The ongoing disruption in the Strait of Hormuz represents a structural turning point in global energy markets, with far-reaching implications for inflation, fiscal sustainability and investment positioning in South Africa. This is according to Old Mutual Investment Group’s latest market update, where presenters outlined expectations for a more prolonged conflict scenario in the region, with the oil price unlikely to revert to pre-conflict levels of $60 and below under any scenario.
Six weeks into the Middle East conflict, approximately 13 million barrels per day of oil production and 2.7 million barrels per day of refining capacity remain offline, with cumulative supply losses exceeding 550 million barrels.
Against this backdrop, South Africa’s energy security vulnerability was highlighted by Old Mutual Investment Group Investment Analyst Siya Mbatha.
“Domestic refining capacity covers less than 20% of fuel demand, with Sasol's Secunda Synfuels being the only significant domestic source,” she explained. “In 2025, the Middle East accounted for 4% of supply as crude and 46% as refined products.”
Import dependence is growing at precisely the moment global energy supply is most uncertain, and South Africa's fuel imports as a share of total consumption continue to rise, she adds, while pointing to fertilizer as a critical second-order risk.
“South Africa is heavily reliant on imported fertilisers, and disrupted Middle Eastern supply – Iran alone accounts for around10% of global urea exports – links directly to food prices, crop economics, and inflation dynamics,” she says. “Thin agricultural margins also leave farmers highly exposed to input cost shocks from rising fertiliser prices.”
Yet the most important shift is the repricing of energy security as a core determinant of inflation, growth and asset valuation, she adds.
“We are seeing a structural regime shift in global energy markets. Energy security has moved from being a peripheral risk factor to a core driver of inflation, margins and valuation across economies and asset classes,” Mbatha explains. “In a constrained global supply environment, domestic production capability and supply chain resilience are being repriced as strategic advantages.”
At the centre of both the energy and chemical shock sits Sasol and its growing investment case, says Mbatha.
While the company continues to trade at a discount reflecting ESG-related pressures, carbon tax uncertainty and domestic risk perceptions, she highlighted how underlying fundamentals are shifting:
- Energy security has re-emerged as a dominant investment theme
- Synfuels performance is improving
- Carbon tax submissions have been tabled
Importantly, under sustained higher energy prices, net debt is projected to fall sustainably below $3 billion, creating potential conditions for future capital returns.
“Sasol is being reassessed not just as a cyclical commodity business, but as part of South Africa’s energy security infrastructure. That shift has meaningful implications for long-term valuation frameworks,” she explains.
Turning to local macroeconomic and policy implications of the conflict, Old Mutual Investment Group Senior Research Analyst Sisamkele Kobus said that the inflationary shock requires both a monetary policy and fiscal policy response. “Energy-driven inflation constrains both monetary and fiscal policy space, forcing more difficult trade-offs between supporting households and maintaining consolidation.”
The local economy has gone from a sweet spot to a tight spot, says Kobus. “South Africa entered 2026 from a position of strength – inflation was well-behaved and the fiscal outlook was supportive, however, this oil shock changes the calculus materially,” she warns.
She went on to outline a negative, moderate and positive scenario that could play out from this current point. “We believe we are likely to see a prolonged closure of the Strait, without a clear diplomatic solution in sight currently. We have already seen a spike in oil prices and expect oil to remain higher than pre-war levels for longer. A positive scenario would be where oil settles at around $75/bl and a more moderate scenario, settling at around $90 to $100/bl. Worst case scenario, we have looked at, could be that oil stays structurally elevated at $120/bl,” she says.
Old Mutual Investment Group’s base case, however, is the moderate scenario, which would likely see local inflation peak at 5.1% according to Kobus’s analysis. CPI breaches the upper level of the tolerance band for more than 12 months and the inflation gap remains wide; the MPC will likely be forced to hike. She expects a cumulative 50bps increase.
“A repo rate hike is the prudent policy response – a ‘wait and see’ approach risks de-anchoring inflation expectations and amplifying second-round effects,” she says.
The fiscal response of R3/litre fuel levy reduction provides temporary relief of approximately R6 billion per month but does not materially alter the inflation path, adds Kobus. She states that she expects government to keep the levy reduction for 3 months. “National Treasury was very conservative on the revenue collection from mining companies at the budget in February. Given the elevated commodity prices we expect to collect about R40bn more. As a result, National Treasury can realistically afford to provide more support without a significant impact on the fiscal outlook.”
“However, despite near-term economic pressure, we still believe that South Africa’s debt consolidation path will not be derailed. Broader reform and investment narrative remaining intact – albeit delayed – as energy security moves to the centre of economic and policy decision-making,” she concludes.