Big petrol and diesel price hikes officially announced for South Africa

The Department of Mineral and Petroleum Resources (DMPR) has announced the official petrol and diesel price increases that will take effect on 1 April. 

Petrol prices are set to rise by over R3 per litre, while diesel will surge by over R7 per litre. This has the potential to create a significant inflationary shock in South Africa. 

The price increases are largely due to the sharp rise in oil prices since the US-Israeli war on Iran kicked off on 28 February. 

The conflict has seen oil supply from the region, which covers around 20% of all demand, effectively come to a standstill, bar a few pipelines that can circumvent the Strait of Hormuz. 

Iran has effectively closed this body of water to normal maritime traffic, cutting oil supply from crucial suppliers in the Persian Gulf. 

The DMPR noted that the average price for a barrel of Brent Crude oil rose from $69 in the previous period to $93.67 in the past month. 

This has been coupled with a weaker rand, which exaggerates the impact of the oil price shock by making it more expensive to import the commodity. 

The rand has been hit hard by investors flocking towards safe havens, such as the US dollar and Swiss franc, and away from emerging market assets. 

As a result, petrol and diesel prices will rise sharply in South Africa from 1 March. The DMPR’s announced hikes are shown below –

• Petrol 93 – increase of R3.06 per litre
• Petrol 95 – increase of R3.06 per litre
• Diesel 0.05% (wholesale) – increase of R7.37 per litre
• Diesel 0.005% (wholesale) – increase of R7.51 per litre

South African motorists have been spared a potential double blow, with increases to the General Fuel Levy (GFL), RAF Levy, and Carbon Tax effectively being delayed. 

These increases would have pushed the price of petrol and diesel even higher at the pumps from 1 April onwards. 

Finance Minister Enoch Godongwana announced on 31 March that there would be a temporary reduction of R3 per litre in the GFL from 1 April until 5 May. 

This will help South African motorists avoid the worst impact of the price hikes, with the GFL for this period being reduced to R1.29 per litre of petrol and R1.16 per litre of diesel. 

However, this comes with a potentially severe financial cost for the government, whose fiscal accounts are in bad shape. 

The government generates around R100 billion a year from the GFL, which equates to over R8 billion a month. 

Efficient Group chief economist Dawie Roodt explained that this could have significant negative consequences for the state’s plan to stabilise government debt as a share of GDP in the current financial year. 

“I think reducing the fuel levies is not a good idea. Remember, the fiscal accounts are in deep trouble. This is just cheap politics,” Roodt said. 

“In the end, what is going to happen is that there will need to be an increase in other taxes to make up the shortfall, or the state will have to spend less.”