Bloomberg Audio Studios, podcasts, radio news. As the war in Iran continues, global economies are bracing for the economic fallout.
The United States and its partners have launched Operation Epic Fury, one of the largest, most complex, most overwhelming military offensives the world has ever seen. Nobody's seen anything like it.
With oil and gas prices rising sharply, African countries could be among those facing and inflation shock.
You have a major energy for the facility in Katar close, the largest in Katar. You have, of course, that refinery in Saudi Arabia at least closed temporarily. The inflation question and the inflation shock is now being priced into these markets.
If it becomes prolonged, then all bets world Today.
On today's podcast, we'll look at what the conflict is doing to energy prices and supply and what the hit could be for African economies. I'm Jennifer Zabasaja and this is the Next Africa Podcast, bringing you one story each week from the continent driving the future of global growth with the context only Bloomberg can provide. Joining me today is Bloomberg's Asia Energy reporter Steven Stepchinski, and also Bloomberg Economics, Africa Economists von Mango. Thank you both so much for
joining me. I know it's been quite a busy week for the whole newsroom, but especially the two of you. So appreciate your time. Steven, let's just start with you, because you look very closely at the dynamics in the energy sector. Give us a picture of what we had been seeing with oil prices in the last few weeks in the lead up to the eventual escalation that we saw in the Middle East last weekend.
I think the oil market over the last few weeks before this weekend was affecting something. You know, when you talk to the traders, they were talking about the build up of the military force, right the largest US military force in the Middle East in decades. They were looking at the rhetoric, they were looking at the negotiations happening
and the failure to make a deal multiple times. So I think the oil market when you look at the prices, oil prices kind of continuously rose from from late December into January and into February were slowly kind of stepping up higher and higher with this anticipation that if a deal wasn't done, every time they went to the negotiating table, then maybe you could see some sort of strike on Iran, and no one knew exactly the level of the strike.
But especially I think when the State of the Union happened and Trump said that he would never allow Iran to have nuclear weapons. People in the market talked to me and they said that's when they really saw, Okay, maybe something would be happening. It was, of course a lot of guesswork. But in the end, the market did continue to rise ahead of all of that.
Where have we seen the prices really rising substantially? Because I feel like for a while we had been talking about incremental rises right, a bit of range bound in terms of Brent crude.
But where have you.
Seen the most substantial rises and prices in the energy market that we should be focused on.
There are a number of different places, right. Brent is a global benchmark, It's trade has very liquid, it can be sometimes quite volatile. But you're right, the prices haven't been out of sight increases. You know, you've seen incremental increases of seven for today it's up two point eight percent. There are other markets that are a bit more crazy. Jet fuel prices in Singapore have really searched the highest
level in years. You're also looking at different types of prices for the ships themselves to rent to ship the prices are rising to the highest level in years. And then also look at natural gas. Look fight natural gas prices have surged quite significantly, about more than fifty percent over the last three days, and that's the European benchmark
and the Asian benchmark. And that increase is quite interesting because unlike the oil market, which I think was anticipating some sort of strike for Iran, had not actually been increasing. The gas market, I think, interestingly enough, had somewhat discounted that something would happen and wasn't expecting some sort of large impact that we're seeing today with the Strait of Horror moves getting shut and the closure of Qatar's largest
lique financial gas export facility. So all of that together has made gas one of the more interesting parts of the market.
You talk about the straight of horror moves, Stephen, is that the route that the energy market is most fixated on in terms of the risk to prices going higher.
What else?
What are the other routes potentially that we should be focused on.
I think the oil market and gas market too, are focused on two things. One straight of hor moos. Like you said, it's it's the key conduit for a fifth of both oil and gas seaborne supply, but also the region.
Right.
So what's been very different about this strike in this conflict versus previous ones is that it isn't just a tit for tat sort of thing between Iran and Israel. This is spreading to the wider region, and Iran is hitting countries that many thought where they're you know, sort of their allies or their friends in the region. I'm talking Qatar, UAE and also Saudi Arabia. They're antagonizing their neighbors.
