Middle East Conflict Drives Up Oil Costs, Threatens African Economies

Rising oil prices from the Iran conflict are creating economic challenges across Africa, where most countries depend heavily on imported petroleum products. The price increases threaten to drive up inflation and weaken currencies throughout the continent.

NAIROBI, Kenya (AP) — The ongoing conflict involving Iran has caused oil prices to spike, creating economic turbulence throughout Africa as nations face the prospect of increased fuel expenses, mounting inflation, and additional stress on their monetary systems.

Most African nations rely on petroleum imports to meet their energy needs, making their economies particularly susceptible to supply chain interruptions stemming from Middle Eastern conflicts in this crucial oil-producing region.

“Africa is a net importer of oil products, meaning it is heavily exposed to shocks like these,” stated Nick Hedley, who analyzes energy transition research at Zero Carbon Analytics.

According to Hedley, when worldwide oil availability becomes constrained, costs increase while African monetary units typically lose value as financial backers shift investments toward safer options like U.S. currency.

This dual effect intensifies the consequences of price jumps in nations dependent on imports, including Kenya and Ghana.

A comparable situation occurred following Russia’s comprehensive attack on Ukraine in 2022, when climbing crude costs combined with currency devaluation caused South African transportation fuel prices to increase by over 25% in half a year, Hedley noted.

“The near-term risks come from mainly the rising oil prices and weakening exchange rates as investors move to safe-haven assets,” explained Oxford Economics senior economist Brendon Verster.

Energy markets continue to react strongly to the conflict due to the critical role of the Strait of Hormuz, a confined maritime passage that handles approximately one-fifth of global crude transportation.

The consequences of elevated oil costs will vary across African nations.

Nations such as Kenya and Uganda report their supplies remain steady while they focus on maintaining consistent access. Nigeria and Ghana extract crude oil domestically but must import most processed petroleum products, reducing their ability to benefit from increased global pricing.

“It’s difficult to say at this point whether they will see net gains,” Hedley observed. “Oil producers could benefit from higher crude prices, but ordinary citizens will likely face higher transport and fuel costs, and potentially higher interest rates.”

However, prolonged elevated prices might generate substantial profits for Africa’s primary oil-exporting nations. Verster highlighted that Nigeria ships approximately 1.5 million barrels daily and has structured its medium-range budget planning around oil values between $64 and $66 per barrel until 2028.

The conflict pushed pricing beyond $100 per barrel on Monday, a threshold that could substantially increase income for exporters like Angola, Algeria and Libya if maintained.

For the majority of African families, the immediate consequence will likely be increased living expenses.

“This is a serious concern,” Hedley emphasized, pointing out that most food and merchandise throughout Africa moves via roadways. “Rising fuel costs therefore feed quickly into broader inflation and reduce household purchasing power.”

Peter Attard Montalto, managing director at South African consulting company Kruthan, said the situation is also challenging African economic systems.

“So far the impact has really been muted, for countries like South Africa,” he commented, observing that recent policy changes have helped stabilize the nation’s currency and financial markets.

“Still, higher oil and gas prices are expected to filter into inflation in the coming months,” Montalto added.

Nations already participating in International Monetary Fund programs may experience additional pressure as energy import expenses deplete limited foreign currency reserves. Analysts identify Sudan, The Gambia, Central African Republic, Lesotho and Zimbabwe among the most at-risk countries.

Looking ahead, experts suggest the crisis might strengthen arguments for African countries to broaden their energy portfolios and decrease reliance on imported fuels.

“It makes strategic sense for African countries to ensure long-term energy security and sovereignty,” said Kennedy Mbeva, a research associate at the Centre for the Study of Existential Risk at the University of Cambridge.

Accomplishing this goal, Mbeva explained, will require managing immediate budget constraints while making long-term commitments to renewable energy and environmentally friendly industrial development.