What is the Influence of the Oil Conflict between the US and Iran on South Africa?

By Adelene van Zyl and Ren​ée Grundling

Oil has been the most important source of energy in the world since the 1950’s. According to UK Oil and Gas PLC, oil primarily supplies energy to factories, heat homes and produce fuels of all kinds. Modern agriculture is largely automized or semi-automized and is dependent on electricity and fuel to maintain large production machinery and implements.

The conflict between countries regarding oil supply and demand is not a new problem. A result of this conflict led to the creation of the Organization of Petroleum Export Countries (OPEC) in 1960 with its first five members being Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. [1]

A shift came in 1973 when oil was used as a political weapon in the Yom Kippur War. An embargo was set between Israel and the Arab States of Egypt, Syria and Jordan, motivated by the United States of America (USA), to inflate oil prices, effective immediately. This influenced South Africa in 1974 as the first Oil Crisis when oil production slowed down due to oil shortages worldwide, leading South Africa to re-invest in coal derived fuel by companies such as Sasol.

In 1979 an Anti-Western policy was set up by Islamic rule in Iran which caused the second Oil Crisis. This led to an eight-year war between Iran and Iraq which caused non-OPEC countries to produce more oil than OPEC countries. In the 1980’s, non-OPEC countries had a 70% market share, upon which the USA increased oil production tremendously. Conflict arose primarily over a waterway between the Persian Gulf and Oman, called Strait of Hormuz, leading to the Arabic Sea. This waterway was and still is the only way of transporting oil to and from the Middle East.

In 1991 the USA intervened in the Middle East and established military defence bases and signing defence agreements with the Gulf monarchies. This intervention of peace lasted until 2001 when the USA decided to decrease oil consumption from the Middle East.

Conflict between the United States of America and Iran grew further and caused oil prices to spike in 2003. This conflict decreased production and gave China the opportunity to increase oil supply in 2006 and 2007. Steady oil production continued to 2014, until Saudi Arabia manipulated the market in order to prevent the USA from supplying more oil, causing prices to drop. Recent conflicts between the USA and Iran stems from political skirmishes involving nuclear device productions, deals and sanctions, all of which leads to rumours regarding warfare between these two countries and fluctuating oil prices. [2]

How might this influence South Africa?

Due to the instability of geo-politics and variables regarding oil supply and demand, it is difficult to determine exactly what will happen and how it might influence South Africa. Currently, South Africa is mainly dependent on coal produced energy and amounts to 59% of the country’s energy consumption. Crude oil and gas only amount to 16% and 3% respectively. The main concern for South African electricity is not oil fluctuations, but rather excessive coal consumption due to this
resource being depleted at an increasing rate.[3] South Africa’s fuel prices, however, is very much dependant on the Rand/US Dollar exchange rate and international crude oil prices.

South Africa should therefore turn its focus to biogas and biofuels. These are renewable energy sources that is produced by anaerobic digestion of organic materials and used in the agricultural sector, minimizing costs of the farmer by substituting natural gas. Biogas has added benefits such as reducing exhaust emission pollution and one’s carbon footprint [4] . Biofuel is a product of biogas when CO 2 is removed to increase the energy content and allow storage under high pressure [6] . Biofuel can be biodiesel or bioethanol, both of which is made from different biomass and has different products and implements in which it can be used.

Bioethanol is a biofuel that can be used in engines that run on petrol and is made from fermented sugar. [5] This type of biofuel is commonly produced using agricultural wastes such as corn straw and sugarcane bagasse.[6] Biodiesel, as the name implies, is a diesel substitute and is produced using a process called “transesterification”. This type of fuel is produced from various fats and oils from feedstocks such as canola and soybean. [6] Farmers can therefore literally grow the fuel for their farm machinery and implements [6] .

Biogas and biofuels will most likely become a reality much sooner than what we may think. Transitions from electricity and fossil fuels to natural gas and biogas will enable the user to slowly become independent from energy and crude oil providers such as Eskom and imports from the Middle East. The agricultural sector, as an added benefit, will not only be able to use their home-grown fuel, but can also create a lucrative income for themselves.

References
[ 1 ] Meredith, S., 2020. Energy infrastructure attacks are ‘probable’: Oil traders fear supply disruptions
in the Middle East. [Online]
Available at: https://www.cnbc.com/2020/01/07/us-iran-tensions-oil-traders-fear-supply-
disruptions-in-middle-east.html
[Accessed 3 Febuary 2020].
[ 2 ] Parvaneh, D., 2019. Why The US And Iran Are Fighting Over This Tiny Waterway. [Online]
Available at: https://www.vox.com/videos/2019/8/22/20828858/us-iran-hormuz-oil-tanker
[Accessed 1 Febuary 2020].
[ 3 ]Ratshomo, K., 2018. South African Energy Report, Pretoria: Department of Energy.
[ 4 ] Farm Energy, 2019. Introduction to Biodiesel. [Online]
Available at: https://farm-energy.extension.org/introduction-to-biodiesel/
[Accessed 1 Febuary 2020].
[ 5 ] Farm Energy, 2019. Warm Climate Feedstocks for Biodiesel. [Online]
Available at: https://farm-energy.extension.org/warm-climate-feedstocks-for-biodiesel/
[Accessed 1 Febuary 2020].
[ 6 ] Sarkar, N., Ghosh, S.K., Bannerjee, S. and Aikat, K., 2012. Bioethanol production from agricultural
wastes: an overview. Renewable energy, 37(1), pp.19-27.