NWU Business School economist Raymond Parsons noted that the conflict involving the United States, Israel and Iran represents a major geopolitical rupture with far-reaching economic implications.
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South Africa’s policy uncertainty has risen sharply in early 2026, reflecting growing global and domestic economic pressures linked to the escalating Middle East energy crisis.
The Policy Uncertainty Index, compiled by the North West University (NWU) Business School, climbed to 77.8 in the first quarter of 2026, up significantly from 64.9 in the fourth quarter of 2025.
The increase signals a reversal of the previous quarter’s modest improvement and highlights a renewed deterioration in business sentiment.
According to NWU Business School economist Raymond Parsons, the rise was largely anticipated given the intensifying global economic fallout from geopolitical tensions in the Middle East.
He said the earlier dip in the index had suggested a possible turning point in South Africa’s business cycle, but that optimism has now been overshadowed by global developments.
Parsons noted that the economic outlook for both inflation and growth is increasingly being shaped by the consequences of the conflict involving the United States, Israel and Iran. The crisis, he said, represents a major geopolitical rupture with far-reaching economic implications.
“The most exposed economies are not just those that need imported oil, but those that cannot easily absorb a big jump in oil, freight, food and financing costs simultaneously,” Parsons said.
A key pressure point remains the Strait of Hormuz, where blockages continue to constrain shipping flows in the Gulf. This has heightened vulnerability for energy-importing regions, particularly in Asia and Europe, while the Americas face a more mixed exposure.
In response to these uncertainties, major central banks have adopted a cautious stance. Institutions such as the US Federal Reserve, Bank of England and European Central Bank have all opted to keep interest rates unchanged, signalling a “wait-and-see” approach as they assess inflation risks linked to higher energy costs.
The South African Reserve Bank has followed suit. Its Monetary Policy Committee, at its March 26 meeting, also left rates unchanged, suggesting borrowing costs are likely to remain elevated for longer.
Parsons warned that this could interrupt the country’s fragile economic recovery in 2026.
As a net importer of crude oil, South Africa is particularly exposed to rising global energy prices. The impact is expected to be felt acutely from April 1, when a surge in fuel costs coincides with higher electricity tariffs from Eskom, as well as increased fuel levies and carbon taxes announced in the national budget.
“In addition, on that date the substantial rise in fuel costs converges with the implementation of higher Eskom tariffs, as well as the adjusted fuel levies and carbon taxes announced in the recent Budget. It is therefore a triple ‘whammy’ for business and consumers,” he said.
Parsons noted that several countries have already introduced policy measures to cushion the blow, and suggested that South Africa could consider similar interventions. Options such as temporary fuel relief or deferrals may help ease the burden, particularly for vulnerable households, although these would need to be balanced against fiscal constraints.
Despite the heightened uncertainty, Parsons cautioned against alarmism. Instead, he called for a measured and coordinated policy response focused on clear communication, credible economic direction and accelerated structural reforms.
He emphasised that policymakers should prioritise three key actions: conducting an objective assessment of risks, clearly communicating mitigation strategies, and reinforcing commitment to the country’s macroeconomic framework.
“First, to make an objective assessment of the risks and likely scenarios. Second, to evolve and communicate an overall plan or appropriate remedies to mitigate and manage the new risks. Third, to minimise any uncertainty about the official commitment to the core macroeconomic framework and about the pace of structural reforms,” he said.
The need for faster reform was also underscored by recent findings from the Bureau for Economic Research (BER) at the University of Stellenbosch. While initiatives such as Operation Vulindlela have helped accelerate progress, overall reform momentum remains slow.
“Investment spending is only gradually turning the corner, according to the BER. The BER adds that sustaining the economic recovery will depend on whether improved sentiment and reform momentum translate into stronger fixed investment and measurable progress in economic performance,” Parsons said.
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