MIL Africa Engine

Source: The Conversation – Africa – By Rod Crompton, Visiting Adjunct Professor, African Energy Leadership Centre, Wits Business School, University of the Witwatersrand

The supply of crude oil to the world had been reduced by about 7.5% to 10.1% by March 2026 in what the World Bank described as the largest oil market disruption in history. The fall was a result of the attacks on Iran by Israel and the US and the subsequent closure of the Strait of Hormuz.

No country was spared the impact. For some the economic fallout has been dramatic. In the case of South Africa, which imports all its oil and 81% of its petrol, diesel and paraffin consumption, the effects have so far been felt mainly in the price. This has caused the government to subsidise petrol and diesel.

In this article we explore the problems with official data, the mismanagement of strategic stock and the possibility of developing domestic oil and gas supplies.

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Read more: Iran war is exposing South Africa’s dependency on diesel: what went wrong

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Both of us have been closely involved in the energy sector for some decades. Rod Crompton teaches and researches the topic. Prior to that he was responsible for fuel price regulation and strategic stocks at the Department of Minerals and Energy before serving 11 years on the board of the National Energy Regulator of South Africa. Bruce Young spent 30 years at the petrochemical giant Sasol before joining academia.

Our analysis of the current situation is that South Africans should be concerned about the fact that the quality of fuel data is very poor and the country only has a rough idea of where it stands in relation to fuel stocks. Based on our reading of the situation it appears that the government doesn’t have much idea of how much trouble it’s in.

As a small player in a large global market, not really knowing how much fuel your country needs is a problem. And not having adequate strategic stocks leaves the country vulnerable to global shortages caused by the Iran war.

The gaps

There are huge challenges in the data about fuel stocks and needs. For example, the Fuels Industry Association of South Africa 2024 annual report data shows that net imports of petrol, diesel and kerosene were 81% of consumption, based on data claiming that diesel imports were 118% of consumption. According to this data set, LPG imports were a staggering 1,685% of consumption. These are obviously highly improbable numbers. The fuels industry data is based on official sources (South African Revenue Service and Department of Mineral Resources and Energy).

In addition, National Treasury is concerned about the discrepancies between actual and reported imports. It is also concerned about illegal “spiking” of diesel with paraffin, which carries a lower tax rate, with cases reaching 68%.

According to the South African Revenue Service, organised criminal networks smuggle and illegally adulterate fuel and many of the fuel-storage and distribution depots are involved in the adulteration of all fuel products. Fuel adulteration costs the fiscus approximately R3.6 billion (US$220.5 million) per year, according to the International Trade Administration Commission.

There are also concerns around stocks of crude oil.

Many countries hold strategic stocks of crude oil for events like the Iran war. The International Energy Agency mandates its member countries to hold 90 days of oil imports. South African policy requires “at least three months total consumption”, taking into account the production of synthetic fuels from coal by Sasol.

South Africa’s strategic crude oil storage capacity is substantial and could meet 88 days of consumption. But tank capacity is not the same as stock.

Strategic stock is kept secret. The country’s Strategic Fuel Fund accounts to Parliament through the portfolio committee on mineral and petroleum resources. Although the quantity of stocks was not disclosed, in its March 2025 report the committee raised concern about “insufficient” strategic fuel reserves.

It seems that South Africa currently holds only about 7.7 million to 8 million barrels. In May 2025 the international news agency Reuters reported that South Africa had strategic crude stocks of about 7.7 million barrels. Local reports have referred to approximately 8 million barrels.

The 8 million barrels would last only about 13 days against total liquid-fuels demand of about 600,000 barrels a day, or about 18 days if output from Sasol’s coal-based output of 150,000 barrels a day was taken into account. Sasol’s coal-to-liquids plants were built in the 1970s and 1980s by the apartheid regime in the face of anti-apartheid oil sanctions. Sasol was gradually privatised from 1979 with substantial state guarantees.

Beyond what’s actually being held in stock there’s an additional problem. Storage is concentrated on the west coast at Saldanha Bay and there’s no readily available means of transporting crude oil across the country to the oil refinery in Sasolburg, which is 1,400km away.

South Africa’s other weak spot when it comes to fuel is a lack of inland storage capacity for refined products. The country imports most of its refined products. Storage capacity is concentrated at the country’s major ports, far away from its industrial heartland.

The need for more strategically placed storage capacity was identified in the Moerane Investigation Panel into Fuel Supply Shortages more than 20 years ago. The panel was established in response to the 2005 fuel supply crisis. The panel recommended that South Africa review its strategic stock policy and strengthen refined product stockholding requirements.

