Iran war exposing South Africa’s dependency on diesel

South Africa's vulnerability to the oil shock triggered by the Iran war has less to do with global geopolitics than with a decade of infrastructure failure at home — crumbling rail lines, closed refineries and years of power cuts that quietly rebuilt the economy around diesel.That is the central finding of researchers at the Bureau for Economic Research, who have been modelling the economic impact of the Gulf conflict on South Africa. Their analysis, based on ongoing work not yet published, concludes that diesel — not petrol — is where the damage will be deepest, and that the reasons are structural rather than incidental."The dominant economic impact of the Gulf war on South Africa is not simply that households are paying more at the pump," the bureau said. "The impact is also being felt through higher logistics, freight and operating costs as they feed through supply chains into broader inflation."There are two reasons diesel matters more than petrol in this crisis.The first is that diesel underpins South Africa's cost structure in a way petrol does not. It powers freight transport, food distribution, mining operations, agricultural machinery, generators and large parts of the country's logistics network. Higher diesel prices therefore raise the cost of moving goods, distributing food, operating mines and running backup generators during power cuts — costs that ripple through supply chains before they ever reach the consumer.The second is that diesel prices have spiked far more sharply than petrol. Relative to the first quarter of 2026, diesel prices in the second quarter rose by almost 60 per cent, compared with about 25 per cent for petrol.The bureau's calculations suggest that higher fuel prices could add roughly R45 billion — just over 2 per cent of quarterly GDP — in additional fuel costs to the South African economy in the second quarter of 2026 alone. Nearly 70 per cent of that burden would come from diesel rather than petrol.How South Africa became a diesel economyThe scale of South Africa's exposure to diesel did not happen by design. It happened gradually, as the country built diesel into its coping mechanisms for failures elsewhere.Two decades ago, the fuel mix looked very different. In 2005, petrol accounted for close to half of total fuel consumption, while diesel accounted for roughly a third. Today those positions have nearly reversed: diesel makes up almost half of all fuel consumed nationally, while petrol's share has declined steadily.Part of that shift is benign. Petrol vehicles have become significantly more fuel-efficient over time, allowing households to travel further on less fuel. Weak household income growth, higher fuel prices and expensive vehicle financing have also constrained driving and slowed petrol demand growth.But the more consequential shift is structural. As the state-owned freight monopoly Transnet's rail capacity deteriorated over the past decade, more and more freight moved from trains to trucks — and trucks run on diesel. The collapse of rail has effectively transferred a large and growing share of South Africa's logistics burden onto a fuel that is now acutely exposed to a global supply shock.The power-cut years compounded the problem. Between 2022 and 2024, as load-shedding reached its most severe levels, businesses across mining, manufacturing and agriculture turned to diesel generators to keep operating. Hospitals, shopping centres and data centres followed. Diesel consumption accelerated sharply as it became, in effect, South Africa's substitute electricity grid.At the peak of the crisis in 2023, Eskom itself relied heavily on diesel-fired open-cycle gas turbines to support the national grid when the coal fleet failed. At times, Eskom's diesel consumption was estimated at between 20 and 30 per cent of total national demand — an extraordinary concentration of fuel dependency in a single state entity. That dependence has since eased as electricity supply stabilised and open-cycle gas turbine usage declined.The result is that diesel has quietly become what the bureau describes as South Africa's shadow infrastructure system — the fuel that has compensated for failures in electricity generation and freight transport alike. That substitution kept the economy moving during its most difficult years. It also left the country acutely exposed when global oil markets were disrupted.This is why South Africa's vulnerability to an oil shock cannot be resolved simply by encouraging consumers to switch from petrol-driven vehicles to electric ones. The deeper exposure lies in diesel-intensive systems — freight, mining, food distribution, backup power — that are not easily or quickly decarbonised.Refineries, imports and a compounding riskSouth Africa has always imported virtually all of its crude oil, making it structurally vulnerable to global price movements. But that vulnerability has changed in character as domestic refining capacity has declined.Several domestic refineries closed between 2020 and 2023, and fuel imports have risen to replace them. South Africa is therefore now exposed not only to higher oil prices but also to disruptions in global fuel supply chains — a compounding risk that did not exist to the same degree a decade ago.The bureau warns that this creates the conditions for external and domestic shocks to reinforce one another. A global fuel disruption in isolation is painful but manageable. When it coincides with domestic structural weaknesses — degraded logistics infrastructure, reduced refining capacity, a generator-dependent business sector — fuel stress becomes considerably more destabilising.Agriculture: margins, markets and the roadThe agricultural sector faces pressure on multiple fronts.South Africa is unlikely to face an immediate food supply crisis. Domestic production conditions remain relatively favourable, and consumer food inflation began moderating earlier this year, supported by ample supplies of grains, fruits and vegetables.Nevertheless, the sector will feel the strain. Fuel accounts for a substantial share of food distribution costs in a country whose transport system is heavily road-dependent. Wandile Sihlobo, chief economist of the Agriculture Business Chamber of South Africa, said roughly 80 per cent of South African grain is transported by road. Higher diesel prices feed directly into the cost of moving food across the country, raising distribution costs long before they are visible in supermarket prices.Farming operations are also highly diesel-intensive. Fertiliser prices have spiked sharply as a consequence of the closure of the Strait of Hormuz, squeezing margins across both farming and food distribution.Export markets present a further risk. The Gulf states, together with Iraq and Iran, are significant destinations for South African fruit and meat exports, much of which moves through shipping routes linked to the Strait of Hormuz. Farmers may lose access to those markets at a moment when their operating costs are already rising.The fiscal cost of reliefThe government has moved to cushion the blow, but at a cost that now exceeds its available reserves.In April 2026, it introduced temporary fuel levy relief of R3 per litre before extending and expanding that support specifically to diesel. By May, diesel levy relief had effectively increased to R3.93 per litre, temporarily reducing the general fuel levy on diesel to zero.The total cost of the relief between April and June is expected to reach roughly R17.2 billion in forgone tax revenue. That figure exceeds the roughly R10 billion contingency reserve available in the current budget, meaning the shortfall will need to be absorbed through stronger-than-expected revenue collection or spending adjustments elsewhere.Inflation and the Reserve Bank's credibilityFuel prices shape inflation expectations with unusual speed and force because they are highly visible and purchased frequently. Even temporary spikes therefore carry the risk of de-anchoring expectations — particularly in South Africa, where the Reserve Bank has spent several years building credibility in support of a lower inflation target. Sustaining that credibility depends on inflation expectations continuing to fall towards 3 per cent.Policymakers are consequently concerned not only about fuel prices in isolation, but about the risk that higher fuel costs become embedded in broader pricing behaviour and wage negotiations — a second-round effect that could undo years of careful monetary work.The lessonSouth Africa did not choose to become a diesel-dependent economy. It happened one workaround at a time — a truck where a train once ran, a generator where the grid once held, a gas turbine where a coal plant once fired.Those adaptations kept the economy functioning during its most difficult years. But they also accumulated into a structural vulnerability that the Iran war has now exposed with unusual clarity.The bureau's conclusion is direct: South Africa needs to fix its fundamentals. Not the improvised, diesel-powered resilience that has sustained the economy through successive crises, but the deeper kind — functional rail, reliable power, domestic refining capacity — that would reduce the country's exposure when the next external shock arrives.

Iran war exposing South Africa’s dependency on diesel

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Republikein 2026-06-30

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Iran war exposing South Africa’s dependency on diesel

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Republikein 2026-06-30

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