Israel could push SA and global economy into a recession

The Israel-Iran conflict is raising oil prices and recession risks for both South Africa and the world

- Natale Labia

Only Israeli Prime Minister Benjamin Netanyahu can know what his end game with Iran is, and perhaps even he doesn’t have a clue. What is clear to the rest of us, as this brutal war between two sworn enemies in the Middle East spirals further, is that it shows no signs of easing.

As the world watches and prays for a de-escalation, the pressing question is: what could the consequences be for the global economy, and South Africa in particular?

Links between geopolitics and the global economy are tangential at best, at least in the short term. Obviously, in a conflict such as this, the key factor between the two is the price of oil. But even this relationship can be unpredictable.

After the 9/11 attacks in 2001, the price of Brent crude oil, the key benchmark, jumped 5% as markets braced for broader disruptions to supply across the Middle East. Yet, within weeks, oil prices had fallen 25% as worries about weakening global demand and a possible recession overtook the fears of supply shocks. Similarly, after Russia invaded Ukraine in February 2022, Brent crude surged 30% in two weeks, only to return to pre-invasion levels eight weeks later.

Oil prices are now about 15% higher than they were in early June, before Israel started its strikes on Iran. What happens in the next few weeks will determine whether they push any higher or start to normalise back to where they were.