Speaker 1: Bloomberg Audio Studios, podcasts, radio news. As the war in
Speaker 1: Iran continues, global economies are bracing for the economic fallout.
Speaker 2: The United States and its partners have launched Operation Epic Fury,
Speaker 2: one of the largest, most complex, most overwhelming military offensives
Speaker 2: the world has ever seen. Nobody's seen anything like it.
Speaker 1: With oil and gas prices rising sharply, African countries could
Speaker 1: be among those facing and inflation shock.
Speaker 3: You have a major energy for the facility in Katar close,
Speaker 3: the largest in Katar. You have, of course, that refinery
Speaker 3: in Saudi Arabia at least closed temporarily. The inflation question
Speaker 3: and the inflation shock is now being priced into these markets.
Speaker 2: If it becomes prolonged, then all bets world Today.
Speaker 1: On today's podcast, we'll look at what the conflict is
Speaker 1: doing to energy prices and supply and what the hit
Speaker 1: could be for African economies. I'm Jennifer Zabasaja and this
Speaker 1: is the Next Africa Podcast, bringing you one story each
Speaker 1: week from the continent driving the future of global growth
Speaker 1: with the context only Bloomberg can provide. Joining me today
Speaker 1: is Bloomberg's Asia Energy reporter Steven Stepchinski, and also Bloomberg Economics,
Speaker 1: Africa Economists von Mango. Thank you both so much for
Speaker 1: joining me. I know it's been quite a busy week
Speaker 1: for the whole newsroom, but especially the two of you.
Speaker 1: So appreciate your time. Steven, let's just start with you,
Speaker 1: because you look very closely at the dynamics in the
Speaker 1: energy sector. Give us a picture of what we had
Speaker 1: been seeing with oil prices in the last few weeks
Speaker 1: in the lead up to the eventual escalation that we
Speaker 1: saw in the Middle East last weekend.
Speaker 4: I think the oil market over the last few weeks
Speaker 4: before this weekend was affecting something. You know, when you
Speaker 4: talk to the traders, they were talking about the build
Speaker 4: up of the military force, right the largest US military
Speaker 4: force in the Middle East in decades. They were looking
Speaker 4: at the rhetoric, they were looking at the negotiations happening
Speaker 4: and the failure to make a deal multiple times. So
Speaker 4: I think the oil market when you look at the prices,
Speaker 4: oil prices kind of continuously rose from from late December
Speaker 4: into January and into February were slowly kind of stepping
Speaker 4: up higher and higher with this anticipation that if a
Speaker 4: deal wasn't done, every time they went to the negotiating table,
Speaker 4: then maybe you could see some sort of strike on Iran,
Speaker 4: and no one knew exactly the level of the strike.
Speaker 4: But especially I think when the State of the Union
Speaker 4: happened and Trump said that he would never allow Iran
Speaker 4: to have nuclear weapons. People in the market talked to
Speaker 4: me and they said that's when they really saw, Okay,
Speaker 4: maybe something would be happening. It was, of course a
Speaker 4: lot of guesswork. But in the end, the market did
Speaker 4: continue to rise ahead of all of that.
Speaker 1: Where have we seen the prices really rising substantially? Because
Speaker 1: I feel like for a while we had been talking
Speaker 1: about incremental rises right, a bit of range bound in
Speaker 1: terms of Brent crude.
Speaker 5: But where have you.
Speaker 1: Seen the most substantial rises and prices in the energy
Speaker 1: market that we should be focused on.
Speaker 4: There are a number of different places, right. Brent is
Speaker 4: a global benchmark, It's trade has very liquid, it can
Speaker 4: be sometimes quite volatile. But you're right, the prices haven't
Speaker 4: been out of sight increases. You know, you've seen incremental
Speaker 4: increases of seven for today it's up two point eight percent.
Speaker 4: There are other markets that are a bit more crazy.
Speaker 4: Jet fuel prices in Singapore have really searched the highest
Speaker 4: level in years. You're also looking at different types of
Speaker 4: prices for the ships themselves to rent to ship the
Speaker 4: prices are rising to the highest level in years. And
Speaker 4: then also look at natural gas. Look fight natural gas
Speaker 4: prices have surged quite significantly, about more than fifty percent
Speaker 4: over the last three days, and that's the European benchmark
Speaker 4: and the Asian benchmark. And that increase is quite interesting
Speaker 4: because unlike the oil market, which I think was anticipating
Speaker 4: some sort of strike for Iran, had not actually been increasing.
