Iran-Israel-US conflict reintroduces the peak oil debate
Many, many years ago, a contrarian fringe of commentators were punting peak oil as a viable scenario, warning that the world’s fossil fuel resources were depleting fast. Peak-oil evangelists said that the world was running out of cheap oil and that Brent crude would surge as high as USD200 per barrel.
Conflict, war and systemic shocks
The peak-oil theory fizzled out, making way for the long-term ebb and flow of global supply and demand, punctuated by short-term price volatility on the back of conflict, geopolitics and the occasional systemic shock. The commodity super-cycle that preceded the 2008 Global Financial Crisis (GFC) pushed Brent crude briefly towards USD150 per barrel, while the COVID-19 pandemic collapsed demand so abruptly that prices plunged towards USD10 and US oil futures even turned negative as storage ran out.
Post-pandemic, consumers and investors have become accustomed to Brent crude trading in a more manageable USD60-90 per barrel range. Even so, the oil price rose to almost USD120 per barrel between February and June 2022 as markets processed Russia’s invasion of Ukraine. A year later, as the war ground on, the forces of global supply and demand reasserted themselves, dragging prices down to USD75 per barrel, and to a far more palatable USD65 per barrel by June 2025.
The combination of low oil prices and a strong rand-dollar exchange rate has been great news for South African businesses and consumers. They saw headline inflation dip below 4% and, on the back of that, the promise of two or three interest rate cuts through 2026. Unfortunately, recent developments in the Middle East could send oil back into record territory, reintroducing inflationary pressures and forcing the South African Reserve Bank (SARB) to take a more cautious approach to upcoming monetary policy decisions.
Pre-conflict reflections
Commenting on South Africa’s 2026 Budget, Efficient Group chief economist Dawie Roodt warned that tensions between Washington and Tehran were already starting to ripple through commodity markets. “We can already see that certain prices are rising because of this, like the oil price, for example,” he said, referring to the possibility of military conflict between the United States and Iran. His comments, made on 25 February, turned out to be prophetic.
The first signs of renewed oil price volatility emerged after joint US-Israel airstrikes on Iranian air defence and nuclear facilities in June 2025. The strikes, aimed at crippling Iran’s nuclear weapons programme, sent Brent crude oil almost 30% higher, although the price recovered to USD60 by year end. Things escalated again, with another round of US-Israel attacks in late February 2026 threatening to plunge the entire Middle East region into crisis. Year-to-date to 6 March 2026, the Brent crude oil price was about 40% firmer.
“War in the Middle East has brought one of the market’s long-standing geopolitical fault lines into sharp focus, particularly the risk of disruption in the Strait of Hormuz,” wrote Sahil Mahtani, Investment Institute Director at Ninety One, in a media release offering context and consequences of the US-Israel action. For context, he shortlisted escalations between China-Taiwan, and disruptions in the Strait of Hormuz as the two well-known, outsized geopolitical risks that have been on the market’s radar for years.
Throttling oil supply routes
“The fear is that the interruption of physical barrels [due to Iran closing the Strait] would make the war matter to households and businesses globally,” Mahtani said. Around one fifth of global oil is shipped through this Strait. On the plus side, the world has about three months of oil supply in storage, and the Strait access ‘punishment’ is typically reserved for American-flagged vessels. Having watched CNN and Sky News footage of Iran’s region-wide ballistic missile and drone retaliation, you might, however, conclude that this time is going to be different.
“If Iran were to, for example, use drones to close shipping lanes, that would be a major escalation,” Mahtani noted, before dismissing the Strait closure scenario as a “low-probability, high-impact tail risk” that will evolve alongside the war. The sense is there will be limited global disruption if things play out similarly to the June 2025 incident, since labelled the 12-Day War; but serious consequences if the February 2026 attacks spiral into a broader conflict. Ninety One is already factoring in weeks rather than days for this to resolve.
