The War between US/Israel and Iran is catastrophic news for South Africans
A new inflation target, a stolen oil reserve, and the Gulf war - South Africa's policy failures are about to collide.
South Africa’s newly minted 3% inflation target looked clever during a period of cheap oil and a strong rand. The Iran war has just revealed it for what it always was: a monetary straitjacket applied to an economy that cannot control its own prices. Ordinary South Africans will pay the cost of this miscalculation for years.
On November 12th 2025, Finance Minister Enoch Godongwana stepped to the podium to deliver South Africa’s Medium-Term Budget Policy Statement and announced, with evident satisfaction, that the country would adopt a new inflation target of 3%—a single point, not a range, with a tolerance band of just one percentage point on either side. It replaced a 3–6% range that had governed monetary policy for a quarter-century. Governor Lesetja Kganyago of the South African Reserve Bank (SARB) called it a watershed. “There is only one winner here,” he declared: “South Africans, who will now enjoy a low inflation economy.” The business press largely applauded. Investors cheered. The rand strengthened.
That was 116 days ago. Since February 28th, when the United States and Israel launched joint military strikes on Iran, the global oil market has experienced one of its most violent dislocations since Russia’s invasion of Ukraine in 2022. Brent crude, which hovered around $70 per barrel in the days before the first bombs fell, has surged past $110—a rise of more than 50% in under two weeks. The Strait of Hormuz, through which roughly one-fifth of the world’s seaborne oil flows, has effectively been closed by Iranian retaliation. Iraq, Kuwait and the United Arab Emirates have cut production. Oil depots in Tehran are burning. And through it all, South Africa’s 3% inflation target—feted as a triumph of monetary orthodoxy—is about to be exposed as a policy built for a world that no longer exists.
A TARGET WITHOUT A TOOL
The intellectual case for a lower inflation target is not without merit. South Africa’s stubbornly elevated inflation eroded the rand’s purchasing power, raised borrowing costs and deterred long-term investment. Governor Kganyago had argued for years that the 3–6% band was too wide and too high relative to the country’s trading partners. SARB modelling suggested that anchoring inflation at 3% could eventually reduce the prime lending rate—currently near 11%—and stimulate both household consumption and business investment.
But there is a fundamental problem with this reasoning, one that critics raised loudly in parliamentary hearings and that the government chose to dismiss: South Africa’s inflation is not, in any meaningful sense, domestically generated. It is not the product of an overheating economy, of workers bidding up wages, or of excess consumer demand chasing too few goods. It is, almost entirely, exogenous. It comes from outside.
Fuel alone accounts for approximately 5% of South Africa’s consumer price index (CPI) basket—a direct and immediate transmission channel for any move in global oil prices. But the secondary effects dwarf even this. Transport costs, which determine the price of virtually everything from fresh produce in Johannesburg’s townships to building materials on the Cape Flats, respond swiftly to petrol prices. Food inflation accelerates. Manufacturing input costs rise. Electricity tariffs, already inflated by the dysfunction of Eskom, move independently of monetary policy. The SARB’s repo rate—its only instrument—has virtually no power over any of these variables.
“Monetary policy,” as the SARB’s own website notes with clinical accuracy, “has only temporary effects on growth, but permanent effects on prices.” What it omits is the corollary: when price shocks are imported, tightening monetary policy does not address their cause. It simply transfers the cost of global disorder onto the shoulders of South African borrowers, homeowners and businesses—who are already stretched beyond comfort.
SHOCK AND AWE AT THE PUMP
The scale of the oil shock is extraordinary even by the standards of a turbulent decade. Before the first US-Israeli strikes on Iran on February 28th, Brent crude was trading at around $70–72 per barrel. By the close of the following week, it had breached $82. By March 8th, it had spiked to $119.50 before settling back near $113. West Texas Intermediate followed suit. The last time crude traded at these levels was in the aftermath of Russia’s invasion of Ukraine in 2022.
Analysts at Goldman Sachs estimate that traders are now demanding roughly $14 more per barrel as a geopolitical risk premium above what fundamentals alone would justify—and that figure assumes only a partial, temporary closure of the Strait of Hormuz.
If the closure proves prolonged, or if oil infrastructure in the Gulf is seriously damaged, the numbers become truly alarming. In a worst-case scenario assessed by the American Action Forum, sustained conflict and blockade could push crude prices beyond $100 per barrel indefinitely—a figure that has now already been breached on intraday trading. Rystad Energy’s head of geopolitical analysis, Jorge León, captured the stakes bluntly: “The most immediate and tangible development affecting oil markets is the effective halt of traffic through the Strait of Hormuz, preventing 15 million barrels per day of crude oil from reaching markets.”
For South Africa, the transmission mechanism is both rapid and brutal. The rand-denominated cost of oil has simultaneously been hammered by the weakening of the currency: from roughly R15.87 to the dollar before the war began, the rand has slid to R16.82 against a dollar that has strengthened as investors flee to safe havens. SARB Governor Kganyago acknowledged this week that the Bank’s most recent adverse scenario—which had assumed oil would average $75 per barrel for the year and the rand would weaken to R18.50—had already been rendered obsolete.
