MONETABRIEF – Sri Lanka's non-state petroleum firms have reduced fuel distribution amid price controls, an industry official has said as many petrol sheds ran out of petrol and diesel while long queues were seen at the state run network.

Sri Lanka's fuel import costs rose as the rupee collapsed after the central bank cut rates built up excess liquidity and dishonored its note issue under "flexible exchange rate'' debasing the rupee from 300 to 330 amplifying the effects of a US-Iran war on global prices.

The Finance Ministry is paying a subsidy for diesel in particular which has shot up, with crack margins widening.

Sri Lanka's fuel retailers say petroleum firms are not giving the quantities ordered saying that their costs are not covered by the subsidy.

"IOC, RM Park and Sinopec have informed us that they have a big loss on petrol and diesel," Shantha de Silva, Committee Member, Lanka Petroleum Distributors Association told reporters in comments broadcast on Sri Lanka's Derana TV.

"Even with the subsidy they say they are suffering losses. When we order 3 or 4 loads a week, only 1 or one and a half comes.

"They are saying though there is a subsidy of 70 rupees per litre (for Diesel) and their cost rose 140 rupees. Prices also went up 10 rupees and is still a 60 rupee loss."

Both petrol and diesel ran out at many retail outlets Monday and long queues were seen at the state – run Ceylon Petroleum Corporation network.

The price of refined petrol and diesel in particular have run ahead of crude prices due to widening crack spreads (the margin refineries make between crude and final refined products) due to capacity shortages which has reduced diesel output in particular.

The crack margin for diesel which was around 22 dollars a barrel has risen to around 87 dollars in Asia, Reuters, a news agency reported, quoting LSEG data. US crack spreads have spiked higher, other data show.

Ceylon Petroleum Corporation which has its own refinery can therefore suffer less losses than other retailers on the share of fuel that they refine on their own.

There are also differences in import taxes on crude versus refined petroleum.

Import prices would have been far lower had the parliament more effective control over the central bank which has a demonstrable inflation bias, where it expects growth at the expense of wages and pensions.

"Inflation thus can never be more than a temporary fillip, and even this beneficial effect can last only as long as somebody continues to be cheated and the expectations of some people unnecessarily disappointed," Friedrich Hayek said decades before as macro-economists promoted inflation in the hope of reducing employment, which ended in great inflation and the collapse of the Bretton Woods.

"Its stimulus is due to the errors which it produces. It is particularly dangerous because the harmful aftereffects of even small doses of inflation can be staved off only by larger doses of inflation."

The price controls come as the central bank lobbied and got powers to trigger even more inflation and rises in cost of living in the next few years.

The central bank said recently subsidies had helped reduce the shock of the fuel prices on the economy.

(Colombo/Oct06/2026)