By Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole & Ame Muller
Brent crude oil prices continue to navigate an exceptionally uncertain geopolitical landscape, with tensions in the Middle East remaining elevated and the Strait of Hormuz continuing to face significant disruptions (Figure 1). Under normal circumstances, such developments would be expected to trigger a sustained surge in oil prices given the Strait's critical role in global energy trade. Instead, while Brent prices have experienced periods of heightened volatility, they have remained more contained than many market participants initially anticipated.
The earlier rally in oil prices was driven by fears that the conflict would result in a prolonged interruption to global crude supplies and significantly constrain exports from the Gulf (Figure 2). While those risks remain, markets have become increasingly focused on the extent to which supply disruptions can be mitigated through alternative export infrastructure, production increases from other oil-producing regions, strategic petroleum reserves and relatively subdued global demand growth.
At the same time, broader market fundamentals continue to influence price dynamics. OPEC+, which is is a larger group consisting of Organization of the Petroleum Exporting Countries (OPEC) members and other oil-producing countries, retains an important role in managing global supply conditions, while non-OPEC producers continue to contribute to global production. On the demand side, a softer global growth outlook, particularly weaker economic momentum in China, has tempered expectations for oil consumption. This combination of constrained demand and expectations that global supply losses can be partially absorbed has limited the upward pressure on Brent crude. As such, while oil prices continue to incorporate a geopolitical risk premium, they have been more measured than during previous supply crises.
For the global economy, the relatively contained level of oil prices provides some reassurance that a severe energy-driven inflation shock has, for now, been avoided. However, the outlook remains highly uncertain. Energy markets remain acutely sensitive to geopolitical developments, and any further deterioration that results in a more pronounced or prolonged reduction in global oil supplies could quickly trigger renewed price volatility and complicate the inflation outlook for central banks, including the South African Reserve Bank (SARB).
Locally, developments in global oil markets remain particularly significant given the country's dependence on imported crude oil and its reliance on road-based freight transport. Brent crude prices feed directly into domestic fuel costs, influencing transport expenses, production costs and household purchasing power. Although recent price movements have helped limit additional inflationary pressures, the economy remains vulnerable to any renewed escalation in oil prices should geopolitical tensions further disrupt global energy markets.
Overall, Brent crude prices are signalling a market that remains cautious rather than complacent. Investors continue to recognise the significant geopolitical risks emanating from the Middle East but are also assessing the capacity of the global energy system to absorb supply disruptions. The balance between these competing forces will remain a key determinant of oil prices, the global inflation outlook and, ultimately, the trajectory of monetary policy and economic activity in the months ahead.
Week in review
The Manufacturing Purchasing Manager's Index (PMI) edged down to 46.8 in July from 47.3 in June, indicating that manufacturing activity remained in contractionary territory. However, underlying conditions showed some improvement, with the Business Activity Index rising to 48.8 from 45.6 and new sales orders recovering to 44.1 from 40.6, supported by stronger domestic demand. Cost pressures also eased, with the Purchasing Price Index declining to 67.2 from 71.3, suggesting that the impact of earlier oil price shocks is moderating. However, manufacturers remained cautious, as the Expected Business Conditions Index fell sharply to 49.3 from 56.6, while the Employment Index ticked up slightly to 42.2 from 41.4 and inventories eased further to 43.2 from 49.0. Overall, the survey points to a gradual recovery in domestic demand and production, but weak export demand and subdued confidence continue to cloud the outlook for the sector.
Total new vehicle sales (non-seasonally adjusted) increased by 11.9% year on year (y/y) to 57 708 units in July, marking a strong start to the second half of 2026. Passenger car sales reached 40 912 units, up 12.5% y/y, representing the strongest monthly passenger car sales since September 2014. More broadly, July's performance reflected broad-based gains across both passenger and commercial vehicle segments.
Electricity production fell by 8.1% y/y in June after falling by 8.7% in May. On a seasonally-adjusted basis, production declined by 0.7% month-on-month (m/m) after increasing by 0.8% in the previous month. Looking at the broader trend, electricity generation declined by 2.5% in the second quarter of 2026 compared with the first quarter of 2026.
South Africa's gross foreign exchange reserves declined to $73.5 billion in July from $74.1 billion in June. The movement reflected a US$150 million foreign loan received on behalf of National Treasury, higher gold prices and valuation gains, partly offset by government foreign exchange payments, including the repayment of a US$574 million foreign loan, and liquidity management-related forward exchange transactions. Foreign exchange reserves declined to $50.4 billion, while gold reserves increased to $16.4 billion. The forward position improved to $1.19 billion, and Special Drawing Right (SDR) holdings rose to $6.67 billion.
Weekly Round-Up: Economics from Broader Africa
Macroeconomic data points to an uneven but gradually improving economic backdrop across Broader Africa. Credit conditions are strengthening in several markets, particularly Eswatini, Namibia and Zambia, supported by firmer household and business borrowing, improved liquidity and targeted policy measures to support private sector lending. Business activity is also gaining traction, with Mozambique and Nigeria showing renewed expansion, while Lesotho's growth remains anchored by services despite continued weakness in manufacturing. However, the recovery remains fragile, with inflation pressures, higher fuel and transport costs, weak household purchasing power, fiscal and debt vulnerabilities, banking-sector risks and structural constraints continuing to weigh on the outlook. Overall, the region is showing pockets of resilience and improving momentum, but a sustained recovery will depend on easing cost pressures, stronger fiscal execution, improved liquidity and the extent to which firmer business activity translates into broader-based growth.
