Rising Fuel Prices in Latvia: Can Taxes Stop This? 0 45

The main problem is that fuel price formation is determined by global factors that local market participants and politicians cannot control. As noted by the head of strategy at SIA "KOOL Latvija" and AS "OLEREX" Alexey Shvedov, "the fundamental reasons for the price increase are beyond the control and influence of both fuel traders and the Ministry of Economics. Neither of them extracts oil or produces petroleum products."

This means that regardless of the decisions made in Latvia, they cannot directly influence global oil prices. Accordingly, it is impossible to completely stop price increases in the local market if prices continue to rise in the global market. "If global prices for petroleum products continue to increase, the rise in local market prices will not be stopped by the recently adopted reduction in the excise tax on diesel fuel, additional taxes for fuel traders, or even selling fuel at cost at gas stations," explains A. Shvedov.

The situation is further complicated by geopolitical uncertainty. The exchange prices for Brent crude oil and diesel fuel still exceeded the level of the previous week, and the main reason for this is indeed the uncertainty in global markets. This uncertainty intensified after the missile strikes by the Houthi movement on Israel, which could affect important global supply routes.

The risks to the operation of the East–West Pipeline (Petroline), which transports about 5 million barrels of oil daily to the Red Sea, are particularly significant. Serious disruptions in the Bab-el-Mandeb Strait — one of the most important maritime transport corridors — could also significantly impact oil supplies. Even the use of alternative routes through the Suez Canal could reduce supplies by 4–5 million barrels per day, which will inevitably affect prices.

Experts warn that these risks could lead to an even sharper increase in prices. Earlier this month, analysts at Societe Generale bank predicted that prolonged supply disruptions in the Middle East could raise the price of oil to $150 per barrel. Such a scenario would significantly impact fuel prices in Latvia.

As Alexey Shvedov points out, if such a price level is reached, it could cause Platts quotes for diesel fuel to rise to $400–500 per ton. "This would mean a price of about €2.50 per liter at gas stations, despite the reduction in the excise tax from April 1 or additional taxes for fuel traders," he emphasizes.

Thus, it becomes clear that local political instruments can only partially curb the pace of price increases but cannot fully prevent it. The fuel market in Latvia is closely linked to global processes, and it is there that the main reasons for price fluctuations should be sought.

This situation compels both politicians and society to realize that, in the long term, the stability of fuel prices depends not on local decisions but on the development of the global economy and the geopolitical situation.