Answer to Question #316312 in Economics for Vusi

Question

The recent global development of Russia invading Ukraine has led to USA and European countries imposing sanctions on Russia. Given that Russia is a major player in OPEC, discuss the implication of this in South African economy.

Answer 1

At first, a dragged-out conflict and the cancellation of Nord Stream 2 may lead to sustained higher European gas prices, which will weigh on real GDP growth in the region.

Secondly, while the higher oil price will also have inflationary consequences here, the ongoing geopolitical tension can boost the prices of some of South Africa’s key export commodities, including PGMs and gold. Russia is the world’s largest palladium producer, with South Africa second. As a result, South Africa possibly will take leading positions.

Moreover, increased global geopolitical tension is generally negative for the rand.