The National Treasury has slashed the General Fuel Levy by R3 per litre in an emergency intervention to cushion South African consumers from soaring global oil prices driven by Middle East tensions.

The reduction, which came into effect on 1 April, cuts the levy from R4,10 to R1,10 per litre. Without the intervention, diesel prices would have increased by more than R10,50 per litre. Instead, motorists face a rise closer to R7,50 per litre.

The move will cost the fiscus R6-billion this month as government attempts to keep inflation near the Reserve Bank’s 3,0% target whilst international oil markets remain volatile.

Brent Crude currently hovers around $105 per barrel following a month of heightened geopolitical tensions involving Iran. Whilst markets showed signs of relief overnight, with Wall Street surging and the rand recovering to trade between R16,85 and R16,91, pressure on fuel prices remains significant.

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The emergency levy reduction prevents what Treasury officials described as potential paralysis in the logistics and agricultural sectors, both heavily dependent on diesel.

However, the month-to-month nature of the intervention has renewed debate about whether South Africa needs a more permanent solution to manage fuel price volatility.

Energy economists have proposed a floating fuel tax mechanism that would automatically adjust the General Fuel Levy in response to international oil price movements. Under such a system, the tax would decrease when oil prices spike and increase when they fall, creating a stabilisation fund for future crises.

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Proponents argue this would provide businesses with greater price certainty, enabling long-term planning regardless of whether Brent Crude trades at $80 or $120 per barrel.

The current emergency measure marks the government’s most significant fiscal intervention in the fuel market since similar reductions during previous oil crises. Whether it signals a shift towards more structural reform remains to be seen as officials monitor the geopolitical situation in coming weeks.

Gold prices reached $4 680 per ounce, providing some hedge for South Africa’s resource-based economy, though this offers little immediate relief to consumers facing higher transport and food costs.

• Frederick Mitchell is a senior economist at Aluma Capital