Sri Lanka Cuts Fuel Prices After US-Iran War Halted

The Sri Lankan government has slashed fuel prices by up to six per cent, a move announced on Tuesday (30/6). The state-owned Petroleum Corporation said it would lower the price of diesel by 25 rupees per litre to 382 rupees (US$1.15), while the price of petrol was reduced by 20 rupees to 414 rupees. The price cuts follow a sharp decline in international energy prices after the United States and Iran agreed to hold talks to end their conflict. The war in the Middle East had previously triggered a surge in energy prices in Sri Lanka, which is heavily dependent on oil imports. Sri Lanka had raised petrol and diesel prices by nearly 50 per cent after the US and Israel launched strikes against Iran on 28 February. Electricity tariffs were also increased by a third as authorities sought to cope with rising import costs. Sri Lanka, which purchases all of its oil and also relies on imported coal for power generation, had warned that a prolonged conflict in the Middle East could threaten its fragile economic recovery. The government told the International Monetary Fund (IMF) that sustained high energy prices could undermine efforts to emerge from the worst economic crisis the country has ever experienced. The IMF provided a US$2.9 billion bailout loan to the country in March 2023. Under the IMF-backed reform programme, Sri Lanka is required to ensure cost recovery in fuel and electricity pricing, as well as limit subsidies that burden public finances. Sri Lanka defaulted on its US$46 billion foreign debt in 2022 after running out of foreign exchange reserves. Since then, the government has used the IMF bailout to stabilise the country.