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Money Market FundsOngoing conflict involving Iran and disruptions around the Strait of Hormuz continue to drive significant volatility across oil, currency and interest-rate markets, according to Wichard Cilliers, Head of Market Risk at TreasuryONE, and George Glynos of ETM Analytics. Speaking during a TreasuryONE webinar, Glynos said reports of a possible ceasefire remained difficult to trust, with previous attempts to reach an agreement having failed. Tanker traffic through the strategically important waterway remained constrained, while elevated shipping costs showed that conditions in the energy market were still far from normal.
The disruption has created a substantial gap between global oil supply and demand, with strategic petroleum reserves used to prevent prices from rising to levels last seen during previous major energy crises. Although Saudi Arabia and the United Arab Emirates have increased the use of alternative pipelines, while producers including Brazil, Venezuela, Nigeria and the United States have raised output, these measures have not fully replaced the supply lost through the conflict. Glynos warned that prolonged inventory drawdowns could leave countries less willing to release strategic reserves, increasing the risk of renewed oil shortages and higher prices. The impact has also spread to natural gas and fertiliser markets, adding to global inflationary pressures.
For South Africa, higher energy prices have already filtered through to petrol and diesel costs, placing renewed pressure on consumer inflation and complicating the outlook for monetary policy. Cilliers said the South African Reserve Bank’s recent interest-rate decision coincided with a “perfect storm” of oil prices approaching $100 a barrel, volatility linked to the Japanese yen carry trade and other market flows, contributing to a sharp weakening of the rand. While the currency recovered as oil prices eased, Glynos cautioned that its direction remained heavily dependent on developments in the Middle East. He argued that keeping rates unchanged carried the risk of allowing inflation expectations and currency volatility to dictate future policy decisions.
Global interest-rate developments are adding another layer of uncertainty. Japan’s efforts to normalise monetary policy and support the yen are raising the cost of funding international carry trades, while movements in longer-term US bond yields are tightening financial conditions even without an official Federal Reserve rate increase. Glynos said South Africa’s structural challenges meant the country needed to maintain sufficiently attractive interest rates to support foreign capital inflows, currency stability and inflation control. With oil markets, global monetary policy and geopolitical news changing rapidly, Cilliers and Glynos agreed that businesses should remain prepared for continued volatility across energy prices, interest rates and the rand.