South Africa’s petrol prices are likely to be hit by a substantial increase this July, following a shock to the international market.
The ongoing conflict in the Middle East recently escalated when Israel launched air strikes against Iran, resulting in retaliatory missile launches from the latter.
The deteriorating state of the region has fueled concerns of an all-out war in the Middle East, leading to a spike in international oil prices.
All of this is bad news for South Africa, as the rising cost of oil will almost certainly have an effect on the retail price of petrol and diesel next month.
While the mid-month data published by the Central Energy Fund (CEF) for the second week of June suggests that petrol prices are set to decrease slightly in July, this data was calculated before the recent attacks.
The CEF’s data was calculated on the previous oil trading price of $68 per barrel, but this immediately shot up to $73 per barrel following Israel’s attack on Iran on 12 June.
Adding salt to the wound is the fact that the rand has also weakened against the US dollar over the same period, dropping from R17.80 per dollar to R18.00 per dollar.
The weaker rand means it will be even more expensive to import oil, since the precious liquid’s price is linked to the US dollar – the world’s primary reserve currency.
All of this suggests that petrol prices will go up in July, as the CEF’s previous cost-cutting estimates were only minor to begin with.
Petrol was expected to come down by just 7c per litre, while diesel would see a slightly bigger decrease of 12c per litre.
These are the CEF’s petrol price projections calculated before the attacks:
- Petrol 93 – Decrease of 10c per litre
- Petrol 95 – Decrease of 7c per litre
- Diesel 0.05% – Decrease of 13c per litre
- Diesel 0.005% – Decrease of 12c per litre
According to Bloomberg’s analysis of oil markets, prices surged by up to 13% after Israel carried out multiple military strikes against Iran.
The escalating tensions between the regional powers has sparked concerns of a wider war that will encompass the Middle East, which accounts for a third of global crude oil production.
To put things in perspective, the single largest price increase in recent years occurred in 2022 following Russia’s invasion of Ukraine, which sent oil up to $78 per barrel.
Israeli Prime Minister Benjamin Netanyahu stated that the attacks are targeted at Tehran’s nuclear programme and military, and that Israel will not stop until the threat is removed.
Iran’s leader, Ayatollah Ali Khamenei, revealed that several commanders and scientists have been killed in the attacks, and vowed that the country’s response to Israel would be severe.
Rocky road for the rand
While the conflict in the Middle East has had a direct impact on oil prices, it has also had an indirect effect on the value of the rand.
The risk of further escalation led to a significant global sell-off and exit from risky investments and markets, including South Africa.
The rand has been growing in value relative to the dollar so far this year, which has helped to mitigate the effects of rising oil prices.
In the first four months of 2025, the rand was trading at an average of R19.92/$, compared to R20.44/$ during the same period last year, lowering the cost of imports for consumers.
“The rand’s strength against the US dollar has aided moderate inflation this year, and has improved South Africa’s trade balance, with petrol prices cut by around R1/litre this year so far, versus a rise of about the same amount for the same period last year,” said Annabel Bishop, chief economist at Investec.
Unfortunately, this improvement could soon be undone by the recent strikes in the Middle East.
On a more positive note, the Bureau for Economic Research (BER) noted that currency markets stabilized following the initial shock after the news of the attacks first broke.
Optimistically, this means the rand could recover by next month, leading to lower import costs for petroleum.
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