Oil futures suggest the turmoil in the Middle East, dramatic though it may be, could prove relatively short-lived. Forward curves imply that Brent crude, trading above $90 a barrel at the time of writing, could slip back to below $80 by August. That likely explains the muted move in Sasol’s share price so far, with the market pricing in a temporary supply disruption rather than the start of a sustained energy shock.
But for investors who believe the market is wrong, Sasol remains one of the most effective hedges available locally against a sustained rise in fuel prices — perhaps the only one of meaningful scale.
In Sasol’s heyday, traders used a simple rule of thumb: that it tended to trade at about half the rand oil price. By that measure, with Brent at $90 and the rand about R16.30 to the dollar, the share would historically have traded closer to R730.
That relationship has weakened over the past decade.
The main reason is the Lake Charles chemicals project in the US, which significantly increased Sasol’s exposure to global chemicals markets just as Chinese capacity expansions pushed margins into a prolonged downturn. At the same time, huge cost overruns on the project left the group with a heavy debt burden.
Another challenge was declining coal quality at some of Sasol’s mines as the company encountered lower-grade seams, putting additional pressure on margins in its South African fuels business.
The result is that Sasol’s sensitivity to oil has not disappeared but has reset at a lower base. That also means the group now has several internal levers that could amplify earnings if conditions improve. The destoning project commissioned in December 2025 should lift coal quality and plant efficiency, while any recovery in global chemicals markets would provide an additional tailwind.
Unless there is a decisive geopolitical resolution such as regime change in Iran or a definitive halt to its nuclear programme, the underlying tensions are unlikely to disappear entirely
Against that backdrop, Sasol’s role as a hedge in portfolio construction becomes particularly relevant in this geopolitical environment.
Traditionally, gold has fulfilled that function for investors worried about geopolitical shocks. Yet the metal has barely moved since the recent escalation involving US and Israeli strikes on Iranian targets. One possible explanation is that gold has already been driven to historically elevated levels by the broader “dollar debasement” trade.
Sasol, by contrast, still looks relatively inexpensive — and highly sensitive to energy prices.
According to the sensitivity analysis included in the group’s latest results, every $1 increase in the Brent oil price boosts Sasol’s ebit by about R642m. Changes in refining margins — the so-called crack spread between crude oil and refined products — have an even larger impact. A $1 increase in refining margins adds about R871m to ebit.
Taken together, those sensitivities imply that with Brent at about $90 and refining margins at about double the levels seen a year ago, Sasol’s ebit could increase by about R30bn. That is a material number when set against a market capitalisation of about R100bn.
There are, of course, a few nuances. Sasol has some exposure to the Gulf through its Oryx GTL facility in Qatar, which introduces operational risk should gas feedstock be affected. The group has also executed a number of oil hedges for the 2027 financial year with modest price ceilings. But the scale of those hedges is relatively small compared with the potential earnings uplift if oil prices remain elevated.
This phase of instability in the Middle East began with the Hamas attacks on Israel on October 7 2023, followed by escalating clashes between Israel and the Iran-backed Hezbollah in Lebanon, the collapse of the Assad regime in Syria, direct exchanges of fire between Israel and Iran, and eventually US involvement through strikes on Iranian nuclear facilities.
The latest flare-up may fade relatively quickly. US President Donald Trump has historically been sensitive to the political impact of high gasoline prices, particularly ahead of elections such as the US midterms scheduled for November.
But unless there is a decisive geopolitical resolution such as regime change in Iran or a definitive halt to its nuclear programme, the underlying tensions are unlikely to disappear entirely. Instead, the conflict may simmer for years, periodically erupting in ways that threaten regional stability and global energy supply.
As a reminder, the oil shocks of the 1970s were triggered by relatively short-lived geopolitical events — including the Arab-Israeli war of 1973 and the Iranian revolution of 1979 — but the resulting energy crisis lasted for years as supply disruptions, political tensions and market psychology reinforced one another.
For South African investors without access to offshore oil majors or global energy ETFs, Sasol remains the most direct way to hedge against a sustained spike in energy prices. Periods of share price weakness, particularly if they are driven by an easing in Middle Eastern risk premiums, could therefore present attractive opportunities to accumulate the stock.
It may not make you money if peace suddenly breaks out and oil prices retreat. In fact, you could even lose money in that scenario.
But as an insurance policy against a worst-case geopolitical outcome, it may still help investors sleep better at night.
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