Iran response to US attack will determine SA's fuel price

File picture: Karen Sandison / African News Agency (ANA).

File picture: Karen Sandison / African News Agency (ANA).

Published Jan 6, 2020

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Cape Town - There are fears that petrol prices could shoot up if America's attack last week on Iranian military leaders by the US turns into a war.

The fears come just days after the stability of the rand since November and into the first half of December was praised for the drop in the price of petrol at the pumps by 17c.

At the time the AA said: “Barring any unforeseen surprises, we expect 2020 will kick off with only modest fuel price changes.”

But on Sunday economist Mike Schussler said: “The price of petrol is likely to rise some 25c to 30c if the tensions remain.

“If we have an actual war or if oil tankers are attacked in the Strait of Hormuz, then the price will rise even further.

"I am not sure by how much but at least 30c and more likely closer to R1 or more,” said Schussler.

The effect might have been worse if South Africa still imported as much as 35% of its oil from Iran, however in recent years pressure from the US has forced South Africa to cut back significantly on its oil imports from the Persian Gulf.

The bulk of South Africa’s oil imports come from Saudi Arabia (42%), Nigeria (34%), Angola (13%) and Ghana (11%). The country's fuel prices are adjusted on a monthly basis.

Factors that influence the price include the fact that South Africa imports both crude oil and finished products at a price set at the international level, including import costs.

Economist Hugo Pienaar, from Stellenbosch University’s Bureau for Economic Research, said on Twitter: “Depending on how Iran reacts (already some tough talk emerging), this could seriously dent the positive risk sentiment going into 2020. Brent crude oil is up more than 3% to $68 per barrel.”

Speaking late last year on speculation about the outbreak of war with Iran, Pienaar said: “In the event of a war, the oil price is likely to rise to much higher levels. Depending on how long the conflict lasts, this would mean significantly higher domestic fuel prices, especially if the rand exchange rate were to weaken in tandem with a higher oil price.

“The worst case scenario would indeed be a war in the Middle East that drives the oil price even higher and forces it to stay at the more elevated levels, as well as a weaker rand exchange rate,” said Pienaar.

@MwangiGithahu

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Cape Argus

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