Speaker 4: The gas market, I think, interestingly enough, had somewhat discounted
Speaker 4: that something would happen and wasn't expecting some sort of
Speaker 4: large impact that we're seeing today with the Strait of
Speaker 4: Horror moves getting shut and the closure of Qatar's largest
Speaker 4: lique financial gas export facility. So all of that together
Speaker 4: has made gas one of the more interesting parts of
Speaker 4: the market.
Speaker 1: You talk about the straight of horror moves, Stephen, is
Speaker 1: that the route that the energy market is most fixated
Speaker 1: on in terms of the risk to prices going higher.
Speaker 5: What else?
Speaker 1: What are the other routes potentially that we should be
Speaker 1: focused on.
Speaker 4: I think the oil market and gas market too, are
Speaker 4: focused on two things. One straight of hor moos. Like
Speaker 4: you said, it's it's the key conduit for a fifth
Speaker 4: of both oil and gas seaborne supply, but also the region.
Speaker 6: Right.
Speaker 4: So what's been very different about this strike in this
Speaker 4: conflict versus previous ones is that it isn't just a
Speaker 4: tit for tat sort of thing between Iran and Israel.
Speaker 4: This is spreading to the wider region, and Iran is
Speaker 4: hitting countries that many thought where they're you know, sort
Speaker 4: of their allies or their friends in the region. I'm
Speaker 4: talking Qatar, UAE and also Saudi Arabia. They're antagonizing their neighbors.
Speaker 4: So the market is looking at okay, if there are
Speaker 4: some drone strikes on Saudi Aramco's largest refinery, what is
Speaker 4: the impact there? They've shut it down? How long will
Speaker 4: be shut down? Is it damage? Can it come back quickly?
Speaker 4: Same with Katar. They hit their largest Lick Fi natural
Speaker 4: gas export facility. It supplies twenty percent of global LNG supply.
Speaker 4: That was shut down. How long will that shut out?
Speaker 4: How long does it take to restart fourteen LNG production trains?
Speaker 4: So what's kind of interesting about this conflict is that
Speaker 4: the straight of Hormos. Theoretically, if there was a piece deal,
Speaker 4: you could kind of resume traffic pretty quickly if there
Speaker 4: were assurances from the US, if something happened, and then
Speaker 4: the trade could resumes and everything's back to normal. But
Speaker 4: if infrastructure is hit, if a pipeline is hit, if
Speaker 4: i Raq is taking offline their largest oil field, suddenly
Speaker 4: things get a bit more complicated. Actual barrels aren't making
Speaker 4: its way into the market, and if there's damage, how
Speaker 4: long does that repair take? Are we talking days, weeks, months?
Speaker 4: There are a lot of unknowns and as every day
Speaker 4: that this continues, the risk premium kind of chugs along
Speaker 4: and gets higher.
Speaker 5: And Ivon, I'd like you to jump in here.
Speaker 1: You've been looking at the impact that this could potentially
Speaker 1: have across the African continent, especially as it pertains to
Speaker 1: higher energy prices. As Steven was just mentioning there, what
Speaker 1: has been your focus over the past few days.
Speaker 6: So a few things divide the African continent, like a
Speaker 6: surge in the ore price, and the reason for that
Speaker 6: is because we're primarily export as commodities and we import
Speaker 6: almost all our refined petroleum needs on the continent. So
Speaker 6: such a significant increase in your price, of course, will
Speaker 6: benefit our all exporters in particular countries such as Nigeria
Speaker 6: and Angola. Angola in particular, we've looked. We estimated what
Speaker 6: a twenty dollar increase in the barrel increase in your
Speaker 6: price could mean, so in the case of Angola, that
Speaker 6: could improve its current account balance by as much as
Speaker 6: three percent of GDP, so it's quite significant. However, the
Speaker 6: majority of African countries are net all importers, so unfortunately
Speaker 6: this is negative for the majority of the continent. Countries
Speaker 6: like South Africa and Kenya will be hit on the
Speaker 6: external balances side by as much as one percent of
Speaker 6: GDP on their current account as a result of such
Speaker 6: a significant searche in the old price, assuming of course
Speaker 6: prices remain at these levels. Aside from the trade channel,
Speaker 6: we're concerned about what it means for inflation. Africa generally
Speaker 6: enjoyed this inflation new trend over the past couple of
Speaker 6: years that's allowed countries to reduce their inflation targets or
Speaker 6: contributed to that in the case of South Africa, it
Speaker 6: supported reduction of interest rates across the board. This is
Speaker 6: of course, following that shop tightening when we had Russia
Speaker 6: attack Ukraine and grain prices went up. So now since
Speaker 6: then we've seen inflation come down nicely and interest rates
Speaker 6: start to follow. Unfortunately, such a huge search in your
Speaker 6: price does imply that this inflation trend will be halted
Speaker 6: and interest rates may also come back onto the table
Speaker 6: as an option for central banks.
