Expect to feel the effects of the war on Iran in your pocket.
Image: ChatGPT
THE rand weakened towards R16.80 to the US dollar on Monday as escalating tensions in the Middle East pushed investors away from emerging market currencies and into safer assets.
Trading Economics said the currency was approaching its weakest level since mid-December 2025 as hopes for a swift resolution to the conflict faded.
The rand traded around R16.86 to the US dollar after weakening to R16.81 late on Friday as global risk aversion increased amid missile exchanges between the US, Iran and Israel.
“Ongoing missile exchanges between the United States, Iran, and Israel raise concerns that the conflict may persist, leaving South Africa particularly exposed due to its heavy reliance on imported oil and petroleum products from the region,” said Trading Economics.
Risk averse
Annabel Bishop, chief economist at Investec, said intensifying conflict between the United States, Iran and Israel had driven global risk aversion and strengthened the US dollar.
“The risk is for further rand weakness with the US dollar a safe haven now, running stronger on the severe escalation in geopolitical tensions in the Middle East,” said Bishop.
Bishop added that “safe haven flows on substantial global financial market risk aversion, from the intensifying US/Iran/Israeli war, have strengthened the US dollar and gold price as usual, with outflows from risky assets such as equities and those of emerging markets”.
Foreign investors have also reduced exposure to South African assets. “Foreigners sold off South African portfolio assets, with R3 billion worth of bonds sold on Friday,” Bishop said.
Higher oil prices
The escalation in the conflict has also pushed oil prices sharply higher, raising concerns about inflation and fuel prices.
Brent crude briefly approached $120 per barrel before easing back below $110 as markets reacted to concerns about supply disruptions in the Middle East.
Combined with the weaker rand, the rise in oil prices has pushed up fuel price estimates, with the rand oil price climbing to about R1,814 per barrel from roughly R1,161 per barrel at the end of last month.
Bishop said oil prices of about $110 per barrel or higher, combined with a weaker rand – which she noted is not the expected case – could push consumer inflation above 4% year-on-year in the second quarter of 2026.
“The oil price shock would likely be looked through by the MPC if short-lived, and without second round effects flowing into other prices, leaving interest rates unchanged, but higher food and other prices would increase the chance of a hike.”
Andre Cilliers, currency strategist at TreasuryONE, said markets remained sensitive to developments in the Middle East as concerns grew over disruptions to global oil supply.
Brent crude rose above $100 per barrel amid fears that instability around the Strait of Hormuz – through which roughly one-fifth of global oil supply moves – could affect shipments and tighten supply.
The escalation has also strengthened the US dollar as investors seek safer assets during periods of geopolitical uncertainty.
“Until there is clarity on the duration and scale of the conflict, markets are likely to remain volatile with investors favouring defensive positioning,” said Cilliers.