Tensions have risen sharply in the Middle East following direct attacks by the United States and Israel on Iran, including the alleged assassination of Iran's supreme leader. Prior to this, the hostilities involved Iran and its regional allies, including Hezbollah in Yemen and Lebanon, largely in conflict with Israel. The latest developments have increased the conflict in the entire region.
In retaliation, Iran has launched attacks on Israeli and United States military interests throughout the Middle East, including reported attacks in the United Arab Emirates (UAE), Oman, Saudi Arabia, Jordan, Iraq, Kuwait, Qatar, and Bahrain. Fighting continues with no end in sight, adding to uncertainty in global markets.
Two major transmission channels for the global economy
The economic impact of the conflict is expected to play out primarily through two channels: trade disruption and oil supply shocks.
First, the Gulf region is an important hub for global trade. Major civil aviation hubs and major Gulf ports such as Dubai facilitate the movement of both people and cargo. Any continued disruption in these hubs would slow international trade and put pressure on global supply chains.
Secondly, the Gulf region accounts for about 25% of global crude oil supply. The Strait of Hormuz, a vital shipping route for oil and gas exports, remains central to global energy logistics. Any threat to its operations would have an immediate impact on global energy markets.
Rising oil prices and the risk of inflation
The increase in the sector is already putting pressure on crude oil prices. By March 2, 2026, oil prices were recorded above US$78 per barrel, about 7.7% higher than a year earlier. Further volatility could push prices higher.
Higher oil prices coupled with supply chain disruptions are likely to drive global inflation upward in 2025 following a period of relatively low price pressures. In response, central banks, including the South African Reserve Bank (SARB), may be forced to raise interest rates to control inflationary pressures.
Additionally, global risk aversion could lead to volatility in emerging market currencies, including the rand. A weaker rand will increase imported inflation, particularly through higher fuel and energy costs.
Implications for South African agriculture
The agricultural sector is particularly exposed to these developments. Higher interest rates will increase the cost of capital for agricultural businesses, potentially slowing investment in expansion and modernization.
Farmers will also face reduction in input costs due to increase in input prices, especially fuel, agrochemicals and fertilizers. Fuel and gas are important inputs into fertilizer and agrochemical production, and Iran is an important global supplier of urea and ammonia, both key fertilizer components.
On the trade front, South Africa's agricultural exports could be disrupted if supply chains are disrupted. The Middle East is an increasingly important export destination, accounting for approximately 17% of South Africa's total agricultural export value in the fourth quarter of 2025.
Major exports from the region include beef, goat and sheep meat, apples, citrus fruits, pears, various nuts, and wine. The United Arab Emirates and Saudi Arabia are among the most important markets for South African agricultural products.
further uncertainty
While the full economic impact will depend on the duration and intensity of the conflict, the risks to global energy markets, inflation, interest rates and trade flows are significant. For South African agriculture, the combination of rising input costs, potential export disruption and tight financial conditions presents a challenging operating environment in the coming months.
Land Bank, South African Reserve Bank, Agricultural Exports, Supply Chain, Oil Prices, Ammonia, Agro Industry, South African Agriculture, Fertilizer Costs, Urea, Agro Processing, Trade Disruptions, Energy Markets
About Gilberto Biakuana
Gilberto Biakuana is an agricultural economist in the Agricultural Economics and Advisory Division of the Land Bank.
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