MANZINI – Eswatini should brace itself for increased cost of living, as the raging war between the USA and Iran caused disruptions in major oil routes and immobilised major airlines.
Economists say if the war is sustained, it will lead to the escalation of prices in commodities such as fuel and natural gas. This, in turn, will hike the prices of bread, public transport and other related services.
The latest threat has been the closure of the Strait of Hormuz between the Persian Gulf and the Gulf of Oman. It provides the only sea passages from the Persian Gulf to the open ocean and is one of the world’s most strategically important passages. Apart from Iran, oil-producing nations such as Iraq, Saudi Arabia and the United Arab Emirates use the strait for export.
Economists have lamented the imminent danger of the shortage of oil, which may cause the prices to spiral. By yesterday, the price of crude oil have reached as high as US$79.03, from US$68 earlier on.
Also, to feel the sharp impact of the wear has been the tourism sector, as major airlines cancelled trips as a precautionary measure. This is despite the fact that in Eswatini, tourism is a vital and growing part of the economy, with the sector contributing E623 million to the GDP in 2022.
Economics Lecturer at the University of Eswatini Sanele Sibiya, said closing the Strait of Hormuz exerts serious pressure on the price of energy. He said the Strait handles 20 billion barrels of oil a day and a significant amount of Liquid LNG.
“Closing the Strait will result in a sharp surge in oil prices. Just on the close of business before the assault began last week Thursday, we were trading at US$68/barrel and in a few days, we are up to just over US$78 per barrel.” He said, depending on the length of the closure and the uncertainty in the Middle East, the immediate impact is a sharp increase in the price of fuel.
“If the war continues for even a few weeks as Donald Trump (US President) predicts, 5 – 6 weeks, we might cross the US$90/barrel mark, and if the war escalates and multiple countries in the Middle East join in, it is possible to even cross the US$100/barrel mark. This will require swift adjustments in the pump price, we might see an upward adjustment in the pump prices just as we were celebrating some relief,” he said.
Sibiya said this might also have an impact on global supply chains, depending on how long the Strait remains closed.
“Energy-thirsty countries such as China and Japan, which get a huge portion of their oil from the Gulf Region would have to find alternative supply’s in the interim. These supply disruptions has direct impact on the world’s factory (China), if China sneezes, the whole globe shivers,” he said. Sibiya said the current occurrences affect’s China’s ability to produce in line with projected GDP forecasts and a target miss will have implications on global economic activity and demand, a slow chinese economy tends to pull down global GDP. He explained that an expensive oil input will make chines commodities expensive in global markets.
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Tourism to suffer as flights cancelled
MANZINI – The Minister for Tourism and Environmental Affairs Jane Simelane said the country stands to lose substantially if the war persists.
She said there are many sectors which benefit whenever tourists visit the country. She said the business of hotels has become an essential employer and benefits from just one tourist coming from abroad. “A visit by just one tourist adds to the livelihood of the cleaner, security guard, manager and many who are working in that particular hotel,” she said. Simelane said the publicity of the nation when a tourist has arrived ius also enhanced globally because upon they always make friends know that they are Eswatini.
“The war is hurting our tourism in a big way because many small businesses also rely on support from ease of travel,” she said. She said she was relieved to learn that some of the planes had started flying again last night, such as the Emirates. Meanwhile, Economist Sanele Sibiya also said the disruption in aviation and maritime channels has direct implications on business and leisure travels. Travel Weekly newspaper reported that tourists and business travellers crowded hotels and airports, with no word on when many airports would reopen or when flights to and through the Middle East would resume on Sunday. Some governments advised their stranded citizens to shelter in place.
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