Energy crisis sparks economic uncertainty

DAR ES SALAAM: THE war in the Middle East, which began in late February 2026, has evolved into a broader and more protracted conflict than many analysts initially anticipated. What was first perceived as a contained geopolitical flare-up has now morphed into a systemic global shock, primarily transmitted through energy markets, trade disruptions and rising geopolitical risk.

For frontier markets such as Tanzania, the effects may appear distant at first glance, although history suggests that such shocks eventually propagate across all economies, albeit with varying intensity and timing. At the global level, the most immediate and visible impact has been on energy markets.

The conflict has disrupted up to 20 per cent of the global oil supply due to instability around the Strait of Hormuz. Oil prices have surged sharply, rising by more than 25 per cent since the start of the war and, in some cases, exceeding 100 US dollar per barrel. In extreme scenarios, prices have touched levels above 150 US dollars per barrel in physical markets as buyers scramble for alternative supplies.

The Paris-based International Energy Agency (IEA) has already described the situation as the largest oil supply disruption in history. This surge in energy prices is not merely a commodity story. It has profound macroeconomic implications. Higher oil prices feed directly into inflation, increase transportation and production costs and reduce disposable income globally.

Estimates suggest that if elevated oil prices persist, global inflation could rise by as much as 0.8 percentage points, potentially forcing central banks to tighten monetary policy again. Already, there are warnings that sustained high energy costs could slow global trade growth and dampen economic expansion in 2026.

While the direct impact on global GDP may remain modest in the short term, the risk lies in prolonged disruption that could trigger stagflationary conditions reminiscent of past oil shocks. Globally, financial markets have also begun to reflect this uncertainty. Equity markets in some regions have declined, while volatility has increased across asset classes. Investors are repricing risk, particularly in energy-importing economies and reallocating capital toward commodities and safe-haven assets.

The key variable remains the duration of the conflict: A short-lived disruption may result in a temporary spike in prices, whereas a prolonged war could embed higher inflation expectations and structurally alter global capital flows.

For Tanzania, the transmission channels are more indirect. As a net oil importer, the country is exposed to global energy price shocks. Rising oil prices will translate into higher domestic fuel costs, increasing transportation expenses and feeding into broader inflation. This, in turn, could affect monetary policy decisions by the Bank of Tanzania (BoT), potentially limiting the scope for accommodative policies if inflationary pressures intensify.

A second transmission channel is through the exchange rate and external balances. Higher import bills for fuel may widen the current account deficit, placing downward pressure on the Tanzanian shilling. Currency depreciation would exacerbate imported inflation, creating a feedback loop that tightens financial conditions domestically.

Third, there is the impact on government finances. Increased fuel subsidies or efforts to cushion consumers from rising energy costs could strain fiscal resources. At the same time, higher global interest rates, if central banks in advanced economies tighten policy, could raise the cost of external borrowing, complicating debt management strategies.

Within the capital markets, the effects are likely to manifest with a lag but could be meaningful. The Dar es Salaam Stock Exchange (DSE), while relatively insulated from global capital flows, is not immune to macroeconomic conditions. Elevated inflation and tighter liquidity conditions could dampen investor sentiment and reduce trading activity. Energy-intensive sectors such as manufacturing, transport and logistics may face margin compression, affecting corporate earnings and valuations.

Conversely, certain sectors may prove more resilient. Companies with pricing power, export orientation, or limited reliance on imported inputs may weather the shock better. Additionally, fixed income markets could experience upward pressure on yields if inflation expectations rise, presenting both risks and opportunities for investors.

In terms of timing, the initial effects, particularly through fuel prices, are already being felt globally and could begin to filter more seriously into Tanzania within weeks.

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However, the more substantive capital market impacts are likely to emerge over a two-to-six-month horizon, as macroeconomic adjustments take hold and corporate earnings reflect the new cost environment. The magnitude of the impact will depend critically on whether oil prices stabilise or continue to rise, and whether the conflict escalates further or moves toward resolution.

For investors, the current environment calls for prudence and strategic positioning. First, maintaining diversification across asset classes is essential to mitigate volatility. Second, a tilt toward defensive sectors and companies with strong balance sheets may provide relative stability. Third, fixed income instruments, particularly those with shorter durations, could offer attractive risk-adjusted returns in a rising yield environment. Importantly, investors should avoid overreacting to short-term market movements. While geopolitical shocks can be disruptive, they often create selective opportunities for long-term investors. Periods of heightened uncertainty tend to lead to mispricing, which disciplined investors can exploit.