The ‘petro-dollar’ and why Africa must boost its energy refining capacity

You can also listen to this podcast on iono.fm here.

Three weeks into it, Operation Epic Fury, Operation Roaring Lion and True Promise 4 have caused seismic shifts within and far beyond the geographies they have been launched in.

The confrontation between the United States of America, Israel and Iran has had a direct impact on energy markets, namely crude oil and liquefied natural gas (LNG).

Read/listen:
Gold, stock markets plunge as war in the Middle East escalates
Trump seeks de-escalation after Iran, Israel strike gas hubs
Strait of Hormuz: Is SA missing an opportunity?
Mantashe wants to ramp up local fuel refining capacity, but has that boat sailed?
Iran war triggers hunt to secure new fuel supplies in Africa

Oil and gas flow through every part of our lives and the clog in the Strait of Hormuz, a narrow waterway connecting the Persian Gulf to the Gulf of Oman, is proving to have a direct bearing on inflation which translates into broader price increases across economies.

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Central banks in this case may find it harder to ease monetary policy if inflation remains elevated, potentially delaying interest rate cuts.

Source: International Association of Oil and Gas Producers

For the African continent, this presents a pressing yet familiar challenge in the form of currency volatility where external shocks typically lead to currency depreciation for dollar indebted countries, thus making it more expensive to service debt.

Another manifestation is increased risk aversion where dollar bonds in Africa are seen as a less attractive investment option. The flight by investors to safe havens may lead to reduced foreign investment, further weighing on economic growth.

To counter this, arguments have long been made for the continent to reduce its reliance on imports by creating more upstream activity and refine its own oil, much like what Dangote Refineries has done.

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Read/listen:
Middle East conflict an opportunity for SA ports – Ramaphosa
Saudis give oil buyers Red Sea option due to Hormuz crisis
Middle East war has ‘sapped’ confidence – SBG’s Goolam Ballim
Nigeria’s Dangote says fuel output now exceeds local demand
Brics bloc slows down on de-dollarisation

As the largest single-train refinery in the world, the refinery has capacity to process 650 000 barrels of crude oil per day. Global demand for oil is projected to rise by more than 19 million barrels a day between 2024 and 2050.

Africa, India, other Asian countries and the Middle East have been identified to be the primary sources of long-term oil demand growth.

In this episode of The Business of Africa podcast, distinguished professor at the University of Johannesburg, Patrick Bond, argues that this moment presents an opportunity for the continent to move away from dependence. Tune in hear his insights …

* This episode was recorded before this week’s latest oil price and markets volatility, which has seen brent crude spike above $110 a barrel and the dollar strengthening. 

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