It also noted that the country lacked strategic refined fuel inventories despite increasing dependence on imported petroleum products.

But these recommendations were never acted on.

What role, if any, can the private sector play?

There is provision in the fuel price regulations for oil companies to hold stocks. Producers and importers are paid through the pricing regulations to hold 25 days’ stock and wholesalers 14 days’ stock. But we don’t know if they actually do so as the commercial imperative is to hold as little as possible and the government seems to lack the capacity to police this.

Nor is private-sector storage a substitute. Oil companies and large fuel users do have tanks at refineries, import terminals, depots, airports, mines, farms, factories and logistics sites. But this is mostly operational storage. It is product-specific, commercially committed and designed to keep fuel moving through the supply chain. It is not designed to provide long-duration national cover.

Governance of strategic stocks

The governance of strategic stocks is a sore point.

South Africa has already experienced a major governance failure involving its strategic crude oil reserves. In 2015/16 the state-owned Strategic Fuel Fund sold about 10 million barrels of strategic crude oil to commodity traders including Vitol, Taleveras and Venus Rays. The Western Cape High Court later set the transaction aside, finding that it had been conducted unlawfully and without proper approval or oversight.

Critics argued that the transaction effectively depleted South Africa’s emergency reserves through a secretive and poorly governed process that primarily benefited oil traders and intermediaries.

The episode exposed serious weaknesses in the governance of South Africa’s strategic fuel stocks. These concerns have never fully disappeared. Parliamentary oversight processes in 2025 continued to raise concerns about reserve adequacy, underutilisation of storage infrastructure, fragmented governance arrangements, and unresolved oversight and accountability issues.

Funding strategic stocks involves difficult trade-offs. Given South Africa’s constrained fiscal position, it is not obvious that the state can simply fund a R78 billion (USS$4.7 billion) to R79 billion stock-rebuilding programme from the fiscus. But a purely private solution is also unrealistic. Private firms do not generally have spare strategic-scale storage and will not voluntarily hold large volumes of idle stock.

The likely solution is a hybrid model: better data, a credible state reserve, mandatory and incentivised industry stockholding and policing thereof, levy-funded procurement over time, clear emergency-access rules, transparent reporting and independent oversight.

New finds

The oil crisis makes exploration for oil and gas in the offshore Orange Basin more attractive for the country. The basin lies off South Africa’s west coast. Geologically, it extends into Namibian waters, where oil companies have recently made massive oil and gas finds. There are high hopes in the oil industry that oil will also be found in South African waters.

But it won’t be quick; it will take about 10 years, if successful. There is regulatory uncertainty, ultra-deepwater technical challenges, no existing oil infrastructure, and other countries which oil companies find more attractive.

Despite these difficulties, South Africa will need petrol and diesel for a long time to come. Those concerned about the security of supply of oil and gas should be giving serious thought to removing the obstacles to oil and gas exploration that are holding South Africa back. Namibia has shown that it can be done.

– South Africa’s fuel supply and the Iran war: data black holes and low strategic stock put the country at risk
– https://theconversation.com/south-africas-fuel-supply-and-the-iran-war-data-black-holes-and-low-strategic-stock-put-the-country-at-risk-283913

Source: The Conversation – Africa – By Nicole Goldin, Head of Equitable Development, United Nations University

A recent development in the credit rating space could signal important progress in one of the more intractable challenges in global development finance. The challenge is how countries can manage periods of acute debt stress without being pushed prematurely towards default.

The current system can discourage countries facing acute financial stress from seeking temporary liquidity relief, because doing so may trigger market reactions that worsen borrowing conditions. Delays in seeking support can, in turn, deepen financial instability.

But Fitch Ratings, one of the world’s three major credit rating agencies, has revised its sovereign rating criteria. This is the analytical framework for assessing country creditworthiness.

At first glance, the change concerns a narrow technical issue: when countries can temporarily pause bond repayments without being treated as being in “default”.

But the implications may be more significant. This is particularly true for emerging markets and developing economies that are highly exposed to external shocks, constrained fiscal space and heavy debt burdens.

At the heart of the revision is a longstanding problem in sovereign debt markets: the tendency of ratings frameworks to treat temporary payment difficulties as signs of deeper inability to repay debt over time.

In practice, this has often discouraged countries from seeking timely relief during periods of external disruption. This has been true even when the underlying problem is short-term financing pressure rather than an inability to repay debt over time.

