Fallout from Iran likely to hit hard

THE effects of America’s renewed economic sanctions on Iran will take a few months to show themselves.

One area of concern globally is the impact on oil prices, now that Iran is essentially persona non grata – again – following US President Donald Trump’s withdrawal from the multinational nuclear deal.

Here at home the jitters are real. The picture, though, has been building for some time.

Oil has run hard in the last four years, hitting fresh highs of $77 a barrel in recent days.

Numerous factors are behind the rally.

Perhaps the more appropriate question is asking where it will end.

Deliberate production cuts by Opec have played their part in pushing oil higher and markets are waiting to see how Saudi Arabia and Russia, in particular, respond to the vacuum created by Iran’s blacklisting.

South Africa is vulnerable to high oil prices because they have such an outsized impact on our inflation.

Controlling inflation is the Reserve Bank’s remit and while the bank’s Monetary Policy Committee considers a range of inputs when determining interest rates, oil price movements play a big role.

It is true that the committee forecasts some 18 months in advance, doing its best to ignore the volatility flowing from short-term fluctuations.

But we have to wonder how the latest developments are being viewed.

Fuel prices have rocketed in recent months, no small thanks to government’s obsession with taxing the hell out of petrol and diesel.

Coupled with the VAT rise, prices of basic foodstuffs are going to come under increasing pressure.

And if the rand weakens in concert with higher oil prices, things could really get hairy.

It is probably too early to perform the last rites on the Reserve Bank’s interest rate reprieve.

Growth is still a stubborn straggler and needs a spending boom to get out of first gear. Low interest rates help with that.

What the situation does require is ongoing vigilance.

It also shows that in a world as skittish as this, true power is in the hands of those in charge of their own destiny.