South Africa’s trade diplomacy under threat as US-Iran tensions escalate

Economists have cautioned that South Africa will increasingly have to weigh its trade and diplomatic options in dealing with the uncertainty generated by the ‘shock and awe’ strategy of the Trump administration.

This comes after the US threatened to collapse Iran’s economy by shutting down its oil industry.

US Treasury Secretary Scott Bessent last week said that the US was deploying sanctions against Iran aggressively for “immediate maximum impact” with the aim to slash Iran’s oil exports of 1.5 million barrels per day to a trickle.

Iran is one of the world’s major Brent crude oil exporters and a member of the BRICS+ bloc of nations. 

Diplomatic relations between South Africa and the US have plummeted to historic lows under the Trump administration, which has recently suspended the President’s Emergency Plan for AIDS Relief (PEPFAR) funding to South Africa, soon after Donald Trump took the Oval Office. 

North-West University Business School economist, Prof Raymond Parsons, said the latest remarks by Bessent should come as no surprise, as they simply take the Trump Administration’s aggressive global approach to the next level.

Parsons said that defusing and stabilising US-SA economic and political relations must nonetheless remain first prize for South Africa, adding that it would require nimble diplomacy.

“Trump’s adversarial approach to BRICS in general and SA in particular is now at an advanced stage. The Bessent remarks therefore inject further unpredictability into the BRICS supply chain framework, which will also have possible implications for SA,” Parsons said. 

“SA will increasingly have to weigh its trade and diplomatic options in dealing with the uncertainty generated by the ‘shock and awe’ strategy of the Trump administration.

“Hence, beyond the Bessent remarks the bigger picture may soon need a smart recalibration of SA’s foreign trade market interests, which may inevitably lead to a degree of economic ‘decoupling’ from the US, especially if SA loses its Agoa status.”

According to the Observatory of Economic Complexity, South Africa’s exports to Iran (largely coal briquettes, perfume plants and surveying equipment) decreased from $116 million in 2018 to $16.5m in 2023. 

Similarly, exports from Iran to SA (including tropical fruits, vegetable saps and broadcasting equipment) have decreased from $31.7m in 2018 to $1.74m in 2023.

Momentum Investments chief economist, Sanisha Packirisamy, on Friday said trade between the two nations plummeted after the imposition of expanded sanctions on Iran by the United States, European Union, and the United Nations.

Packirisamy said SA reduced its reliance on Iran in terms of its crude imports, with Nigeria, Saudi Arabia, the US, and Angola being among the top import destinations for South Africa.   

“SA’s relationship with Iran via membership of the BRICS grouping does nevertheless pose a threat to SA’s relations with the Western World, including the United States in particular, which is taking a stronger stance against the nation,” Packirisamy said. 

“SA needs to balance its ideological standpoint with its national interests very carefully in a world where the global order is shifting. SA’s presidency of the G20 provides the country with a unique opportunity to strengthen its bilateral ties and investment attractiveness.”

Under the new Trump Administration, the US has been highly active on the foreign policy agenda front, ranging from aiming to stem flows of illegal immigrants and drugs to the US to cutting financial aid and other areas of support around the world.

Trump on Friday repeated his unsubstantiated claims that South Africa was being terrible to long time farmers in the country and that the government was “confiscating” white farmers’ land.

Investec chief economist, Annabel Bishop, said the US’ political relationship with South Africa has soured.

Bishop said the US recently removed some aid support from South Africa, while concerns are growing over South Africa’s Agoa free trade access into the US. 

“The US Embassy in SA notes “(a)s long as South Africa continues to support bad actors on the world stage”. “The United States will stop aid and assistance to the country”. “South Africa also strengthened ties with Iran, which supports terrorism globally,” . 

“The United States cannot support the government of South Africa’s commission of rights violations in its country“, with Agoa stipulating both perceived human rights abuses and/or supporting an enemy of the US) as reasons to lose free trade benefits offered by it. SA also risks tariffs from the US and sanctions.”

BUSINESS REPORT