16 a barrel in early Monday trade, though it neared $80 later. Analysts from Wood Mackenzie warn that prices could exceed $100 a barrel if flows are not restored quickly. In South Africa, this surge threatens the South African Reserve Bank's plans for two more 25-basis-point rate cuts this year, as higher oil and a weakening rand—now at 16.17 to the dollar—could push consumer price inflation up. Investec chief economist Annabel Bishop noted, “If the USD/ZAR stays around current rates, and the oil price near $80 per barrel over March, then about a 9% month-on-month increase occurs in the fuel price,” potentially lifting CPI inflation to 3.3% year-on-year from a forecasted 2.9%.
On a positive note, gold prices climbed over 2% to more than $5,400 an ounce, nearing its all-time high of $5,589.38 from January. This has boosted shares of South African gold producers, with Gold Fields up over 4%, Harmony Gold over 5%, Sibanye-Stillwater more than 3%, and DRDGold nearly 8%. Sasol's shares rose as much as 10%. Although South Africa is no longer among the top 10 gold producers, higher prices support exports, taxes, royalties, and new investments.
South Africa's history of low oil prices helped reduce inflation from a 2022 monthly average of 6.9% to 3.2% in 2025. The current oversupply in oil markets had kept fuel prices at a five-year low, aiding Reserve Bank Governor Lesetja Kganyago's push for a lower inflation target. However, prolonged high oil prices could undermine these gains and affect economic growth, projected at 1.6% for 2026.