“It was in the past,” he said. The Bank would have to draft entirely new risk models.
In a note published shortly after the war began, Investec’s currency analysts calculated that the rand oil price had already jumped 12% in a single trading day—from R1,156 to R1,294 per barrel. If sustained, they estimated, the fuel price increase for April alone could reach 9% month-on-month. That would contribute directly to headline CPI at a time when the SARB has just committed itself to delivering 3% inflation.
Governor Kganyago acknowledged, with some understatement, that “a 10% move in the exchange rate would have a much stronger impact on inflation in South Africa than a similar jump in oil prices.” Both are now happening simultaneously.
LEVIED TO THE HILT
The government’s own choices have made a terrible situation worse. During the extended period of low global oil prices that preceded the Iran conflict, the Treasury—facing a chronic revenue shortfall—quietly maximised its fuel levy income. The General Fuel Levy (GFL) and the Road Accident Fund (RAF) levy were raised repeatedly, even as the underlying cost of crude remained subdued. The government was, in effect, pocketing the global oil dividend that lower prices provided, rather than passing it to consumers.
The 2025 Budget—on its third and final iteration—saw Finance Minister Godongwana announce an increase of 16 cents per litre on petrol and 15 cents per litre on diesel in the GFL, effective June 4th 2025. These were the first GFL increases in three years, but they were presented as modest and inflation-linked. Following that revision, the combined GFL and RAF levy exceeded R6 per litre in some parts of the country—more than 30% of the total pump price. Then in the February 2026 Budget, the minister returned for more: a further 9 cents per litre on petrol, 8 cents per litre on diesel, plus a 7-cent rise in the RAF levy and a 5-cent increase in the carbon fuel levy. From April 1st 2026, total fuel taxes will rise to a GFL of R4.10 per litre for petrol and a RAF levy of R2.25—an aggregate tax take that leaves consumers with precious little buffer when the underlying price of the commodity itself spikes.
The Automobile Association, which has consistently called for a forensic audit of levy revenues and full transparency in the pricing formula, warned at the time of the 2025 increase that “this levy adjustment comes at a time when South Africans are already contending with high food prices, elevated interest rates, increased electricity tariffs and persistently high unemployment.”
That warning was politely noted and then ignored. The revenue imperative won.
The compounding effect is now becoming clear. When the international price of crude was low, the government used fiscal policy to capture the upside. Now that the price of crude has rocketed, consumers face the full force of both the global shock and the legacy of accumulated levies—with no strategic buffer to absorb either.
THE OIL THAT GOT AWAY: THE OILGATE SCANDAL
There is a darker, still largely unresolved coda to this story. Had South Africa retained the strategic oil reserves that were supposed to protect it against precisely this kind of shock, the country would today have meaningful insulation. It does not. The reserves were sold—corruptly, secretly, and at a catastrophic loss to the taxpayer—in 2015.
In December of that year, the Strategic Fuel Fund (SFF), a subsidiary of the state-owned Central Energy Fund (CEF), sold 10.3 million barrels of South Africa’s strategic crude oil reserves to a collection of international oil trading companies, including Taleveras Oil, Venus Rays, Vitol Energy and Glencore. The sales were arranged by Sibusiso Gamede, the SFF’s acting chief executive—who was simultaneously serving as the Special Advisor to then-Energy Minister Tina Joemat-Pettersson. They were approved by Joemat-Pettersson herself. The SFF and CEF boards were not consulted; they discovered the transactions only when the money arrived in an account. There was no public tender. No bid specifications were drawn up. The contracts were concealed from the very institutions mandated to oversee them.
The price at which the reserves were sold was $28 per barrel—at a time when the market rate was approximately $38. By the time the deal unravelled and became public knowledge in 2016, oil had recovered to $50 a barrel. The buyers had locked in profits of extraordinary convenience. The forensic audit later found that Gamede had received payments amounting to approximately R1.3 million in what the court characterised as bribes.
When confronted in Parliament, Joemat-Pettersson did not acknowledge the sale. She described the transaction as a routine “strategic rotation of oil resources.” Her successor as Energy Minister, Mmamoloko Kubayi-Ngubane, directly contradicted her. The Western Cape High Court, ruling in November 2020, found that both Gamede and Joemat-Pettersson had acted unlawfully. The court noted that Gamede had “engineered the sale of the oil at heavily discounted prices, kept the deals as secret as possible, arranged ministerial permissions, took bribes and didn’t keep proper records.” Of Joemat-Pettersson, it observed that she had “signed what Gamede—who was also her advisor—told her to sign without applying her mind.” The court described a “pervasive lack of oversight and intervention” extending across the SFF’s senior management and boards: institutional capture, in its most brazen form.
