While South Africa’s fiscal outlook has shown signs of stabilisation following a credible National Budget, intensifying geopolitical conflict in the Middle East – specifically involving Iran – now poses a significant "stagflationary" threat to the domestic economy, according to consultancy EY Africa chief economist Angelika Goliger.

In EY’s March 2026 South African Macroeconomic Outlook, Goliger noted that the escalating crisis could result in a R30-billion to R40-billion drag on South Africa’s GDP.

The conflict involves Organisation of the Petroleum Exporting Countries’ (OPEC’s) second-largest crude producer and threatens the Strait of Hormuz, a corridor responsible for 20% of the world’s oil exports and 30% of global liquefied natural gas (LNG).

Goliger noted that while domestic risks had eased, "intensifying global uncertainty has brought a new set of headwinds to South Africa's outlook".

EY has modelled the potential feedthrough of the conflict through three increasingly severe stages.

In the initial phase of a shallow global slowdown, EY said a brief one-month shock with oil at $85/bl would likely lead to temporary rand weakness but remain manageable.

However, should the disruption deepen into a three-month drag with oil rising to $100/bl, it noted that the economy would face renewed rand depreciation and depressed export volumes.

The most severe projection involves a protracted escalation lasting six months or more.

“In this scenario, with oil climbing to $120/bl, South Africa would trigger widespread cost-base disruptions and severe supply-chain bottlenecks, resulting in a material contraction of domestic GDP,” Goliger noted.

The report also warns of a "cost-push stagflationary shock" where higher oil prices and supply disruptions lift inflation and weaken the rand, potentially forcing the South African Reserve Bank (SARB) into cautious rate hikes.

This comes at a time when headline inflation has recently eased to 3% in February. The conflict also threatens to undermine the fiscal progress highlighted in the 2026 Budget.

While the consolidated deficit is projected to narrow to 3.1% by financial year 2028/29, EY says rising crude prices could elevate borrowing costs and pressure the broader budget framework.

EY notes that the ripple effects are expected to be broad-based.

Infrastructure and logistics face higher input costs owing to oil price spikes and domestic fuel levy increases, while the agricultural sector anticipates rising fertiliser and transport costs.

The financial sector may see increased risk premia that delay anticipated interest rate cuts, and manufacturing – already showing signs of softness – faces margin pressure from longer lead times and higher energy-linked costs, says EY.

"The optimism following the National Budget has tempered.

"Businesses must now prioritise efficiency gains and robust hedging strategies to navigate this period of heightened global volatility," Goliger added.