The drone attack at oil facilities in Saudi Arabia has already impacted October's fuel prices in South Africa. Photo Courtney Africa/African News Agency (ANA)

CAPE TOWN – The drone attack at oil facilities in Saudi Arabia has already impacted October's fuel prices in South Africa, but is unlikely to cause a rise in interest rates through significantly higher inflation, economists said on Wednesday.

Reuters reported that Saudi Arabia’s oil output – it supplies about 42 percent of South Africa’s crude oil requirements – will be fully restored quicker than thought, taking two or three weeks, not months as initial indications suggested.

The kingdom was already close to restoring 70 percent of the 5.7 million barrels per day production lost due to the attacks. Saudi Arabia also announced it would produce evidence of involvement by Iran in the attack, stoking further geopolitical risk in the region.

Momentum Investments economist Sanisha Packirisamy said South Africa was not exposed to any significant risk from Iran as it no longer imported oil from that country, but there might be a longer term impact due to South Africa’s heavy reliance on oil from Saudi Arabia.

“A  rise in geopolitical risks could similarly see the international price of oil picking up and emerging market currencies selling off as risk appetite abates,” she said.

Both a weaker rand-dollar exchange rate and a higher international price of oil could feed through quite quickly into the inflation basket, given the relatively quick pass-through into SA transport prices.

However, demand pull inflationary pressures and the currency pass-through in SA had proven to be limited in recent months suggesting, inflation was likely to stay within the target band and should thus not force the Reserve Bank’s hand to hike interest rates in a weak growth environment, all else equal,” she said.

Similarly, economist Dr Roelof Botha said he did not believe the attack in Saudi Arabia would have a lasting impact on inflation from rising fuel prices in South Africa, and on any interest rate decision, as Saudi Arabia was moving quickly tor restore lost production, and it held sufficient reserves to cater for any shortfall.

Oil prices surged nearly 20 percent on Monday morning after the attack in Saudi Arabia on Saturday, but the price of benchmark Brent crude oil, which traded at $60 per barrel on Friday, followed other world oil prices down by 6.19 percent to $63.49 per barrel on Tuesday morning. Yesterday afternoon, it was trading at $63.99 per barrel. 

The price is still well off the R74.96 per barrel that it reached in April this year.

The rand strengthened through September, from trading at R15.18 per dollar on September, 2019, to R14.56 per dollar by September 14. Yesterday afternoon, it was trading 0.56 percent weaker from the opening at R14.62 per dollar.