South Africa is weighing a reduction in its fuel levy as rising pump prices, driven by the ongoing Iran conflict, put pressure on consumers.
The Finance Minister, Enoch Godongwana, is considering the move, with a decision expected to be announced on Tuesday ahead of the monthly fuel price adjustment scheduled for Wednesday, according to Reuters.
The consideration follows calls from trade unions, business groups and political parties for the government to act as global oil prices rise.
“The general fuel levy was set to rise slightly from April 1, to about 4 rand a litre for both petrol and diesel, according to last month’s budget.
“Trade unions, business lobby groups and political parties have urged the government to intervene to limit fuel price hikes driven by the surge in global energy prices since the U.S.-Israeli war against Iran,” the source read in part.
Planned levy increase under review
In February’s budget, the government proposed a slight increase in the general fuel levy from April 1, which would raise it to about 4 rand ($0.23) per litre for both petrol and diesel.
However, recent developments in global energy markets have prompted a review of that position.
A government official stated that authorities are now assessing options regarding the impact of higher oil prices linked to tensions involving Iran.
South Africa adjusts fuel prices monthly based on global crude oil prices, the exchange rate, and domestic taxes. Any increase in global prices is typically reflected in local pump prices at the start of each month.
An energy official familiar with the discussions said the government is considering measures similar to those adopted during the Russia-Ukraine war
At the time, South Africa introduced a temporary reduction of 1.5 rand ($0.087) per litre in the fuel levy amid rising oil prices. The measure remained in place for several months before it was gradually withdrawn.
The official noted that current discussions include measures similar to that intervention, although no final decision has been announced.
The earlier measure was implemented after global oil prices surged following the outbreak of the war in Ukraine, which disrupted energy markets.
Reserve Bank flags fuel inflation risk
Meanwhile, the South African Reserve Bank has noted the impact of rising fuel prices on inflation.
At its recent monetary policy meeting, the central bank said that fuel inflation could exceed 18% in the second quarter.
The bank noted that higher fuel costs, combined with rand depreciation against the dollar, are expected to contribute to higher prices in the near term.
The rand has depreciated by more than 6% against the dollar since tensions increased in the Middle East.
Import dependence affects local prices
South Africa imports most of its petroleum products, making domestic fuel prices sensitive to global market movements.
The country relies on refined fuel imports to meet a significant share of its demand, particularly after the closure of some local refining capacity in recent years. This has increased exposure to international supply conditions and pricing shifts.
The pricing system is regulated and based on a set formula. It incorporates international product prices, shipping and storage costs, as well as the rand-to-dollar exchange rate, alongside local taxes such as the fuel levy.
As a result, shifts in global energy markets are quickly transmitted in local pump prices, leading to periodic government actions during periods of large increases.
