The rand and oil price shocks of the past month will influence the SA Reserve Bank’s rate decisions for the foreseeable future.

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The rand breached R17/$ on Thursday amid a renewed surge in oil prices after attacks on key energy facilities in the Gulf. High oil prices are fuelling concerns about SA’s economic outlook.

The rand has been one of the worst-performing currencies since the start of the Iran war, weakening from below R15.90/$ at the end of February to R17.07 on Thursday afternoon - a level not seen since November 2025. Spooked investors are fleeing to the dollar as a safe haven in uncertain times.

Israel hit Iran’s giant South Pars gas field on Wednesday, with Iran striking back with attacks on the world’s largest liquefied natural gas export plant in Qatar, as well as a facility in Abu Dhabi. It pledged to attack more energy sites in the Gulf.

This triggered a 5% jump in the Brent oil prices, pushing it past $112 a barrel on Thursday morning.

High oil prices have fuelled fears about inflation, which will weaken economic growth across the world. Countries which are dependent on fuel imports, like South Africa, are particularly vulnerable.

Investec chief economist Annabel Bishop says the fact that the US Federal Reserve’s open market committee left its interest rate unchanged on Wednesday was dollar-positive. Financial markets have now ruled out any chance of US interest rate cuts in 2026.

“In South Africa, markets have factored out expectations of interest rate cuts too this year, and indeed are starting to price in hikes instead (two 25 basis point lifts), on hefty fuel price increases, although the monetary policy committee (MPC) is expected to look through the fuel price shock.”

The Reserve Bank’s next interest rate decision is on 26 March, and Bishop does not expect a change; neither does she expect a hike in May.

She expects inflation – which dropped to 3% in February – to remain at that level in March before the fuel price increases start pushing inflation up. The MPC will look out “for second-round effects or higher embedded inflation”, which will only be visible by the second half of 2026.

Inflation impact

The surging oil price, combined with a much weaker rand, will result in record fuel price hikes at the start of April.

According to the latest estimates from the Central Energy Fund, wholesale diesel prices are set to increase by more than R7.80 a litre on 1 April, with 95 unleaded petrol due for a R4.70 hike. Illuminating paraffin may be increased by almost R10. Including the planned 21c per litre increase in levies, petrol may become almost R5 more expensive and diesel about R8.

Bishop expects the price jump could add around 1% month-on-month to South Africa’s inflation rate in April.

But Nolan Wapenaar, co-chief investment officer and head of fixed income at Anchor Capital, says that while the current environment may prove uncomfortable, it does not yet resemble a systemic crisis.

While the fuel price increases may be large, they come from a historically low base: petrol was at its lowest level in four years (around R20/litre) recently.

“Even after the Iran war shock, [petrol] would still be at prices considered unremarkable two to three years ago. So, the genuine risk is the duration of the spike rather than the initial spike itself. A one-month oil shock is absorbed, while a six-month shock can reshape inflation expectations and force the SA Reserve Bank’s (SARB’s) hand,” says Wapenaar.

If military operations conclude within weeks, Iran’s new leadership signals de-escalation, and the Strait of Hormuz traffic resumes, oil prices could fall back towards the $60 to $70. Before the war, a fifth of global oil exports passed through the strategic waterway. Iran has effectively shut it down since it was attacked by the US and Israel three weeks ago.

“In this scenario, SA will likely face a temporary inflation bump, but broader macroeconomic stability would remain intact. The rand would likely recover a significant portion of its recent losses as global risk appetite improves,” says Wapenaar.

But if the conflict persists for several months and continues to disrupt Gulf energy infrastructure, oil prices could stabilise in the $100 to $120 range.

“Under this scenario, SA would face sustained fuel price increases and a renewed rise in inflation. The SARB would likely delay further policy easing, and economic growth could remain subdued.”

In the worst-case scenario, Iran manages to successfully enforce a prolonged disruption to shipping through the Strait of Hormuz. This could possibly trigger a broader global energy shock.

“For SA, this would represent a severe macroeconomic challenge with rising inflation, currency weakness, tighter monetary policy and a meaningful risk to economic growth,” warns Wapenaar.

EY Africa Chief Economist Angelika Goliger says that if the war lasts six months or more, and oil climbs to $120 a barrel, South Africa would face “widespread cost-base disruptions and severe supply-chain bottlenecks, resulting in a material contraction of domestic GDP”.

This could also force the SARB into “cautious rate hikes”, she added.

The article may be updated as the exchange rate changes. The article has been updated to correct the expected inflation impact in April.