US–Iran conflict threatens TZ, EA growth

DAR ES SALAAM: TANZANIA and the wider East African region are facing potential knock-on effects from escalating tensions between the United States and Iran, as conflict-driven volatility in global energy markets begins to reverberate through oil prices and trade costs.

Disruptions around the strategic Strait of Hormuz, which handles roughly one-fifth of the world’s oil supply, have already driven Brent crude up sharply and raised the risk premium in global energy markets, with analysts warning prices could approach or exceed 100 US dollars per barrel if tensions persist or shipping routes become unsafe.

For oil-dependent, net-importing economies like Tanzania’s, such price pressures can translate quickly into higher fuel costs, inflationary pressure and wider trade deficits.

Rising energy costs increase the price of transportation and logistics, dampen tourism and trade linkages, and strain foreign exchange reserves, potentially weakening the shilling and complicating fiscal and monetary policy responses in the region.

Finance and economics analyst, Kelvin Msangi said yesterday that the outbreak of direct military hostilities in the Middle East has transmitted immediate, quantifiable macroeconomic shocks across the African continent.

“Global markets reacted with a sudden surge in the US Dollar Index, aggressively depreciating African currencies and instantly inflating the servicing costs on sub-Saharan Africa’s estimated 867 billion US dollars in total external debt,” he said.

For nations where debt-to-GDP ratios already average over 60 per cent, a spike of 150 to 200 basis points in sovereign bond yields severely constrains central bank liquidity.

Central banks are navigating a narrow fiscal corridor, forced to absorb capital flight as foreign direct investment in non-extractive sectors dropped by an estimated 15 to 18 per cent within the first weeks of the conflict.

He said compounding this liquidity crisis is the measurable disruption to global logistics and international airspace.

“The weaponisation of the Strait of Hormuz and the Red Sea corridor has forced over 90 per cent of major shipping lines to reroute an additional 3,500 nautical miles around the Cape of Good Hope,” Msangi noted.

This diversion adds 10 to 14 days to transit times and has driven Asia-to-Africa and Europe container freight rates up by nearly 300 per cent, reaching upwards of 4,500 to 6,000 US dollars per forty-foot equivalent unit (FEU).

Simultaneously, the closure of over 2.5 million square miles of Middle Eastern airspace has severed the primary aviation corridors connecting Africa to Eurasia.

Msangi stated that major carriers are recording a 15 to 22 per cent increase in fuel burn due to detours adding 2 to 3 hours per flight, resulting in a 35 per cent spike in air cargo premiums for time-sensitive agricultural exports and industrial imports. Africa’s structural reliance on external energy and agricultural inputs translates these logistical bottlenecks directly into imported inflation.

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The immediate 11 per cent spike in Brent crude, pushing prices past the 92 US dollars per barrel threshold, heavily penalises the continent’s net oil importers, who collectively import over 2.2 million barrels of refined petroleum daily.

Furthermore, with the Middle East and Eastern Europe historically supplying nearly 60 per cent of East Africa’s chemical fertilisers, supply chain disruptions have driven the spot prices of urea and diammonium phosphate up by roughly 38 per cent.

This input inflation threatens to reduce regional crop yields by 10 to 15 per cent in the upcoming planting season, highlighting the urgent mathematical imperative of increasing intra-African agricultural trade through the AfCFTA from its current low baseline of 14.4 per cent.

Conversely, the global flight to safe-haven assets has triggered a historic windfall in the extractive sector, with spot gold prices experiencing unprecedented surges and testing the 5,500 US dollars per ounce threshold amid compounding global crises.

This premium creates a critical, time-sensitive window to capture billions in redirected capital, particularly for nations like Tanzania, which already established a formidable baseline of 4.4 billion US dollars in gold export revenues last year.

According to the economist and investment banker, Dr Hildebrand Shayo, for those unfamiliar with these dynamics, the immediate impact of a US–Iran conflict is most visible in commodity markets especially oil for the majority of the global population.

He said Iran sits at the heart of the global energy system, bordering the Strait of Hormuz, through which roughly 18–20 million barrels of oil pass daily about one-fifth of global supply. Any disruption can quickly trigger shortages and price spikes.

Brent crude has already risen, with analysts warning prices could climb to 80–100 US dollars per barrel or higher if tensions persist or key routes are shut.

He said the rising energy prices quickly feed into global inflation, as fuel underpins transport, manufacturing, agriculture and logistics.

For net fuel importers, higher oil prices mean wider import bills, balance-of-payments strain and increased consumer prices. Global commodity price volatility is especially damaging for Eastern and Southern Africa, where many economies are net fuel importers.

For Tanzania, the impact would be multifaceted: Despite gains in hydropower and natural gas, the country still depends on imported fuel.

A sharp rise in global oil prices would quickly lift domestic pump prices, increasing transport costs for goods and passengers alike.

“Higher petroleum prices would fuel inflation, raising food and input costs and eroding living standards especially for low-income households in a country where agriculture depends heavily on road transport,” Dr Shayo said.

He said the increased global energy prices may also influence government fiscal planning. The national budget and medium-term plans of Tanzania frequently assume stable commodity prices.

A prolonged energy shock would force the government to either raise fuel taxes, burdening consumers or expand subsidies, straining public finances.

It would also complicate monetary policy, potentially forcing the Bank of Tanzania to raise rates to curb imported inflation, slowing credit and investment.

Dr Shayo said foreign exchange pressures present another key risk. Higher energy import costs would widen the trade deficit, weaken the shilling, and increase demand for foreign currency.

A depreciating currency would in turn fuel inflation and raise the burden of servicing external debt, potentially destabilising financial markets. Beyond energy markets, the conflict is disrupting global aviation and logistics.

Closures of parts of Middle Eastern airspace have forced rerouting and cancellations, affecting tourism and cargo flows including routes such as ATCL’s service to Dubai.

Higher air transport costs and reduced connectivity could dampen tourism receipts and raise business travel expenses across East Africa, which relies heavily on Middle Eastern hubs. Shipping is also under strain.

Elevated fuel costs, insurance premiums and maritime disruptions are increasing freight charges and commodity price volatility. Tanzanian exporters may face higher logistics costs and delivery delays, with insurance risks becoming a critical factor in safeguarding international trade flows.