The announcement of a temporary ceasefire between Iran and the United States on 7 April 2026 led to a marked improvement in global investor sentiment, with many emerging market currencies recovering earlier losses. The rand was a notable beneficiary, having been one of the most oversold emerging market currencies during March, as well as benefiting from the much-improved domestic economic backdrop.
Unfortunately, more recently, markets have shifted to a risk-off phase as US/Iran tensions continue, with the Brent oil prices moving back to $100/bbl. The core dispute between the US an Iran now centres on control of the Strait of Hormuz. The US naval blockade is restricting maritime traffic to and from Iran’s ports. In response Iran has again shut the Strait to other international vessels and has attacked some commercial ships that have attempted to move out of the Persian Gulf. Effectively, there is now an uncomfortable “stalemate” between the US and Iran, which is keeping the oil price elevated and economic uncertainty elevated.
This is negative for emerging market currencies, including the rand.
Higher oil prices do present a significant headwind to SA’s rate of inflation, especially over the next few months. Fortunately, it is unlikely to derail the country’s progress (albeit slow progress) in implementing key policy reforms.
It is also worth highlighting that the sharp increase in fuel prices during 2022, which pushed SA petrol inflation to a record high of 53.8%y/y in July 2022 did not drag the economy into recession. Instead SA’s GDP grew by 2.1% during 2022, despite interest rates increasing by 350bps. This does not mean that a surge in the fuel price should be ignored, especially since the petrol price is likely to increase significantly further next month and could achieve another record high, but it does suggest that the SA economy has been able to absorb this type of shocks without a substantial curtailment of economic activity.
Lastly, prior to the onset of the Middle East crisis, the International Energy Agency indicated that the global oil market was in oversupply. This would suggest that if the Strait of Hormuz is opened and oil supply from the Middle East is able to improve (taking into account the damage that has been inflicted on some of the oil infrastructure in the region), then the international oil price should decline considerably. Especially since some countries have increased their stock of fuel during the past 6 weeks given the uncertainty of global oil supply.
Assuming that a lower and more stable oil price emerges over the next couple of months, South Africa’s focus would shift back to domestic factors - namely the trajectory of interest rates, the outlook for upcoming elections, and the pace of structural reforms and the prospects of a credit ratings upgrade by the end of the year. With SA’s economic fundamentals still pointing to gradual improvement in economic conditions (despite the high fuel price) and with some assets having been oversold, this could present a broader buying opportunity for both domestic and international investors – which would presumably support the rand. Indeed, early signs of this adjustment are already emerging and a moderately weaker US dollar - following its safe-haven surge during the height of the crisis - are providing a tailwind to emerging market currencies, including the Rand.
The primary risk to this view is an escalation of geopolitical tensions, especially if the US reengages militarily, which would override underlying fundamentals and introduce significant risks to the current economic backdrop.
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