Opinion – Impact on the Iran-USA crisis

According to a report by the International Energy Agency (IEA), the war in the Middle East is causing the largest supply disruption in the history of the global oil market. The disruption to oil and gas flows through the Strait of Hormuz, and attacks on energy infrastructure across the region, have major implications for energy security and affordability – and for the world economy. The war in the region, which began on 28 February, has impeded energy trade flows through the Strait. The global supply of liquefied natural gas (LNG) has been reduced by around 20% due to the situation. The IEA’s Executive Director has said the combined impacts amount to “the greatest threat to global energy security in history.” Crude and oil flows through the Strait of Hormuz have dropped from about 20 mb/d before the war to a trickle. With limited capacity to bypass the waterway and storage filling up, Gulf countries have cut oil production by at least 10 mb/d. If shipping flows don’t resume quickly, supply losses will grow. The extent depends on the duration of the conflict and disruptions, but the IEA estimates that global oil supply will rise by 1.1 mb/d in 2026, driven by non-OPEC+ producers. Following the Strait closure, fertiliser supply faces a significant risk, with over 30% of global urea trade and 20% of ammonia and phosphate trade passing through the Strait, risking food prices and security. Disruptions could also impact energy markets, as some countries rely on imported LNG for fertiliser production. The Gulf region produces about 8% of global aluminium, with 5 million tonnes shipped annually through the Strait from Bahrain, Qatar, Saudi Arabia, and the UAE. Disruptions in gas, fertilisers, aluminium, and helium increase inflation risks, especially in Asia and emerging markets, affecting food and core goods prices. Oil and natural gas prices rose sharply after the war started. Brent crude futures increased by over 60% in March. Dutch TTF, Europe’s natural gas benchmark, also rose by over 60%. Oil products like diesel and jet fuel, especially in Asia, more than doubled in March. Surging Middle East conflict-driven oil prices are likely to elevate global inflation and inflation expectations. March Eurozone inflation rose to 2.5% from 1.9%, mainly due to energy. The concern is that high energy costs will be passed to consumers, causing secondary effects. Most central banks discuss responses and their commitment to act without immediate rate hikes, waiting to observe energy shock pass-through. While patient, their inclination towards higher rates will tighten as inflation risks and expectations firm. In the USA, the FED faces rising inflation after inflation has been above its target for over five years, while persistent job market concerns pose dual risks to its mandate. The surge in oil prices will increase South African inflation temporarily. Morgan Stanley predicts inflation will rise from 3.5% to 4.3% in April, then fall to 3.4% by 2026 end. Growth will slow, and interest rate cuts expected for 2026 are likely delayed until 2027. Managing inflation expectations is crucial for SARB and other central banks. What concerns us and central banks most is if the labour market responds to higher inflation with increased pay, raising company costs and causing second-round effects like higher prices. This could keep inflation high longer, and central banks are vigilant to prevent repeating past mistakes. The war caused significant market turmoil in March. The SA All Share index dropped 10.5%, and the All-Bond index fell 6.8%. Money market conditions tightened, with one-year bank rates rising at least 1%. The Iran war triggered the largest outflow in at least six years from South Africa’s bond market, as foreign investors sold a net R41.3 billion in government bonds in the first week, a record weekly outflow since 2019. Global markets also declined, with the S&P 500 down 5% and US 10-year bonds up 38 basis points. The US and Iran’s two-week ceasefire shows the US seeks an off-ramp from the conflict, and it has been well received by financial markets. However, many points still need negotiation, and a final deal won’t be simple or direct. While the ceasefire appears fragile, it keeps the Middle East risk high. It doesn’t mean normalisation, shipping, and energy recovery will be slow without lasting peace, with supply constraints persisting for months. Higher oil prices, tighter financials, and policy uncertainty risk 2026 growth. The ceasefire, marked by rejections and violations, suggests higher oil prices, uncertainty, and financial volatility. Global CPI may be firmer than expected. Markets underestimate growth drag and inflation risks, affecting financial conditions and central bank moves. IEA estimates about 10 mbpd potential oil supply outages, worsening conditions through April, likely causing economic deterioration before recovery. Financial risks remain high, requiring careful assessment of geopolitical risks in