Of greater concern is that the targeting of Iran’s political leadership creates a power vacuum resulting in a Syria-type civil war that may last decades. That possibility aside, Ninety One contends that the war’s impact on financial markets will mainly transmit through the oil price. “Macroeconomically, it would operate through the uncertainty channels as embedded in the US Federal Reserve Board and New York Fed models,” Mahtani said. He warned, however, of the risk of stagflation in the world’s largest economy i.e. rising inflation and slowing growth.
Driving inflation, eroding growth
The asset manager estimates that the current 30% real increase in oil prices will translate to a one percentage point increase in US headline inflation over a year, while reducing output growth by roughly 0.13 percentage points, with the uncertainty channel amplifying these effects further. “The effects on inflation expectations could also be significant, depending on the size and duration of the ultimate shock,” they said. “That may complicate the Fed’s [rate] path lower this year.”
Chief Economist at PSG Financial Services, Johann Els, agrees that South Africa will experience the Middle East disruption through higher oil prices rather than direct trade exposure. “The impact will be felt via imported fuel costs, inflation and the external balance [rather] than through direct balance?sheet shocks to South African companies,” he wrote, in a media release. He noted that oil accounts for roughly 18% of the country’s imports, framing how higher fuel prices filter through to transport, logistics, distribution and on to the end-consumer.
Oil price shocks transmit to South Africa’s economy faster than in many developed markets. The country imports most of its crude oil, and pump prices are adjusted monthly based on global oil prices and the rand-dollar exchange rate. As tensions in the Middle East escalate, local businesses and consumers are already facing the threat of higher fuel prices, with the March increase of around 130 cents per litre representing an approximately 6.5% hike from February prices.
A consistent economists’ view
“If inflation expectations drift higher and the exchange rate softens, the SARB may need to adopt a more cautious approach to interest-rate cuts, even if economic growth remains modest,” Els said, echoing the view expressed elsewhere in this piece. The hope is that other OPEC countries up production to compensate for any war-related supply disruptions, but there are concerns over the consequences should the conflict escalate materially, or key shipping points like the Strait of Hormuz become blocked.
In another framing, South Africa’s BRICS alignment has put it in an awkward position as the conflict unfolds. Pretoria maintains strong diplomatic ties with Iran and recently hosted naval exercises involving Iranian vessels alongside Russia and China. As tensions escalated, President Cyril Ramaphosa stopped short of backing either side, choosing instead to condemn international law violations and call for dialogue to resolve the conflict.
“We urge the international community, including multilateral institutions and regional partners, to redouble efforts aimed at promoting mediation and peaceful resolution,” Ramaphosa said, in an official statement issued by The Presidency. “As a nation that has emerged from conflict through dialogue and reconciliation, South Africa remains steadfast in its belief that peace is not only possible, but imperative for the shared future of the Middle East and the world.”
South African businesses and consumers, still enjoying the afterglow of a taxpayer-friendly 2026 Budget, will be more concerned about how quickly higher oil prices filter through to fuel costs, transport prices and ultimately inflation. “Inflation currently sits at about 3.5% in South Africa,” Roodt said during his Budget analysis. At the time, he argued that monetary policy could still ease, with space to cut interest rates by another 50 basis points over 2026. Two weeks on, the outlook has changed, as a sustained increase in the oil price will push inflation higher, reversing the disinflation trend and making these rate cuts less likely.
USD100 per barrel quite plausible
The more things change, the more they stay the same, with global oil markets always moments away from the next price-triggering events. From the Gulf Wars to the commodity super-cycle before the Global Financial Crisis, and from the COVID-19 collapse to the Russia-Ukraine war, now entering its fifth year, the Brent crude price has repeatedly reminded investors that conflict, crisis and geopolitics have consequences.
If the current Middle East conflict persists, and oil transit through the Strait of Hormuz is throttled for months, the next Brent crude oil price target is likely well over USD100 per barrel. Els concluded his comment on an upbeat note, saying that “geopolitical shocks typically introduce volatility rather than lasting economic damage” and that initial financial market over-reactions tend to stabilise as uncertainty clears.
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