Fuel prices set to rise in South Africa next month

South African motorists are bracing for a painful spike in fuel prices next month as global oil markets reel from rising geopolitical tensions and local economic pressures pile on.

The surge in petrol and diesel costs comes on the back of escalating military conflict between Israel and Iran, which has spooked global energy markets and reignited fears of supply disruptions in the oil-rich Middle East.

Tensions flared after Israel launched targeted strikes on Iran, allegedly aiming at nuclear and military infrastructure. Iran responded with threats of severe retaliation, with Supreme Leader Ayatollah Ali Khamenei confirming the deaths of several high-ranking officials. Although Iran’s oil facilities haven’t been hit, the threat of prolonged instability is enough to rattle global markets.

The Brent crude price reacted swiftly, soaring by 13% at its peak, its sharpest daily climb since Russia’s 2022 invasion of Ukraine, before settling around $74.68 a barrel, as reported by The Daily Investor. The volatility wiped out earlier price losses for the year and could signal further turbulence ahead, especially if the crisis deepens.

Oil analysts are already drawing comparisons to past shocks, with JPMorgan Chase warning of a potential surge to $130 a barrel in the worst-case scenario. While OPEC’s spare capacity, especially from Saudi Arabia, could provide some relief, the threat of Iran blocking the Strait of Hormuz, a critical passage for nearly a quarter of the world’s oil, could push prices into uncharted territory.

The knock-on effect of rising oil prices is already visible in South Africa’s currency. As investors flee risky assets, the rand has taken a hit, weakening by 1.47% to R17.96 against the US dollar. With the local currency under pressure and crude oil costs climbing, fuel prices at home are set to feel the squeeze.

Fuel in South Africa is especially vulnerable to international trends. The Basic Fuel Price, which reflects the cost of imported oil, makes up nearly 70% of the retail pump price, with the remainder tied to taxes and levies. And there’s no reprieve on that front either.

In his 2024 Budget Speech, Finance Minister Enoch Godongwana announced an inflation-linked increase in the General Fuel Levy, aimed at offsetting lower-than-expected tax revenues. From 4 June, the levy rose by 16 cents per litre on petrol and 15 cents on diesel, now standing at R4.01 and R3.85 per litre respectively.

With about 85% of the country’s goods transported by road, rising fuel costs are expected to filter through to food prices, transport fares, and general consumer expenses.

And it’s not just oil that’s spiking. Gold has surged as jittery investors move their money to safer assets, further highlighting the global unease. The US dollar, Swiss franc, and Japanese yen are all benefiting from the capital flight, a trend that places emerging market currencies like the rand at even greater risk.

Also read:

BREAKING: Israel hits Iran’s nuclear sites – war drums in the Middle East

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