Beyond the pump: the hidden risks behind fuel price controls

When you’ve spent years working in market analysis, you begin to notice not only the global drivers behind price movements, but also how these shifts are interpreted and amplified by local media.

Rising prices at the pump almost invariably sparked a familiar reaction:  angry comments and emphatic statements from politicians. 

Since the COVID era, the populations of the Baltic states have been living under sustained inflationary pressure. For most people, this pressure feels uncontrollable, unpredictable, and therefore deeply frustrating.

Fuel retailers act as a kind of “magnet” for the negative emotions of a public worn down by rising prices and social tension. Why? Simply because they sell a standardized set of refined petroleum products, and any change in prices is immediately displayed for everyone to see on large price boards—so-called pylons. Moreover, fuel retailers deliberately position these pylons to catch the customer’s eye as often as possible.

The uncomfortable truth is that neither local fuel retailers nor government institutions in the Baltic states exert any meaningful control over the two most critical components of pricing—namely, the EUR/USD exchange rate and Platts quotations. As a result, regardless of who makes promises or how forceful public statements may be, it is simply impossible in the long run to halt price increases in local markets if fuel prices are rising globally.

Instead of coordinated action, the region is moving toward fragmented regulatory approaches—and Latvia’s proposed “fuel traders’ solidarity contribution” (“solidaritātes maksājums”) marks a clear break from market-based principles. According to industry experts, this divergence is not just a technical policy issue—it is a strategic risk for the entire Baltic investment environment.

The region has a highly open economy that depends heavily not only on energy imports but also on external demand. This is why external shocks hit the population so hard.

Latvia’s mechanism is presented as a temporary fiscal tool. In practice, it risks becoming something far more consequential. Under the proposal, fuel retailers would be required to pay 100% of any price difference above a government-calculated reference price. While formally maintaining pricing freedom, this effectively removes any economic incentive to price above that level. The result is not a neutral redistribution tool—it is a de facto price control mechanism.

Anyone can verify that there are no “excess profits” in the Baltic fuel retail sector. All it takes is to look at two figures—net profit and turnover—from publicly available profit and loss statements over several years and compare them as a simple ratio. The result shows that net margins in this sector typically hover around 1–2%. In other words, for every €100 in revenue, a fuel retailer earns roughly €1–2 in profit.

Fuel retail is one of the most capital-intensive, high-risk, and at the same time low-margin types of business in the Baltic states. Moreover, the smaller the share of fuel sales in total turnover—and the larger the share of revenue from shop goods or services—the higher this margin tends to be. It is therefore quite surprising that the authors of “solidaritātes maksājums” did not perform such a basic calculation.

The Baltic states have long benefited from being perceived as a coherent and predictable investment environment. Preserving that perception requires more than reacting to immediate pressures—it requires consistency and clarity.

Without that balance, “well-intentioned interventions” risk doing more harm than good.

Alexey Shvedov

Chief Strategy Officer

AS OLEREX/SIA KOOL Latvija