South Africa: Middle East Conflict - Oil and Gold Price Surge Will Shock and Awe SA

The spectre of oil at $100 (R1,607) a barrel will haunt the South African Reserve Bank's efforts to contain inflation. At the start of this year there were high hopes that the Bank would deliver at least two more 25-basis-point rate cuts this year. Those may now be dashed.

The dramatic escalation in Middle East tensions with the US and Israeli offensive against Iran that has killed the Islamic republic's supreme leader Ali Khamenei is roiling global markets and South Africa's economy is going to feel the pain while the gold sector and companies such as Sasol stand to gain.

The fallout from the unfolding drama has lit a fuse under the price of oil and gold - "conflict commodities" which, for different reasons, often reflect geopolitical tensions - and this combination is a double-edged sword for South Africa's economy.

Let's start with oil. The closure of the Strait of Hormuz, a key artery in the global oil supply chain, triggered a 10% spike in oil prices when markets opened in Asia after the weekend before settling down. The benchmark Brent crude was 4% higher in early Monday trade at $76.16 a barrel but is seen potentially soaring much higher.

"Higher oil and gas prices are certain as the closure of the Strait of Hormuz threatens to disrupt 15% of global oil supply and 20% of global LNG supply, with oil prices potentially exceeding $100 a barrel if tanker flows are not quickly restored," Houston-based energy consultancy Wood Mackenzie...

This article originally appeared on the Daily Maverick.