So the market is looking at okay, if there are some drone strikes on Saudi Aramco's largest refinery, what is the impact there? They've shut it down? How long will be shut down? Is it damage? Can it come back quickly? Same with Katar. They hit their largest Lick Fi natural gas export facility. It supplies twenty percent of global LNG supply. That was shut down. How long will that shut out? How long does it take to restart fourteen LNG production trains?
So what's kind of interesting about this conflict is that the straight of Hormos. Theoretically, if there was a piece deal, you could kind of resume traffic pretty quickly if there were assurances from the US, if something happened, and then the trade could resumes and everything's back to normal. But if infrastructure is hit, if a pipeline is hit, if i Raq is taking offline their largest oil field, suddenly
things get a bit more complicated. Actual barrels aren't making its way into the market, and if there's damage, how long does that repair take? Are we talking days, weeks, months? There are a lot of unknowns and as every day that this continues, the risk premium kind of chugs along and gets higher.
And Ivon, I'd like you to jump in here.
You've been looking at the impact that this could potentially have across the African continent, especially as it pertains to higher energy prices. As Steven was just mentioning there, what has been your focus over the past few days.
So a few things divide the African continent, like a surge in the ore price, and the reason for that is because we're primarily export as commodities and we import almost all our refined petroleum needs on the continent. So such a significant increase in your price, of course, will benefit our all exporters in particular countries such as Nigeria
and Angola. Angola in particular, we've looked. We estimated what a twenty dollar increase in the barrel increase in your price could mean, so in the case of Angola, that could improve its current account balance by as much as three percent of GDP, so it's quite significant. However, the majority of African countries are net all importers, so unfortunately
this is negative for the majority of the continent. Countries like South Africa and Kenya will be hit on the external balances side by as much as one percent of GDP on their current account as a result of such a significant searche in the old price, assuming of course prices remain at these levels. Aside from the trade channel,
we're concerned about what it means for inflation. Africa generally enjoyed this inflation new trend over the past couple of years that's allowed countries to reduce their inflation targets or contributed to that in the case of South Africa, it supported reduction of interest rates across the board. This is of course, following that shop tightening when we had Russia attack Ukraine and grain prices went up. So now since then we've seen inflation come down nicely and interest rates
start to follow. Unfortunately, such a huge search in your price does imply that this inflation trend will be halted and interest rates may also come back onto the table as an option for central banks.
And Von Stephen stick with us.
We're going to take a quick break and when we come back, we're going to dig into more about what this could mean for African economies and how long lasting this shock could actually be.
We'll be right back.
Welcome back. Today we're looking at the impact of the war and Iran on energy prices. Steven Stepchynsky and Evon Mango are still with me, Yvon. Let's just take South Africa, because of course we know that has been the country's been in focus recently came out with their budget just a few days ago, had talked about turning around the corner on a lot of the past troubles for the economy.
Is this going to undo a lot of the work that the SARB and the government has really done to get inflation under control.
So yes, you raise a good point in that and we are at a positive point in terms of the macro turnaround that we're anticipating. The growth is lagging. However, I do think the buffers that have been put in place will help in terms of mitigating the impact of
a high old price. An example of such a buffer is the primary budget surplus that the government has accumulated over the past three years, so first time in several years that we actually have a primary surflus and that should help in terms of mitigating the impact on the fiscus on the current account. The upside that's to show that the upside of having a free floating currency at SO Africa does, which is a minority on the continent,
is that it behaves as a shock absorber. So what you should see is that demand for imports should compress as a round weekends on the back of a weak external position, and that should help mitigate the impact on the external side of the economy.
Interestingly, we heard the DJ of the Treasury we talk about how potentially commodity exports and gold could potentially also provide some of that buffer for South.
Africa, Yvon.
When we look at let's just bruden it back out to the continent and talk about so many impacts potentially on the bond market. Have we seen any significant shifts higher yields as a result of the increased escalation in the Middle East across African bond market?
So following the initial strikes at the weekend and on Monday, yes, we did see the spreads between bond yields for African sovereign bonds and US treasuries widen as we saw risk of sentiments take off globally. As we move forward, of course, I think what you see as investors will become a bit more discerning. I think you'll see when they look at just at their Africa portfolio. That's the all exporters that are bond issuers will see their bund ye olds ease.