The financial fallout has been staggering. Settlement costs with oil companies that were owed compensation for their hedging losses, interest charges and storage costs amounted to some R400 million—borne entirely by the South African taxpayer. The Public Protector, in a finding that drew widespread incredulity from legal observers, concluded that Joemat-Pettersson bore no personal culpability. She has never been criminally prosecuted. The ANC’s parliamentary caucus was left to decide what, if any, party sanction she should face.
The question that deserves to be asked again, loudly and repeatedly, is this: what was the commercial rationale for selling 10.3 million barrels of strategic crude in December 2015, when oil was near multi-year lows, without any competitive tender process, at a price below even the then-depressed market rate, routed through deals that bypassed every governance structure designed to prevent exactly this kind of abuse? No adequate answer has ever been given. At today’s prices of $110 per barrel, those reserves—had they been retained—would be worth more than $1.1 billion. South Africa’s cupboard is bare.
BETWEEN A ROCK AND A RATE HIKE
The SARB now faces a policy dilemma of its own making. Having staked its credibility on a 3% inflation target, and having reduced the repo rate to 7% in August 2025 (with further cuts anticipated through 2026), the Bank is about to watch inflation breach its new ceiling as though it were not there. Oil-driven CPI increases are coming. Transport costs will rise. Food prices will follow. The rand’s depreciation adds a second inflationary impulse. Core inflation, which had settled near 3% by mid-2025 and which the Bank’s models confidently predicted would anchor there, will be pressured upward.
What, then, does a central bank committed to a 3% inflation target do when imported shocks push inflation toward 5% or 6%? Textbook orthodoxy provides an uncomfortable answer: it raises rates. But raising interest rates in response to an oil shock does not reduce the price of oil. It does not reopen the Strait of Hormuz. It does not undo the damage inflicted on Gulf energy infrastructure. What it does is slow domestic economic activity, tighten credit conditions for already-indebted households and businesses, and—in an economy where unemployment hovers above 32%—further constrain the labour market. It is, in effect, an act of economic self-harm administered in the name of price stability.
The critics who appeared before Parliament in late 2025 were not cranks. Rashaad Amra of Wits University’s Public Economy Project warned MPs directly that lower inflation had “sharply reduced nominal GDP, which in turn weakens revenue, worsens debt ratios, and forces deeper expenditure compression—even as real economic activity remains broadly unchanged.” The
Budget Justice Coalition raised the distributional point that households burdened with significant debt suffer the most from slower nominal wage growth, which erodes disposable income. These were serious arguments. They received polite hearings and were overruled.
There is a responsible path through this crisis, but it requires intellectual honesty that has so far been conspicuously absent. The SARB’s own framework acknowledges, in its description of the tolerance band, that “temporary deviations from the target are acceptable, provided that inflation returns to the target range once shocks have passed.” Governor Kganyago should invoke this flexibility clearly and immediately—and communicate to markets that the Bank will not sacrifice the economy on the altar of an externally determined oil price. Rates should not rise as a reflex response to a supply shock. This is the lesson central banks learned, painfully, in the 1970s. South Africa cannot afford to repeat the error.
A RECKONING LONG DEFERRED
The deeper problem is structural and has been decades in the making. South Africa imports essentially all of its crude oil. It has no meaningful domestic energy buffer. Its consumers spend a disproportionate share of their incomes on transport and food—both of which are acutely sensitive to fuel costs. Its government has spent years using fuel levies as a revenue instrument of convenience rather than developing a coherent energy security strategy. And when it did hold strategic reserves, they were stolen.
The consequences of the Iran war for South Africa will not be evenly distributed. The wealthiest households—those with solar panels, electric vehicles, diversified savings and the capacity to absorb higher prices—will be insulated. The working poor, who depend on minibus taxis for transport and spend 40% or more of their incomes on food and energy, will not. The small businesses that operate on thin margins and cannot absorb input cost spikes will be squeezed toward closure. South Africa’s debt-laden consumers—household debt to income has remained elevated even as interest rates fell—will find that the anticipated relief from lower rates has been snatched away just as it approached.
If the war continues, and if oil remains at current levels or higher through the second and third quarters of 2026, South Africa faces a scenario that is not merely recessionary but potentially depression-level in its severity for large portions of the population. A commodity price shock of this magnitude, combined with currency depreciation, a monetary framework incapable of distinguishing between demand-driven and supply-driven inflation, a tax structure that has pre-loaded the pump price to its maximum, no strategic reserve, and a government that has consistently prioritised narrative management over structural reform—this is a confluence of vulnerabilities that was predictable, was warned about, and was ignored.
“Every policy has trade-offs,” Governor Kganyago said when the 3% target was announced. “What is important is that the benefits outweigh the costs.” That calculation was made in November 2025, when global oil markets were calm, the rand was strengthening and the horizon looked manageable. The horizon has changed. South Africans will pay the cost of the miscalculation whether or not those who made it ever admit they were wrong.