Speaker 5: And Von Stephen stick with us.
Speaker 1: We're going to take a quick break and when we
Speaker 1: come back, we're going to dig into more about what
Speaker 1: this could mean for African economies and how long lasting
Speaker 1: this shock could actually be.
Speaker 5: We'll be right back.
Speaker 1: Welcome back. Today we're looking at the impact of the
Speaker 1: war and Iran on energy prices. Steven Stepchynsky and Evon
Speaker 1: Mango are still with me, Yvon. Let's just take South Africa,
Speaker 1: because of course we know that has been the country's
Speaker 1: been in focus recently came out with their budget just
Speaker 1: a few days ago, had talked about turning around the
Speaker 1: corner on a lot of the past troubles for the economy.
Speaker 1: Is this going to undo a lot of the work
Speaker 1: that the SARB and the government has really done to
Speaker 1: get inflation under control.
Speaker 6: So yes, you raise a good point in that and
Speaker 6: we are at a positive point in terms of the
Speaker 6: macro turnaround that we're anticipating. The growth is lagging. However,
Speaker 6: I do think the buffers that have been put in
Speaker 6: place will help in terms of mitigating the impact of
Speaker 6: a high old price. An example of such a buffer
Speaker 6: is the primary budget surplus that the government has accumulated
Speaker 6: over the past three years, so first time in several
Speaker 6: years that we actually have a primary surflus and that
Speaker 6: should help in terms of mitigating the impact on the
Speaker 6: fiscus on the current account. The upside that's to show
Speaker 6: that the upside of having a free floating currency at
Speaker 6: SO Africa does, which is a minority on the continent,
Speaker 6: is that it behaves as a shock absorber. So what
Speaker 6: you should see is that demand for imports should compress
Speaker 6: as a round weekends on the back of a weak
Speaker 6: external position, and that should help mitigate the impact on
Speaker 6: the external side of the economy.
Speaker 1: Interestingly, we heard the DJ of the Treasury we talk
Speaker 1: about how potentially commodity exports and gold could potentially also
Speaker 1: provide some of that buffer for South.
Speaker 5: Africa, Yvon.
Speaker 1: When we look at let's just bruden it back out
Speaker 1: to the continent and talk about so many impacts potentially
Speaker 1: on the bond market. Have we seen any significant shifts
Speaker 1: higher yields as a result of the increased escalation in
Speaker 1: the Middle East across African bond market?
Speaker 6: So following the initial strikes at the weekend and on Monday, yes,
Speaker 6: we did see the spreads between bond yields for African
Speaker 6: sovereign bonds and US treasuries widen as we saw risk
Speaker 6: of sentiments take off globally. As we move forward, of course,
Speaker 6: I think what you see as investors will become a
Speaker 6: bit more discerning. I think you'll see when they look
Speaker 6: at just at their Africa portfolio. That's the all exporters
Speaker 6: that are bond issuers will see their bund ye olds ease.
Speaker 6: And the examples of those are the likes of Nigeria,
Speaker 6: debon the Republic of Congo. In this environment, those countries
Speaker 6: should benefit on the back of a higher ol price.
Speaker 6: Where you're going to see more skepticism or concern is
Speaker 6: countries that are all important.
Speaker 1: Steven, Let's just let's bring you back in because it
Speaker 1: really seems like the energy sector, the oil brank crud
Speaker 1: is really what to watch here. I've seen a number
Speaker 1: of forecasts for how high this could potentially go. What
Speaker 1: are you looking at in terms of the prices for
Speaker 1: brank crud and potentially what the next catalyst could be
Speaker 1: to creep higher if we are even headed to one
Speaker 1: hundred or higher, as some analysts are pointing out, I.
Speaker 4: Mean, I think anything is possible, right I think if
Speaker 4: you asked me last week or two weeks ago if
Speaker 4: we would see an effective shut to the strait of
Speaker 4: her moves, I would say the likelihood of that is
Speaker 4: pretty low. But now we're seeing it. So we're in
Speaker 4: uncharted territories. This has never happened, and so I think
Speaker 4: there are a few things to watch out for him. Yes,
Speaker 4: with Brent right now around eighty three eighty four dollars
Speaker 4: per barrel, so we're not at one hundred dollars yet,
Speaker 4: but there is a chance where if this continues and
Speaker 4: if certain things happen, we could be our way to
Speaker 4: one hundred dollars or go above one hundred dollars one
Speaker 4: if there is some major damage to infrastructure right now,
Speaker 4: there have been some refinery shut some pipelines you know,
Speaker 4: I think targeted, but overall oil is still largely pumping.