And the examples of those are the likes of Nigeria, debon the Republic of Congo. In this environment, those countries should benefit on the back of a higher ol price. Where you're going to see more skepticism or concern is countries that are all important.
Steven, Let's just let's bring you back in because it really seems like the energy sector, the oil brank crud is really what to watch here. I've seen a number of forecasts for how high this could potentially go. What are you looking at in terms of the prices for brank crud and potentially what the next catalyst could be to creep higher if we are even headed to one hundred or higher, as some analysts are pointing out, I.
Mean, I think anything is possible, right I think if you asked me last week or two weeks ago if we would see an effective shut to the strait of her moves, I would say the likelihood of that is pretty low. But now we're seeing it. So we're in uncharted territories. This has never happened, and so I think
there are a few things to watch out for him. Yes, with Brent right now around eighty three eighty four dollars per barrel, so we're not at one hundred dollars yet, but there is a chance where if this continues and if certain things happen, we could be our way to one hundred dollars or go above one hundred dollars one if there is some major damage to infrastructure right now, there have been some refinery shut some pipelines you know, I think targeted, but overall oil is still largely pumping.
There has been some shutdowns in a Raq, but even when you look at the ship tracking data and satellites, some analysts are saying that Iran is still exporting oil. So oil is still making its way into the market. But if you were to see any major impact in Saudi Arabia's ability to produce, or even Iran or other countries in the region, I think that starts to creep up a bit more if you start to see another
breakdown in the talks. Right I think yesterday the New York Times reported that there were some back channels between Iran and the US for a potential piece deal. You saw Brent and gas prices kind of fall a little bit, but then Brent kind of made up some of those losses. If we now see that there's a total breakdown discussions, or if rhetoric from Trump changes, you could see prices rise again, and then you also see potentially a bidding up of prices from Asia. Right now, I think Asian
customers are somewhat calm. Asia is the biggest buyer of this Middle Eastern oil, but yet you're not really getting the sense of panic that you're getting, for example, in the natural gas market. So if you do start to see people fighting over shipments. If you were to have what I would call a price war over deliveries that are on the market and taking up that spare supply, and you see the oil on the water start to shrink,
then you could see again prices run. But what's interesting about the oil market at the moment is we were supposed to enter year of an oversupply. There's quite a bit of oil available, so with the glut, you know, still there. If there were a piece deal, I think quickly you would see a lot of the ste fleet.
Which, Yeah, that's a really good point that you bring up. We went into twenty twenty six talking about oversupply Ivon Is that similar to you?
Is that sort of what you're focused.
On really the price of crude and where it goes next and how that could trickle down to the African economies.
Yes.
I think our assumption, who you look at the fundamentals, is that there's an abundance of supply and that we expected in the absence of a conflict, we expected the oil price to main flat, if not cool. So a lot depends on the locativity of the conflict and whether indeed the strait of almost remains shut for an extended period, but the fundamentals outside the walls suggests that we should have a cooler energy prices which would benefit the majority of the continent.
Still quite a bit of unknowns, but we appreciate the two of you joining us this week to break what we do know at this point in time. Steven Stepchynski and Ivon Mango, thank you both so much for joining us this week, and you can, of course read all of our coverage on the war in Iran across Bloomberg platforms. Now here's some of the other stories we've been following
across the region this week. Dan Gote Cement, Africa's biggest producer of the building material, will spend one billion dollars to boost capacity over the next four years as infrastructure construction spurs demand. And Nigeria brought the timetable for next year's election forward and announced new rules that appear to
catch the opposition off guard. Presidential and National Assembly elections will be held on January sixteenth, twenty twenty seven, roughly a month earlier than was previously scheduled, the Independent National Electoral Commission said, and you can follow these stories across Bloomberg including the next African newsletter.
Will put a link to that in the show.
This program was produced by Adrian Bradley and tiwa Adebayo. Don't forget to follow and review the show wherever you usually get your podcasts. I'm Jennifer's Abisaja. Thanks as always for listening.