Eyes on the Strait of Hormuz: Oil Prices Tumble

Summary

Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education. Image: Supplied Financial markets across the globe await the possibility of the opening of the Strait of Hormuz. CNBC reported that “As of May 8, 2026, the Strait of Hormuz remains effectively closed to most commercial shipping due to an ongoing blockade following the outbreak of conflict between the US/Israel and Iran in late February 2026. While negotiations are ongoing, Iran has stated it will not reopen the waterway without its permission, suggesting a full reopening may not occur until the second half of 2026. This statement from Iran stopped a sharp decrease in the oil price on Friday. Markets were optimistic from last Tuesday to Thursday that the strait may be opened within the coming week. In reaction, the Brent oil price fell sharply from $113 last Monday to as low as $97 on intra-day trade on Thursday (7 May). This optimism saw the prices for precious metals recover quickly, and the Rand exchange rate appreciated strongly. The gold price increased last week by $184 to close Friday at $4,707, whilst the price of platinum shot up by $82 per ounce to $2,052 on Friday. The Rand exchange rate improved by 40 US cents from $16,80 last Monday to close at $16,40 last Friday. At one stage last Wednesday, the Rand traded as low as R16,26/$. This is only 30 cents weaker than the R15,96 the day before the Iran attack by the U.S. and Israel. The JSE share indices followed the same pattern, led by the JSE metal and mining index. The index improved by 6,65% last week. This strong increase pushed the Top 40 index higher by 4,8% last Thursday but given the uncertainty around the opening of the Strait of Hormuz, the index ended the week 2,7% higher. The ALSI followed the same pattern, advancing quickly by 3,5% over the week until Thursday but lost 1,06% on Friday. Fuel Prices Given the sharp increase in the Brent oil price and the sharp depreciation in the Rand/$ exchange rate, the price for petrol was increased by R3,27 per litre and that for diesel by R5,26 per litre last Wednesday. The Minister of Finance, Mr Enoch Godongwana, renewed the lower fuel levy of R3,00 per litre for petrol and increased the lower fuel levy for diesel to R3,93 per litre. Both the price of petrol at R26,63 and diesel at R31,17 reached record prices last Wednesday. Many analysts feared that these prices may even rise again at the beginning of June, especially if the lower fuel levy expires. This will have a severe effect on prices throughout the economy, given the massive downstream effects on food and other input costs in the economy. The MPC of the Reserve Bank has already forecasted that the inflation rate for South Africa is expected to quickly increase from 3,1% in March to 5,0% by the second part of the year. Under such a scenario, a 50-basis point increase in interest rates was envisaged. The strong recovery in the oil price last Thursday and Friday, to levels just above $100 per barrel, and the appreciation of the Rand by 40 cents/$ had changed these fears. By last Friday, the price of diesel had already recovered by R2,48 cents per litre, whilst the price for petrol was still under recovered by 83 cents per litre. It is now expected that this more favourable position may improve over the next three weeks and that motorists may experience lower prices in June, especially for diesel. This coming week, financial markets will still be mostly affected by the events of the ongoing conflict in the Middle East. It was announced on Friday that the US economy added 115,000 jobs in April 2026, according to the latest report from the Bureau of Labor Statistics (BLS). This figure significantly exceeded the market forecast of 62,000. Together with the higher fuel prices in the US and the inflation rate for April that will be announced this Tuesday and is expected to remain at 2,3%, it is now a given that the Federal Reserve will not lower interest rates. The Federal Open Market Committee (FOMC) will meet next week. The US will also release its retail sales for April this coming Thursday. Elsewhere, the UK will announce its economic growth rate (GDP) (preliminary estimation) for Q1 2025 on Thursday. Domestically, STATSSA will release the latest mining production figures for March on Thursday. Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.