Botswana could potentially face the spill-over effects of a conflict in the Middle East between Iran and Israel due to its trade relations with the latter should tensions escalate.
Botswana imports a significant number of products from Israel, having imported goods valued at US$13.65 million in 2023.
Pearls, precious stones, metals, and coins accounted for $11.3 million, followed by electrical and electronic equipment, which amounted to $737,000.
Botswana also imports a variety of products from Israel, including machinery, medical apparatus, rubber products, pharmaceuticals and tools, according to the available data.
On the other hand, Botswana exports diamonds to the Gulf country.
Speaking to The Business Weekly & Review, Gomolemo Basele, an economist at FNBB, noted that the escalation of tensions between the countries and the uncertainty surrounding the scale of Israel’s retaliation has the potential to draw the allies of both nations into the conflict.
“The involvement of allies, whether directly or through sanctions imposed has the potential to affect global inflation, trade and growth negatively,” he said.
“For example, sanctions imposed by the US on Iran, in support of Israel, could limit Iran’s potential to export oil and affect global energy prices.”
Basele mentioned that if tensions were to continue escalating, Iran could also disrupt the flow of trade through the Strait of Hormuz, potentially leading to increased global inflation and limiting growth prospects.
As a result, he stated that a significant portion of the world’s liquefied gas and oil in transit through the strait would be at risk of seizure by Iran.
According to the US Energy Information Administration, in 2018, a fifth of the world’s oil supply passed through the Strait of Hormuz, situated at the bottom of the Gulf.
The Strait of Hormuz, situated between Oman and Iran, serves as a vital maritime passage connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea.
The administration highlights that the significance of the Strait of Hormuz lies in its role as the world’s most important oil chokepoint, owing to the substantial volumes of oil that traverse through it.
In 2018, the daily oil flow through the Strait of Hormuz averaged 21 million barrels per day (b/d), equivalent to approximately 21 percent of global petroleum liquids consumption.
Chokepoints are narrow channels along widely used global sea routes that are critical to global energy security.
According to the administration, the inability of oil to transit a major chokepoint, even temporarily, can lead to significant supply delays and increased shipping costs, consequently driving up global energy prices.
Although most chokepoints can be circumvented by using other routes that add significantly to transit time, some chokepoints have no practical alternatives.
Flows through the Strait of Hormuz in 2018 made up about one-third of total global seaborne traded oil.
More than one-quarter of global liquefied natural gas trade also transited the Strait of Hormuz in 2018.
“The most immediate adverse effects to Botswana are likely to take the form of heightened inflation, trade disruptions and slowing diamond export prospects,” Basele said.
“Given that Israel is a major export partner for Botswana, from a diamond standpoint, the continued tensions pose headwinds for diamond exports into the region.”
The International Monetary Fund (IMF) has also warned that escalating tensions in the Middle East could lead to an increase in oil prices and inflation.
The IMF stated that the increased inflation resulting from higher energy prices would prompt central banks to respond by tightening interest rates to ensure inflation returns to target levels.
However, Basele noted that Botswana can take comfort in the fact that, from a Foreign Direct Investment (FDI) perspective, the major sources of Botswana’s FDI inflows are the Southern African Customs Union (SACU), the European Union (EU), and Canada regions.
Although direct trade and investment between Botswana and Israel are limited, Basele noted that the current tensions within the region, and their potential escalation, would adversely impact jurisdictions with a more direct channel to Botswana.
“As a result, investment into, and trade with Botswana could suffer from spillover effects of the conflict if it were to intensify,” Basele warned.
Economist and Managing Director at Econsult, Dr. Keith Jefferis, highlighted that the primary risk lies in oil prices, which have the potential to drive up inflation. Israeli Prime Minister Benjamin Netanyahu has asserted that the country will independently determine its course of action in response to Iran’s unprecedented attacks.
