U.S.-Iran Conflict: Commodity Price Dynamics & Sentiment Shifts

  • While the state of play in the U.S.-Iran War remains highly fluid, BMI analysts expect that the conflict has the potential to impact Sub-Saharan Africa (SSA) via two primary transmission channels, namely, shifts in global investor sentiment and commodity price volatility.
  • The Iranian authorities appear to have rolled back on unilaterally shuttering the Strait of Hormuz1; however, throughput has fallen sharply, driven by coercive signalling from Tehran, spiking insurance and freight costs, and risk avoidance by ship owners and operators.
  • Given that around 25% of global oil trade flows through the Strait of Hormuz, Brent prices have risen sharply, currently hovering just shy of US$80 per barrel (/bbl) compared to US$72.5/bbl at close on February 27. Furthermore, given reports of attacks on tankers in the Persian Gulf and on oil facilities in Qatar and Saudi Arabia, there are increased risks that oil prices will rise further.
  • Financial markets have also reacted broadly negatively to the conflict, though the scale of losses outside directly exposed regions has thus far been limited. The US Dollar has strengthened modestly, reflecting a mild safe‑haven bid, while the most pronounced declines have been in global equity markets, where risk aversion has driven losses.
  • Emerging market (EM) equities have also sold off, and SSA currencies have broadly weakened, including the South African rand, Mauritian rupee, Ugandan shilling, and Zambian kwacha. Mauritius has also been hit particularly hard given its sensitivity to global freight and shipping costs, which have spiked amid rerouting and rising insurance premia.
  • Crucially, any sharp and sustained reversal in global risk sentiment, which could trigger external pressures and currency depreciation, would pose the greatest risk to markets with large stocks of foreign‑currency liabilities, where this can translate quickly into domestic financial instability.

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1The Strait of Hormuz is the world's most critical maritime oil chokepoint, with roughly 20-25% of global seaborne oil and 20% of LNG passing through it. Located between Iran and Oman, it is the sole sea passage from the Persian Gulf to the open ocean, essential for exporting oil from Saudi Arabia, Iraq, Qatar, and the UAE.

(Source: BMI, A Fitch Solutions Company)