Red Sea attacks hit the rand and may cause oil prices to surge

The rand was weak on early trade on Tuesday as more ships were attacked in the Red Sea, which impacted the risk sentiment.

It should be noted that, according to Reuters comments from the World Economic Forum further drove the dollar up and, therefore, weakened the rand.

A missile has struck a US-owned ship off the coast of Yemen, less than a day after the US said it shot down a missile fired by Houthi rebels towards one of its warships. Graphic shows details of selected Houthi ant-ship missile systems. Source: Graphic New

At 7.18am, the rand was trading at R18.83 to the dollar.

At 12.20pm the rand further weakened to R18.88 to the dollar.

RED SEA COULD DRIVE INFLATION UP

Nigel Green, CEO of the deVere Group, said in a statement that the attacks in the Red Sea could trigger a second wave of inflation in 2024.

“Recent attacks on ships navigating this critical route have heightened fears of disruptions to the global supply chain. Such disruptions could lead to delays, increased shipping costs, and potential shortages of goods, impacting economies worldwide,” he advised.

The US and UK have carried out military strikes against Iran-backed Houthi rebels in response to the Houthi attacks on ships in the Red Sea. File graphic shows targets hit by US and UK strikes in Yemen. Source: Graphic News

Global trade is heavily reliant on the maritime routes that flow through the Red Sea, and any disruption could have “far-reaching consequences”.

The disruption of global trade also raises concerns about potential inflationary pressures, he added.

“Disruptions to the supply chain typically lead to increased costs for transportation, production, and distribution, which may ultimately be passed on to consumers. If these disruptions persist, they could potentially trigger a second wave of inflation this year, which could pose challenges for central banks and policymakers globally.”

“Prolonged Red Sea attacks are likely to disrupt the supply chain by delaying the transportation of goods, leading to shortages. “As demand outpaces supply, prices may rise, contributing to inflation. Industries heavily reliant on just-in-time inventory systems may be particularly vulnerable to such disruptions,” Green said.

OIL PRICES COULD RISE

Green also added that uncertainty in global trade can cause commodity prices to surge.

“Higher energy costs can cascade through the supply chain, affecting various industries and adding to inflationary pressures. This scenario may echo the oil shocks of the past, leading to broader economic consequences,” Green advised.

Craig Erlam, a senior market analyst at OANDA, said in a statement that oil prices remain uncertain.

He noted that oil prices remain “very choppy” as the uncertainty in the Middle East continues with the attacks in the Red Sea.

“We haven't seen a significant increase in the price of oil on the back of the attacks, but the brief spikes we've seen have highlighted the sensitivity of the market to events around the Red Sea,” he noted.

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