Viewpoint: Oil shock implications for the ZAR

Key points

• The Middle East conflict, particularly risks surrounding the Strait of Hormuz, is driving significant uncertainty in oil markets, with a clear disconnect between tight physical supply conditions and futures markets that appear to be pricing in a relatively short-lived disruption.
• Evidence from the physical market, including elevated prices, inventory drawdowns, and logistical strain, suggests that supply disruptions could be more persistent than futures imply, with recovery likely to take months even after any reopening.
• Sustained high oil prices would feed into global inflation, especially acute in oil-importing economies like South Africa, potentially forcing central banks to delay easing or tighten policy further, raising stagflation risks.

Baseline view

Persistent disruption in the Strait of Hormuz would drive higher oil prices and broader supply chain pressures, thereby lifting inflation in South Africa, as it is a net oil importer. This has increased the likelihood of short-term interest rate hikes, heightening the risk of stagflation. In this environment, the rand would remain volatile and biased weaker, reflecting its sensitivity to elevated oil prices and global risk sentiment.

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