South Africa Cuts Fuel Taxes as Prices Spike on Iran War

South Africa cut fuel taxes to cushion a surge in oil prices driven by the war in Iran, with gasoline and diesel costs set for their steepest increase in almost two decades.

The levy will be reduced by 3 rand per liter for both gasoline and diesel in April, Finance Minister Enoch Godongwana said in an interview at the South Africa Investment Conference in Johannesburg on Tuesday. The measure will cost about 6 billion rand ($351 million) in lost revenue for the one month-period, the National Treasury said in a statement.

“The relief measure is designed to be fiscally neutral, and the government will implement mechanisms to recoup the foregone revenue within the fiscal framework approved during the 2026 budget,” it said.

The announcement adds to steps by oil-importing nations, including South Korea and the Philippines, to cushion their economies from the Iran war, underscoring concern about inflation and consumer demand.

Godongwana said he’s still discussing what to do with the levy once the one-month period has passed, later telling local media that it probably couldn’t be extended beyond June.

“This is a shock to economy, and a blow,” he told Johannesburg-based broadcaster eNCA, referring to the US-Israeli war on Iran and its impact on energy costs

South Africa’s central bank is targeting inflation of 3% and the government was projecting gross domestic product growth this year of 1.6% before the conflict began. Oil prices have surged almost 50% since the Iran conflict erupted on Feb. 28.

The reduction in fuel taxes is “a prudent decision,” said Michael Grobler, a fixed-income strategist at Ashburton Fund Managers Ltd. “I think it will blunt the inflation impact and help preserve GDP growth” while also tempering rate-hike expectations, he said.

Forward-rate agreements are currently pricing three 25 basis-point interest-rate hikes through November, including one at the next monetary policy committee meeting in May.

The retail price of 95-octane gasoline is set to climb by 3.06 rand per liter in the country’s economic hub, Gauteng, on Wednesday, the Department of Mineral Resources and Energy said in a statement. The wholesale cost of diesel will climb by as much as 7.51 rand per liter.

Read More: South Africa to Raise Gasoline Price by Most Since at Least 2008

South Africa previously reduced its general fuel levy temporarily in 2022 to help offset a rise in prices after Russia’s invasion of Ukraine. The levy raised an estimated 97 billion rand in the fiscal year that ends on Tuesday, according to the National Treasury.

The general fuel levy on gasoline is currently 4.01 rand per liter and, prior to Godongwana’s announcement, had been set to rise to 4.10 rand on Wednesday. For diesel, the levy is 3.85 rand and was set to increase to 3.93 rand. The Road Accident Fund levy is set to climb to 2.25 rand from 2.18 rand.

The Treasury also said that work is underway on a broader package of measures to support households and that more details will be announced at a later date.