South African motorists are warned that the widening conflict in the Middle East could soon lead to huge spikes in the cost of petrol and diesel.
On April 13, Iran launched a rocket strike against Israel in response to the country’s involvement in an attack on Iran’s consulate in Damascus, Syria.
Israel responded with a counterattack against Iran, and this escalation of events has led to concerns that the Middle East, the world’s largest oil-producing region, will be enveloped in its biggest conflict in 50 years.
Warning for South African fuel prices
Iran’s participation in the ongoing conflict has serious implications for the global fuel supply, as it is the ninth-largest oil producer in the world.
It is also the third-largest producer in the OPEC oil cartel, whose decisions to limit or increase output have a big impact on oil prices.
One estimation from Lipow Oil Associates suggests that a barrel of Brent Crude oil could increase to $100 if Iran’s oil fields or refineries are affected, compared to the $87 peak that prices have reached so far this year.
Adding to this risk, the Strait of Hormuz, a key region granting access to the Persian Gulf states where a fifth of the world’s daily oil production is transported, could be closed, resulting in prices reaching $120 or $130 per barrel.
However, there is an even greater concern that three of the other top-producing oil nations – Saudi Arabia (2nd), Iraq (6th) and Kuwait (10th) – may also enter the war between Israel and Palestine.
The World Bank estimates that a full-scale war in the Middle East could send oil prices as high as $150 per barrel – double what it was at the start of the year.
The global trading price of oil is one of the two main determiners of the fuel price in South Africa; the other factor being the US dollar/rand exchange rate, as this is the currency which crude oil is bought and imported under.
The instability of the world’s largest oil-producing region, and the potential price shocks that may come about as a result, therefore have serious implications for the tab that local motorists are paying at the pump.
South Africa is currently paying R25.12 per litre for petrol 95 as of April 2024, which is expected to increase by another 31c per litre in May.
In a worst-case scenario, it is possible that the global oil price could increase by over 50%, which could lead to a dramatic increase in the cost of fuel, bearing in mind that the price of a litre of petrol has already gone up R2.50 since the start of 2024, while diesel has gone up by a similar R2.00 per litre.
The value of petrol is obviously a concern for road users, but further increases to diesel are arguably more significant, as this will raise the cost of transportation with a ripple effect across the economy with inflation and high food prices, according to MyBroadband.
Not helping matters is the fact that the rand’s value against the dollar has dropped considerably from R18.82/dollar to R19.29/dollar in the time between Iran’s attack and Israel’s retaliatory strike, indicating how volatile the current geo-political climate is.
Other factors not directly related to the war in the Middle East include the ongoing conflict in Ukraine, as Ukrainian drones have been attacking infrastructure in Russia, affecting the country’s oil output.
The United States has also seen its petroleum production decline due to freezing temperatures in several states since the start of the year, and it is anticipated that the demand for petrol in the Northern Hemisphere will go up this summer as people start to travel to make use of the good weather.
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