Fuel prices are soaring in Cyprus due to multiple factors such as the end of subsidies, carbon taxes, OPEC+ cuts, and global economic growth. Motorists are facing an uphill battle as prices are expected to rise further, with crude oil surging, refining capacity decreasing, and green taxes looming on the horizon.
Why are fuel prices increasing in Cyprus?
Fuel prices in Cyprus are surging due to the end of fuel subsidies, the introduction of carbon/green taxes, OPEC+ production cuts, global economic growth, geopolitical tensions, EU sanctions on Russian oil, and decreased refining capacities. Additionally, higher crude oil prices and green tax policies are expected to further raise costs for motorists.
The Upcoming Struggle at the Pumps
Cyprus motorists are bracing themselves for a significant hit to their wallets as fuel prices are projected to increase substantially. The Cyprus finance minister has made it clear that there will be no extension to the fuel subsidies that are due to end on March 31. Moreover, there is an introduction of carbon/green taxes planned for sometime around September to October. This tax adjustment comes at a time when questions about the future of oil and energy prices are on everyone’s mind.
The situation is exacerbated by the prospect of not one but two additional fuel price increases. Motorists should prepare for a rise in crude oil prices and a widening of the gap between the price of petrol and diesel over crude oil.
Crude Oil Climbing
The OPEC+ group’s decision in early March to extend production cuts has already had an impact, bumping the price of crude oil to around $87 per barrel. Projections from the International Energy Agency suggest that these cuts will tip the oil markets into a deficit by 2024, prompting a further increase in prices. This is echoed by the US Energy Information Administration, which expects Brent crude to climb to $88 per barrel, with other financial institutions forecasting similar or even higher prices.
But the factors influencing the oil prices are more than just production cuts. The global economy’s strength is a variable that could push prices even higher. As inflation eases and interest rates drop, the increasing economic growth—especially in manufacturing—could contribute to this upward trend. Adding to this complexity are the geopolitical tensions, including ongoing Houthi attacks in the Red Sea and recent drone attacks on Russian refineries by Ukraine.
Refining Challenges and Diesel/Petrol Prices
The invasion of Ukraine by Russia and resulting EU sanctions on Russian oil products have caused a significant increase in oil prices. Moreover, the climate-driven push to reduce carbon emissions is leading to a decrease in global and European refining capacities. Closures of about 21% of the global refining capacity projected for 2023 have caused the price margins for refined oil products to soar above historical averages and are expected to remain high for the foreseeable future.
The drone attacks on Russian refineries have not only led to a temporary ban on Russian petrol exports but have also caused concerns about further supply shocks in Europe. Given the current global low oil product stocks, any loss in refining capacity can have widespread consequences on oil prices. Complicating matters further, the US has expressed concerns over the impact of these events on gasoline prices, especially considering the implications for the upcoming election year.
The Green Tax Wave
The EU’s commitment to reducing greenhouse gas emissions has prompted the introduction of green taxation as a means to incentivize a shift towards more sustainable energy and transport options. Through the EU’s Recovery and Resilience Facility (RRF), member states are encouraged to impose green taxes on energy and transport, among other sectors. The EU’s Energy Taxation Directive specifies minimum rates for excise duties on fuels, and many EU countries are already levying carbon taxes on fossil fuels.
Starting in 2027, the Emissions Trading System (ETS) will cover transport and building emissions, potentially adding over 10 cents/litre to fuel prices. While the concept of a ‘Social Climate Fund’ has been introduced to mitigate the impact on lower-income households, Cyprus must now align with these measures despite having previously avoided such taxes.
The Oncoming Impact
Cypriot motorists are on the cusp of facing a “double whammy” in 2024. Fuel prices will reflect the ongoing inflation in crude oil and the more substantial margins on oil products, while taxation will add an additional burden. Estimates suggest an increase of over 25 cents/litre by the year’s end. This will not only affect transport but also the cost of electricity, which relies on diesel/mazut.
The advice from the European Commission emphasizes the use of revenues from these tax hikes to support the vulnerable and invest in green initiatives, which is a strategy that Cyprus is encouraged to adopt. The country is at a crossroads, with motorists soon feeling the full brunt of these converging factors in the coming months.
Dr. Charles Ellinas is a prominent figure in the energy sector, with a career spanning over three decades. He holds a senior fellowship at the Global Energy Centre of the Atlantic Council and is known for his informed perspectives on energy matters. His insights reveal the intricate interplay of geopolitical, economic, and environmental factors that are shaping the future of Cyprus’s energy landscape and the broader global context.
Why are fuel prices increasing in Cyprus?
Fuel prices in Cyprus are surging due to the end of fuel subsidies, the introduction of carbon/green taxes, OPEC+ production cuts, global economic growth, geopolitical tensions, EU sanctions on Russian oil, and decreased refining capacities. Additionally, higher crude oil prices and green tax policies are expected to further raise costs for motorists.
What factors are contributing to the rise in crude oil prices?
The rise in crude oil prices is influenced by factors such as OPEC+ production cuts, global economic growth, geopolitical tensions, EU sanctions on Russian oil, and drone attacks on Russian refineries. Projections suggest that oil prices will continue to increase, impacting fuel prices for motorists.
How will refining challenges affect diesel and petrol prices in Cyprus?
The decrease in global and European refining capacities, coupled with the closure of refineries and drone attacks on Russian facilities, are leading to a significant increase in oil product prices. This situation is expected to impact diesel and petrol prices in Cyprus, with margins above historical averages and potential supply shocks in the market.
What is the impact of green taxes on fuel prices in Cyprus?
The introduction of green taxes, as part of the EU’s commitment to reducing greenhouse gas emissions, will add an additional burden on fuel prices in Cyprus. The Emissions Trading System (ETS) and carbon taxes are expected to contribute to a rise in fuel prices, affecting motorists and the overall energy landscape of the country.