Speaker 4: There has been some shutdowns in a Raq, but even
Speaker 4: when you look at the ship tracking data and satellites,
Speaker 4: some analysts are saying that Iran is still exporting oil.
Speaker 4: So oil is still making its way into the market.
Speaker 4: But if you were to see any major impact in
Speaker 4: Saudi Arabia's ability to produce, or even Iran or other
Speaker 4: countries in the region, I think that starts to creep
Speaker 4: up a bit more if you start to see another
Speaker 4: breakdown in the talks. Right I think yesterday the New
Speaker 4: York Times reported that there were some back channels between
Speaker 4: Iran and the US for a potential piece deal. You
Speaker 4: saw Brent and gas prices kind of fall a little bit,
Speaker 4: but then Brent kind of made up some of those losses.
Speaker 4: If we now see that there's a total breakdown discussions,
Speaker 4: or if rhetoric from Trump changes, you could see prices
Speaker 4: rise again, and then you also see potentially a bidding
Speaker 4: up of prices from Asia. Right now, I think Asian
Speaker 4: customers are somewhat calm. Asia is the biggest buyer of
Speaker 4: this Middle Eastern oil, but yet you're not really getting
Speaker 4: the sense of panic that you're getting, for example, in
Speaker 4: the natural gas market. So if you do start to
Speaker 4: see people fighting over shipments. If you were to have
Speaker 4: what I would call a price war over deliveries that
Speaker 4: are on the market and taking up that spare supply,
Speaker 4: and you see the oil on the water start to shrink,
Speaker 4: then you could see again prices run. But what's interesting
Speaker 4: about the oil market at the moment is we were
Speaker 4: supposed to enter year of an oversupply. There's quite a
Speaker 4: bit of oil available, so with the glut, you know,
Speaker 4: still there. If there were a piece deal, I think
Speaker 4: quickly you would see a lot of the ste fleet.
Speaker 1: Which, Yeah, that's a really good point that you bring up.
Speaker 1: We went into twenty twenty six talking about oversupply Ivon
Speaker 1: Is that similar to you?
Speaker 5: Is that sort of what you're focused.
Speaker 1: On really the price of crude and where it goes
Speaker 1: next and how that could trickle down to the African economies.
Speaker 5: Yes.
Speaker 6: I think our assumption, who you look at the fundamentals,
Speaker 6: is that there's an abundance of supply and that we
Speaker 6: expected in the absence of a conflict, we expected the
Speaker 6: oil price to main flat, if not cool. So a
Speaker 6: lot depends on the locativity of the conflict and whether
Speaker 6: indeed the strait of almost remains shut for an extended period,
Speaker 6: but the fundamentals outside the walls suggests that we should
Speaker 6: have a cooler energy prices which would benefit the majority
Speaker 6: of the continent.
Speaker 1: Still quite a bit of unknowns, but we appreciate the
Speaker 1: two of you joining us this week to break what
Speaker 1: we do know at this point in time. Steven Stepchynski
Speaker 1: and Ivon Mango, thank you both so much for joining
Speaker 1: us this week, and you can, of course read all
Speaker 1: of our coverage on the war in Iran across Bloomberg platforms.
Speaker 1: Now here's some of the other stories we've been following
Speaker 1: across the region this week. Dan Gote Cement, Africa's biggest
Speaker 1: producer of the building material, will spend one billion dollars
Speaker 1: to boost capacity over the next four years as infrastructure
Speaker 1: construction spurs demand. And Nigeria brought the timetable for next
Speaker 1: year's election forward and announced new rules that appear to
Speaker 1: catch the opposition off guard. Presidential and National Assembly elections
Speaker 1: will be held on January sixteenth, twenty twenty seven, roughly
Speaker 1: a month earlier than was previously scheduled, the Independent National
Speaker 1: Electoral Commission said, and you can follow these stories across
Speaker 1: Bloomberg including the next African newsletter.
Speaker 5: Will put a link to that in the show.
Speaker 1: This program was produced by Adrian Bradley and tiwa Adebayo.
Speaker 1: Don't forget to follow and review the show wherever you
Speaker 1: usually get your podcasts. I'm Jennifer's Abisaja. Thanks as always
Speaker 1: for listening.