• IRAN
• AFRICA
• GULF STATES

Another war, another bill for Africa

The US-Israel strikes on Iran have sent energy prices soaring and upended global supply chains in a multi-front crisis

AFRICA: IRAN WAR HITS OIL IMPORTERS, DOMESTIC CURRENCIES

After the United States and Israel launched strikes on Iran on 28 February, triggering a cascade of retaliatory attacks across the Gulf, the economic toll on Africa is emerging in overlapping waves. The most immediate is oil: prices have broken US$100 a barrel – already roughly 50% above February levels – with industry sources predicting over $120 if the effective closure of the Strait of Hormuz, through which a fifth of global petroleum flows, persists (AC Vol 67 No 6, How Abiy’s march north could ignite the Horn).

A $20 rise in oil prices alone could drag Congo-Kinshasa’s current account down by more than 3% of GDP, and those of Ethiopia, Kenya, Uganda and Tanzania by close to 1% each, according to estimates by Bloomberg Economics. Gas supplies are also disrupted, pushing up power costs. Reduced remittances from the Middle East are squeezing household incomes across East Africa. Fertiliser shortages threaten next season’s harvests. Sulphur imports, largely sourced from the Gulf and critical to copper-leaching operations in central Africa’s copperbelt, are at risk. And in Egypt, the cessation of gas flows through Israel’s pipeline coincides with the threat to Suez Canal revenues, sliding tourism receipts and a currency under pressure.

Across Africa the fallout threatens to drive capital outflows, depreciating currencies, weaker foreign-exchange positions and increased borrowing costs. Egypt and the Horn of Africa face additional exposure from proximity to an escalating conflict (Dispatches 9/3/26, Energy price spike leaves African states facing anxious wait for Middle East war to calm). Oil exporters such as Nigeria and Angola, whose export revenues and current-account balances should benefit from expensive oil, are vulnerable to other consequences of the war.

Two key questions face Africa’s policy-makers: the likely duration of the conflict, and the ability of the US and its allies to unblock the Strait of Hormuz, a vital pathway for oil, gas and fertiliser.

Shortages
Fuel prices are already rising in several economies: Kenya, where fuel shortages are worsening; South Africa, whose diminished domestic refining capacity increases vulnerability; and Nigeria, where the Dangote Refinery has raised fuel prices and imports crude oil via international traders as domestic producers cannot supply enough. African states have, by global standards, relatively low oil and fuel storage capacity.

Disruption to Middle Eastern gas supplies threatens higher gas prices, feeding through into costlier power generation and raising concerns over alternative sources. The European Union is seeking new liquefied natural gas (LNG) supply routes, including from North Africa.

Hydrocarbons-market chaos, combined with reduced remittances from the Middle East – particularly to Egypt and East African economies – will impact national finances, inflation and governments’ policy choices. Africa’s more than 40 oil importers may face pressure to institute, resume or increase fuel subsidies.

With upward pressure on inflation, central banks hoping to cut policy interest rates may need to change tack – either by delaying planned cuts or even hiking rates to control inflation. That will hurt economic growth. They will also need to reduce the risk of significant portfolio outflows and of currency depreciation bringing ‘imported inflation’ via more expensive imports.

Weaker domestic currencies and a stronger dollar, at a time of increased investor risk aversion, could undermine debt-servicing capacity in several African states, with refinancing maturing debts becoming more expensive and hitting foreign-exchange reserves and liquidity. Some analysts speculate whether some frontier economies could again be locked out of international bond markets.

In South Africa, Treasury officials maintain that the fiscal position is strong enough to weather the Iran war. South Africa will also benefit, like Ghana, Mali and Tanzania, from gold prices at $5,000 an ounce, with the metal seen as a safe haven by investors (AC Vol 67 No 5, Debt peaks as Treasury pushes for growth and credibility).

But last month, the Treasury acknowledged that much higher oil prices and a weaker currency could push up the national debt-to-GDP ratio.

In Kenya, more expensive fuel and fears about replacing Middle Eastern supply coincide with concerns over access to Middle Eastern markets for agricultural goods, including tea, fertiliser shortages and reduced remittances from Kenyans working in the region. Like South Africa, Kenya’s tourism industry would be hit by significant disruption to aviation routes. The government’s response to ‘potential spillovers’ from the Iran war has been central in recent discussions with visiting International Monetary Fund (IMF) staff.

Kenya’s fiscal space to respond to external shocks is limited – and will remain so as the 2027 national elections approach. Nairobi is one of the few African governments concerned about Iran specifically as an export market, mainly for tea.

North Africa’s economies face varying levels of exposure. Were it able to boost gas output and develop its reserves, Libya would be well placed for a significant rise in exports, particularly to Europe. Better placed, despite some infrastructure and investment constraints, is gas and LNG exporter Algeria, though its long-term gas contracts may limit its ability to benefit from higher prices.

The chief executive of one Africa-focused mining company operating in South Africa and Congo-K warns that reduced sulphur imports from the Middle East – where the vast majority of central Africa’s mining-sector sulphur is sourced – could limit the copper leaching process. The disruption to shipping routes and rising insurance costs bode poorly for import prices and transport costs borne by Africa’s exporters.  

Moves to divert some freight traffic away from the Gulf and around the Cape of Good Hope add further complications. It is less clear to what extent African ports along this route will benefit, amid concerns over the capability of South Africa’s ports to handle increased traffic.

One effect of the Gulf war could be the redirection of the Gulf Cooperation Council states’ attention to their own shores. That could cut both ways: reducing their role in proxy conflicts such as Sudan’s civil war but also redirecting funds from African projects to post-war reconstruction in the Gulf. This could slow infrastructure projects essential for growth and limit governments’ financing options. In Qatar’s case, this could reduce investment in Congo-K and Mozambique.

Analysts from economics advisory firm Oxford Economics Africa say the crisis could boost African oil and gas projects as larger economies and companies try to diversify their hydrocarbon sources to reduce vulnerability to future Middle Eastern shocks. These include major investments, or upcoming final investment decisions, in Mozambique and Namibia, with the economic calculus improving for delayed projects such as the $5 billion East Africa Crude Oil Pipeline (EACOP) from Uganda to Tanga Port in Tanzania.

Some multinationals running their Africa operations out of the United Arab Emirates may shift operations or open headquarters in African cities such as Nairobi or Cape Town. The incentive for investment in African ports could also increase.

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