Every time the fighting between the United States and Iran flares up, the oil price climbs, and this week it pushed Brent crude back above $90 a barrel. The renewed conflict, and the threat of disrupted supply through the Strait of Hormuz, nudged global markets into a cautious, risk-off mood on Tuesday. The rally has legs: US President Donald Trump has played down the prospect of near-term talks with Iran while threatening broader strikes, and the American military has kept up attacks aimed at Iran's ability to menace shipping through the Strait, which remains open. "Risks now seem skewed towards higher for longer energy prices, inflation and rates," warned Saxo UK strategist Neil Wilson.
Why a barrel of oil reaches your bond repayment
A pricier barrel feeds straight into inflation, and inflation is the one thing that tends to push the Reserve Bank toward higher interest rates. That is why the focus has landed on the Bank's rate-setting committee, which announces its decision on Thursday, with the latest local inflation figures due the day before. The worry is simple: an oil rally that sticks around keeps prices rising and hands the Bank a reason to move.
Economists are split
The call is finely balanced. Patrick Buthelezi, an economist at Sanlam Investments, expects the Bank to keep tightening, warning that "the Sarb will likely raise interest rates again as inflation moves above target and geopolitical developments increase upside risks to the inflation outlook". Others still see room for a hold, and the committee itself is expected to be divided. The rand, at least, is holding its nerve, trading steady at around R16.44 to the dollar, R18.81 to the euro and R22.15 to the pound, according to Citadel Global's Bianca Botes. The pressure may not ease soon either: Bloomberg-carried commentary flagged that Brent could breach $100 a barrel before year-end if the conflict drags on and stockpiles keep drawing down.
By Thursday afternoon, South Africans will know whether a conflict half a world away has just made borrowing money at home a little more expensive.
