Global shocks boosted Ghana’s pump prices to record highs in November 2022. Diesel costs GH¢23 per litre, while petrol costs GH¢17 at GOIL stations. The government blamed the Russia-Ukraine war, sparking a controversy that continues today.
History may be repeating itself, with the blame shifting from Europe to the Middle East.
On Friday, June 14, Israel conducted unprovoked attacks against Iran. The targets included key military personnel, nuclear facilities, and missile infrastructure.
The strike comes after nearly two decades of Israeli warnings about Iran’s uranium enrichment, which it claims is key to a nuclear weapons program.
Israel has always claimed that it will not allow Iran to achieve such capabilities.
Iran maintains that its programme is peaceful and geared at generating electricity. It claims nuclear power will enable it to export more oil.
Israel thinks Tehran is only months away from developing a nuclear bomb and has acted appropriately.
According to initial accounts, the strikes killed key Iranian commanders and nuclear experts.
Iran has replied by launching missiles into Israeli territory.
Panic in the oil markets. Ghana braces
The escalation rocked the oil markets. Brent crude gained more than 7% on Friday. That was the most significant one-day advance since Russia’s invasion of Ukraine in 2022.
There is little indication of a rapid settlement. Danny Danon, Israel’s UN envoy, told Bloomberg that combat might last for weeks.
The economic effect is already obvious. Brent began the year at $74 per barrel, rose to $81, and then fell to $60 in May. During the same time period, the cedi appreciated, aided by gold, cocoa, and significant remittance inflows.
In early June, diesel and petrol are priced under GH¢13 per litre, a decrease from GH¢16 in January.
Falling fuel costs had resulted in lower transport and food prices. In May, inflation fell to 18.4%, its lowest level since February 2022.
Oil prices
However, after the Israeli bombings, crude prices immediately recovered to $74 per barrel.
Iranian energy infrastructure is now being targeted, and oil prices are expected to stay high once markets reopen. If the war continues, prices may rise even further.
The Middle East accounts for approximately 30% of global oil output, so any instability in the region could disrupt supply.
One big concern is the Strait of Hormuz, a narrow shipping path that transports around 25% of the world’s crude exports, primarily to Asia.
Saudi Arabia, Iran, Kuwait, the UAE, and Qatar rely on the Strait to export crude.
Iran has repeatedly threatened to block the waterway, but it has never done so. According to Bloomberg, a closure could increase oil prices up to $135 per barrel.
While the current spike is dramatic, the longer-term trend has been decreasing since late 2023. Brent reached its top of $91 in September of that year. OPEC oversupply and insufficient demand had kept prices low, and unless the war intensifies dramatically, this trend may repeat.
A closure of the Strait of Hormuz remains the most damaging scenario, but it seems improbable at this time.
Fuel Levy Paused, Inflation Fears Grow
Nonetheless, oil prices are again recovering to levels last seen in January 2025, when petrol and diesel were selling for nearly GH₵16 per litre at GOIL outlets. The cedi is, however, substantially stronger than it was before, although this may not be enough.
The Chamber of Oil Marketing Companies had forecast a 9% hike at the pumps starting today. This was attributed to both the crude rebound and a proposed GH¢1 rise in the Energy Sector Levy.
But in reaction to growing tensions in the Middle East, President Mahama directed Energy Minister John Jinapor and Finance Minister Ato Forson to follow developments closely and defend recent fuel price rises.
On Friday, the Energy and Finance Ministries, along with the Ghana Revenue Authority, officially postponed the levy’s implementation to protect consumers from further price shocks.
The fee was intended to earn GH5.7 billion per year to purchase light crude oil for thermal power. However, rising oil costs imply that the same amount will now be worth less.
Even if enforced, the levy is unlikely to completely close the difference, particularly if the crisis escalates, putting more strain on the energy industry.
Gold provides some protection—for the time being.
One source of relief is gold. On Friday, it jumped to $3,432 per ounce. That represents a daily gain of 1.37% and a more than 30% increase since January.
During global crises, investors typically rush to the US currency and Treasuries. However, with Donald Trump’s return creating uncertainty, gold is outperforming. On Friday, both gold and the dollar gained. However, gold rose more, indicating a shift in where investors feel most secure.
The shift isn’t new. The European Union indicated that gold will displace the euro as the second most-held reserve asset by central banks in 2024, after only the US currency.
Ghana benefits directly. Higher gold prices raise export revenues and increase dollar inflows, supporting the cedi.
Nonetheless, the support is incremental. The cedi dropped marginally on Friday, falling from GH¢10.25 to GH₵10.35 per dollar as oil shocks hit faster than gold flows.
If prices stay high, the Bank of Ghana may need to provide more dollars to Bulk Oil Distributors (BDCs). This would put strain on foreign reserves.
If gold production and inflows remain strong, the situation should be somewhat controllable.
Is inflation making a comeback?
Delaying the gasoline levy provides temporary respite, but results in a GH¢2.9 billion income imbalance in the second half of the year.
If the confrontation escalates, particularly if Iran closes the Strait of Hormuz, oil prices might skyrocket. That would jeopardise Ghana’s fragile economic recovery.
Inflation, which is currently at a two-year low, may change course as fuel prices affect all sectors of the economy. Higher transportation and input costs may raise the price of food and utilities.
Many observers expected the PURC to announce a cut in utility tariffs during its upcoming quarterly review. This was based on the higher cedi and lower crude prices seen in May. That now seems unlikely.
A prolonged confrontation could result in higher electricity and water bills, putting more strain on households and inflation.
Rising fuel and food prices would also make it more difficult for the Bank of Ghana to attain its annual inflation target of 11.9%.
Gold adds some cushioning. Higher prices boost export profits and assist to stabilise the cedi. However, this support is limited if oil prices remain high.
Crude expenses are incorporated into almost every import, from fertilisers and machinery to transportation and logistics. Even with significant gold inflows, this has resulted in increased prices across several industries.
Ghana’s vulnerability stems in part from a failure to rebuild strategic oil reserves when petroleum was cheap. Without an adequately functioning oil refinery, the country remains vulnerable unless structural changes are implemented.
Higher crude prices may boost oil export revenues, but output has fallen for the past five years. It is unclear whether any windfall will be sufficient to meet energy sector needs or create enough foreign cash to defend the currency.
Ghana cannot afford another oil crisis like that of 2022. What happens in the Middle East, and how the government reacts, will influence the remainder of 2025.