Sri Lanka reduces fuel prices after Middle East ceasefire

COLOMBO: Sri Lanka on Tuesday cut fuel prices by up to six percent, the first such move since the Middle East war triggered a surge in energy prices in the import-dependent nation.

The state-run Petroleum Corporation said it will lower diesel by 25 rupees a litre to 382 rupees ($1.15), while petrol was lowered by 20 rupees to 414 rupees.

The cuts follow a sharp fall in international energy prices after the United States and Iran agreed to hold talks to bring an end to their conflict.

Sri Lanka had raised petrol and diesel prices by almost 50 percent after the US and Israel launched attacks on Iran on February 28.

Electricity tariffs were also increased by one-third as authorities sought to pass on higher import costs.

Sri Lanka, which buys in all of its oil and also relies on imported coal for power generation, has warned that any prolonged conflict in the Middle East could threaten a fragile economic recovery.

The government told the International Monetary Fund, which granted a $2.9 billion bailout loan to the island in March 2023, that sustained high energy prices could undermine efforts to emerge from the country’s worst economic crisis.

Under the IMF-backed reform programme, Sri Lanka is required to ensure cost recovery in fuel and electricity pricing and limit subsidies that strain public finances.

Sri Lanka defaulted on its $46 billion foreign debt in 2022 after running out of foreign exchange. Since then, Colombo has been drawing down the IMF bailout loan to stabilise the country.