Renewed US-Iran Conflict Threatens Higher Fuel Costs, Inflation Across Africa

African economies that depend heavily on imported oil are facing the prospect of higher fuel prices and renewed inflationary pressure after fighting between the United States and Iran flared up again, wiping out gains made during a brief ceasefire that had calmed global energy markets.

The latest escalation has reignited fears of disruptions to crude supplies from the Middle East, sending international oil prices higher and raising the likelihood that governments across Africa will be forced to increase pump prices in the coming pricing cycles.

Brent crude, the global benchmark for oil, was trading at about $79 a barrel on Tuesday, up sharply from levels seen during the truce, when prices had eased to around $67 a barrel as investors bet that the conflict would not spread further across the region.

The ceasefire, brokered after weeks of military exchanges between Washington and Tehran, had briefly restored confidence in global markets, easing concerns over disruptions to energy supplies through the Strait of Hormuz, the world’s most important oil shipping route.

The calmer outlook triggered a decline in crude prices, offering temporary relief to oil-importing nations that had been grappling with elevated energy costs.

That optimism has since faded after renewed military action reignited fears that crude exports from the Gulf could be disrupted, tightening global supplies and pushing prices higher.

For Africa, where most countries import all or most of their petroleum products, the impact is expected to be swift. Higher crude prices typically translate into increased fuel import bills, forcing governments to either raise retail fuel prices or absorb the additional costs through subsidies.

The rise in fuel prices is likely to ripple through economies, increasing transport costs, electricity generation expenses and the price of manufactured goods and food, adding fresh inflationary pressure at a time when many countries had begun to see consumer price growth moderate.

Higher fuel costs also threaten to erode household purchasing power and increase the cost of doing business, potentially slowing economic growth across the continent.

Countries such as Kenya, Uganda, Tanzania, Rwanda, Ethiopia, Zambia and Malawi, which rely heavily on imported petroleum products, are among those most exposed to swings in global oil markets.

The renewed uncertainty also poses a challenge for African central banks that have been weighing interest rate cuts following months of easing inflation.

A sustained increase in energy prices could force policymakers to maintain tighter monetary policy for longer to prevent another surge in consumer prices.

Analysts warn that any prolonged disruption to shipping through the Strait of Hormuz, which carries about a fifth of the world’s oil supplies, could push crude prices even higher, worsening inflation and widening trade deficits for oil-importing African economies already struggling with weak currencies and rising external financing costs.

gandae@businessdayafrica.org