That disincentive became particularly visible during the pandemic. Although the G20’s Debt Service Suspension Initiative offered temporary liquidity relief to eligible countries, few sought comparable treatment from private creditors. One reason was concern that doing so could have a number of negative consequences. These included:

• triggering sovereign downgrades, which can signal increased financial risk to investors

• increasing borrowing costs

• being excluded from some international lending and investment markets.

These fears overrode the intentions of the measures: to provide short-term breathing space.

Fitch’s revision signals a cautious shift in that logic. The agency now clarifies the circumstances under which bounded, rules-based payment deferrals may not be treated as defaults. The change reflects growing recognition that temporary liquidity relief, when tightly structured and transparently governed, need not automatically constitute a negative credit event.

What is changing remains modest. It nevertheless suggests that sovereign debt markets are beginning to develop ways to distinguish temporary financial stress from deeper solvency problems. This will allow countries to manage shocks before they escalate into full debt restructuring episodes.

This matters because disorderly defaults and prolonged restructurings can impose major economic and social costs. In turn these can hinder investment and halt development and growth, especially in emerging and developing economies.

Structured flexibility is key to temporary relief

Fitch’s revision was prompted in part by proposals advanced by the London Coalition. This is an informal group of private creditors and official actors convened by the UK government in 2025. It has advocated for broader adoption of debt pause clauses. The idea is to provide temporary relief during clearly defined external shocks such as climate disasters.

Crucially, the proposed architecture is heavily constrained. Creditor safeguards are embedded throughout the design.

The message from Fitch’s revision is therefore not that flexibility itself is a problem. But that unstructured flexibility is. The analytical barrier has been uncertainty, opaque triggers and broad borrower discretion.

Grenada’s experience during the COVID-19 pandemic illustrates the dilemma these mechanisms seek to address. In 2020, Grenada requested an eight-month suspension on payments due under a restructured sovereign bond from private creditors, despite the bond already containing a hurricane-linked debt pause clause. Because the clause was tied to a narrowly defined natural disaster trigger, it could not be activated for a pandemic shock.

The request was ultimately unsuccessful.

The episode showed that contractual mechanisms are often too narrow to address the range of shocks countries face. Climate events, commodity price volatility, pandemics and global financial tightening can all generate acute liquidity stress without necessarily implying insolvency.

Yet sovereign debt frameworks have not allowed countries to absorb shocks like these without setting off a default or restructuring.

Signalling a new direction

That challenge is becoming increasingly urgent, as more countries face the prospect of debt restructuring. This is a process governments go through to renegotiate debt repayments with creditors when debt repayments become unsustainable.

The International Monetary Fund’s recent stocktake of private sector sovereign debt restructuring noted that the number of restructurings since 2020 has been relatively limited. But, it noted, they were often more economically damaging and prolonged than in earlier debt cycles.

This is where Fitch’s revision may prove significant. It suggests that financial tools designed to help countries manage short-term crises may be able to operate within existing market rules, rather than automatically being treated as as signs of default or financial collapse.

This has broader relevance in the context of the UN Financing for Development agenda, including the Seville Commitment, agreed in July 2025. This calls for earlier, more orderly responses to sovereign financial stress. Such approaches depend on mechanisms that allow countries facing exogenous shocks to:

• pause payments temporarily

• stabilise their finances

• recover without automatically facing sharp increases in borrowing costs or loss of market access.

Fitch’s revision does not go as far as broader market reform ambitions reflected in the Seville Agenda. But it does signal that tightly governed, rules-based payment suspensions need not be automatically treated as credit negative.

Importantly, this shift is procedural rather than ideological. It does not rewrite the basic rules of sovereign debt markets. Instead, it clarifies the conditions under which temporary payment suspensions can be used without automatically being treated as signs of default.

That gives investors, governments, and credit rating agencies greater clarity about how such mechanisms operate and how they should be assessed.

Distinguishing stress from insolvency

The revision itself remains narrow. The proposed clauses are voluntary, largely untested at scale and do not address situations of fundamentally unsustainable debt. Nor does the change produce immediate rating adjustments.

Reform in sovereign debt governance rarely arrives through sweeping overhaul. More often, it proceeds through cautious accommodation: incremental changes that gradually become embedded within market practice. Fitch’s revision may prove to be one small but revealing step in that direction.

This is an edited version of the post first published by UNU-CPR, Fitch’s Recent Revision Signals a Notable Shift in Sovereign Debt Governance.

– Rating agency Fitch changes its criteria on pausing debt repayments: why it matters
– https://theconversation.com/rating-agency-fitch-changes-its-criteria-on-pausing-debt-repayments-why-it-matters-283098