South Africa moves to blunt fuel shock

South Africa will cut a fuel tax for April to soften the hit from surging global oil prices, as Finance Minister Enoch Godongwana moves to contain a steep rise in petrol and diesel costs that threatens to feed inflation across Africa’s most industrialised economy. The step comes as oil markets remain under strain from conflict-linked supply disruption in the Middle East and as the rand has weakened against the dollar, compounding the pressure on imported fuel.

Godongwana said the levy would be reduced by R3 per litre for both petrol and diesel in April, according to reports on Tuesday, providing temporary relief ahead of the country’s monthly fuel-price adjustment that takes effect on the first Wednesday of each month. South Africa’s pricing formula factors in international crude prices, the exchange rate and local taxes, which means households and businesses are exposed quickly when oil jumps and the currency comes under pressure.

The move marks one of the clearest signs yet that Pretoria is worried about the economic fallout from the oil rally. South Africa imports most of its refined fuel needs and is therefore especially vulnerable when seaborne energy markets tighten. The latest squeeze has been driven by disruption around the Strait of Hormuz and by fierce competition for alternative barrels, with Asian buyers drawing more crude from Europe and Africa and pushing up prices for other importers.

Pressure had already been building before Tuesday’s decision. The South African Reserve Bank last week left its benchmark policy rate unchanged at 6.75% and warned that fuel inflation was likely to surge, with second-quarter fuel inflation projected at more than 18%. Governor Lesetja Kganyago and his colleagues signalled that a cheaper inflation path seen earlier this year had been disrupted by the jump in energy prices, making it harder for the central bank to contemplate rate cuts.

That creates a difficult balancing act for the Treasury. South Africa is trying to show fiscal discipline while facing weak growth, high debt-servicing costs and political scrutiny over tax decisions. Godongwana’s February budget framework had already drawn attention to fuel-levy changes, and the broader politics of fuel taxation remain sensitive because any increase feeds directly into transport costs, food prices and wider living expenses.

For motorists, the levy cut is likely to cushion rather than erase the coming price increase. Global oil prices have risen sharply as conflict in and around Iran has disrupted supply routes and tightened availability, while the rand has lost ground amid the same geopolitical turmoil. That combination is particularly painful for South Africa because crude is priced in dollars, meaning any currency weakness magnifies the local-currency cost of imports even if the underlying oil move stabilises.

The government’s response also echoes an earlier intervention. In 2022, South Africa temporarily cut the fuel levy during the market shock that followed Russia’s invasion of Ukraine, with ministers arguing then that the aim was to phase in higher pump prices rather than let consumers absorb the full increase at once. The latest decision suggests policymakers again see a temporary tax adjustment as a politically and economically useful buffer when external energy shocks threaten to spill rapidly into the domestic economy.

Across emerging markets, governments are reaching for similar tools. Another large fuel-importing economy, India, has also cut excise duties on petrol and diesel in response to the same oil surge, highlighting the breadth of concern among policymakers trying to contain inflation without reviving broad energy subsidies. For African economies, the shock has been especially severe because many rely on imported refined products and have limited fiscal room to protect consumers for long.

South Africa’s decision is likely to be welcomed by business groups, freight operators and labour unions that had urged the government to act before April’s pump-price revision. Yet it also leaves open the question of how long the Treasury can maintain relief if oil markets stay tight. A deeper or longer-lasting tax cut would reduce revenue at a time when the state is already under pressure to fund infrastructure, social services and debt obligations.