South Africa Has Paid US$3.5 Billion More for Fuel Since the Hormuz Shock
SOUTH AFRICA · ENERGY
Key Facts
—The bill: South African fuel importers have paid at least R56.3 billion (about US$3.5 billion) extra for fuel since the Middle East war erupted in February, a study by the Finland-based Centre for Research on Energy and Clean Air (CREA) shows.
—The global picture: Importing countries worldwide paid US$330 billion more than pre-war markets had expected. South Africa ranks among the 20 hardest-hit countries.
—The next hit: A September fuel price increase is now a certainty, Central Energy Fund (CEF) data shows — about 107 cents a litre more for 95-octane petrol and around 271 cents for diesel. New prices take effect on Wednesday, 2 September.
—The backdrop: The United States struck Iranian rocket-launcher positions in the Strait of Hormuz on Sunday, its first military action in a month, and Iran answered on Monday with missiles aimed at US bases in Jordan. Brent crude, the international oil benchmark, climbed back above US$90 a barrel.
Six months of war around the Strait of Hormuz have left South Africa with one of the world’s heaviest fuel bills: at least R56.3 billion (about US$3.5 billion, at roughly 16.2 rand to the dollar) in extra import costs since February, according to a new study. And the pain is not over — a fresh fuel price increase lands this week.
What the study found
The CREA study compared what importing countries actually paid for seaborne crude oil, refined fuel and liquefied natural gas (LNG) between March and August against what futures markets had expected before the war, Business Day reported on Monday.
Globally, importers paid US$330 billion extra. In absolute terms the European Union paid the most, at US$78 billion, followed by China at US$35 billion and India at US$22 billion. South Africa’s R56.3 billion (about US$3.5 billion) puts it among the 20 countries that paid the most for the Strait of Hormuz price shock.
The estimate is conservative: it excludes pipeline gas, coal, shipping costs and the taxes and margins added on top of wholesale prices. Business Day describes the shock as the largest and most sustained since the 1990 Gulf War.
The burden falls hardest on poorer countries. A typical low- or middle-income importer paid about twice as much relative to the size of its economy as a typical rich country, the study found. “Across every fossil fuel product, this crisis is a multicar pile-up and where you land depends on what you’re driving,” said CREA energy analyst Luke Wickenden. “Wealthier nations can absorb the higher prices. That’s not the case for lower-income countries that are far more price-sensitive.”
Another price increase lands this week
South Africa adjusts fuel prices once a month, based on international oil prices, the rand-dollar exchange rate and local taxes. Because pump prices are fixed between adjustments, a gap has opened up between what motorists pay and what fuel actually costs to import — what the Central Energy Fund calls an “under-recovery”.
The latest CEF data point to increases of about 107 cents a litre for 95-octane petrol, 96 cents for 93-octane, 271 cents for standard diesel and 292 cents for low-sulphur diesel, with illuminating paraffin up about 212 cents. Earlier CEF-based projections published by AutoTrader a week ago showed smaller but similarly sized increases, confirming the direction. The Department of Mineral and Petroleum Resources announces the final figures before they take effect on Wednesday, 2 September.
Higher fuel costs have squeezed households and companies all year, despite relief from price cuts in July. Retailer Woolworths said last week that inflation, fuel prices and interest rate hikes moderated its sales growth, and mobile operator MTN said rising fuel and energy costs had reduced consumers’ spending power. In Nigeria, diesel alone accounts for up to 35 percent of MTN’s cost of doing business.
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The war behind the numbers
The shock began on 28 February, when the United States and Israel attacked Iran. Iran responded by striking US bases and allies in the Gulf and effectively closing the Strait of Hormuz, the narrow sea lane that carried about a fifth of the world’s oil before the war.
An April ceasefire ended the most intense fighting and a June memorandum raised hopes of a peace deal, but no final agreement has materialised. Washington has lately favoured what it calls “economic warfare”, including a naval counter-blockade of Iranian ports that the US military says has redirected 83 commercial vessels and disabled three. Only about 24 ships passed through the strait last week, against roughly 130 a day before the war.
On Sunday the lull broke. US forces struck Iranian Revolutionary Guard positions that Central Command said were preparing to launch rockets and lay sea mines in the strait, days after the US finished clearing mines from international shipping lanes. Iranian media reported explosions near Larak Island. It was the first confirmed US military action against Iran since 29 July. Iran said the strikes killed and wounded several of its fighters and, on Monday, fired ballistic missiles at two US air bases in Jordan; Jordan said it intercepted eight missiles.
Oil prices rose on the news. Brent closed up 1.9 percent at US$89.79 a barrel on Sunday and moved back above US$90 on Monday. For South African motorists, that is the price that will flow into the pumps over the coming month.
Frequently asked questions
How much extra has South Africa paid for fuel?
At least R56.3 billion (about US$3.5 billion) between March and August, according to the Centre for Research on Energy and Clean Air. The figure is conservative and excludes shipping costs and local taxes.
Will fuel prices rise in September?
Yes. Central Energy Fund data show an under-recovery on all main fuel types. Expect about 107 cents a litre more for 95-octane petrol and around 271 cents for diesel from Wednesday, 2 September.
Why is South Africa so exposed?
The country imports most of its oil and refined fuel by sea, and the war has disrupted tanker traffic through the Strait of Hormuz. Local prices also lag global markets by about a month, so shocks arrive late but in full.
What is happening in the Strait of Hormuz now?
The US struck Iranian rocket-launcher and minelaying positions near Larak Island on Sunday, its first military action in a month, and Iran retaliated with missile strikes on US bases in Jordan on Monday. Shipping through the strait remains a fraction of pre-war levels.
Who paid the most worldwide?
In absolute terms the European Union (US$78 billion), China (US$35 billion) and India (US$22 billion). Relative to the size of their economies, poorer importing countries paid about twice as much as rich ones.
Sources: Business Day (BusinessLIVE); Centre for Research on Energy and Clean Air; Central Energy Fund data via AutoTrader South Africa; Associated Press; AFP.
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