When conflict disrupted oil transport through the Strait of Hormuz in late February and the oil price surged, we all leapt into action. Adjusting inventories, changing forecasts, tightening belts. Academic economists, however, have meticulously modelled the impact of such occurrences on South Africa’s economy. Given that South Africa is a relatively small, open economy that imports almost all of its oil, oil price shocks have a significant impact on local conditions. The more nuanced findings of sometimes hot-off-the-press papers offer hints at how we can respond better.
Fear itself
First, a reminder that warships and rocket attacks aren’t needed for oil shocks. The mere thought is enough to put downward pressure on GDP. Chiweza and Aye (2018) draw on monthly South African data from 1990 to 2015 to model the impact of oil price uncertainty on the country. Their finding: productive investment decisions get paused.
“Under such uncertain conditions,” they argue, “firms would prefer to adopt a wait-and-see option until perhaps they obtain more information about future cash flow. This is particularly important when these investments are irreversible, making capital more risky. As firms delay their investment decisions, this will affect the level of output in the economy negatively.”
The uncertainty-induced pause contributes to lower output, higher inflation and currency depreciation. And these effects linger. Their model shows the currency still weakening two years after the initial shock.
The two researchers quantify the impact, calculating “oil price uncertainty shock explains between 0.3% and 5.01% [of forecast error] variations in domestic output” over 24 months.
For an oil-importing country like South Africa … stock returns and the real price of oil move in opposite directions
— Rangan Gupta and Mampho P Modise
Not all shocks are equal
Gupta and Modise (2013) get more granular. They unpack data spanning 1973 to 2011 to distinguish three types of oil shock — supply cuts, demand booms and market speculation — and explore how each affects share returns in South Africa.
There is some good news. “An unexpected positive aggregate demand shock has a positive impact on stock returns,” they write. This fits, given that expanding demand suggests healthy global GDP growth. So far so good.
But that is not the current milieu. We are in a negative supply shock. Gupta and Modise find that “for an oil-importing country like South Africa … in response to oil supply shocks and speculative demand shocks, stock returns and the real price of oil move in opposite directions”.
They quantify the impact on South African share prices over 12 months, concluding that “global oil market shocks account for 54.1% of the [forecast] variability in domestic real stock returns”.
Slow burn
Khobai et al. (2025) examine how oil price shocks impact local inflation over time. They show how short-run results can confound us — oil price dips can be associated with higher inflation, and vice versa. Longer term, they find the inflationary impact peaks between three and five years after the initial shock.
Silver linings
Ndou and Gumata (2025) investigate the passthrough of oil prices to the consumer price index (CPI) in South Africa, depending on whether this lies in the 3%-6% inflation target band (as it then was) or above the 6% ceiling. They find that “the oil price passthrough to inflation is about three times lower when inflation is within the 3%-6% target band compared to when it is above the 6%”. Fortunately, the latest data puts CPI at 3.1%.
Oil price shocks also create opportunities — for some. One study offers insights for speculators. Evaluating the effects of oil price shocks on Brics stock exchanges, Marathe et al. (2025) find that “markets in Brazil, China and South Africa are not efficient, as prices in these markets can be predicted to some extent using historical data. This suggests that not all Brics countries have fully developed or transparent financial markets.”
For a reminder that it is the long term that really matters, consider Majenge et al. (2025). After an in-depth analysis of oil price shocks, exchange rate transmission and CPI in the wake of the 2008 global financial crisis, the authors conclude that “South Africa’s status as a country that imports oil and has a floating exchange rate system makes it vulnerable to external shocks in the short term. However, in the long term, the results … suggest that the economy has developed mechanisms to adjust to oil price shocks over time.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.