Government to decide this week on measures to bring fuel prices down

RIGA - The government plans to decide this week on measures to bring fuel prices down to an acceptable level, using all possible tools, Prime Minister Andris Kulbergs (United List) announced on X.

According to the prime minister, the planned solutions include reducing excise tax on fuel, waiving fuel reserve requirements, and lifting biofuel requirements. As a result of these measures, the total potential reduction could be up to EUR 0.2 per liter.

The prime minister also writes that the goal is for the fuel price reduction to be in effect from October 1 through December 31. He promises that as early as Wednesday, the government’s plan will be submitted to the Saeima for further consideration.

Commenting on the current situation, Kulbergs acknowledges that the rise in fuel prices is a huge problem for Latvia and all of Europe.

It directly hits people’s pockets and makes almost everything more expensive, including private transportation, train and bus service, aviation, logistics, and the work of firefighters, police, and emergency medical services, the prime minister says.

He notes that the rise in fuel prices also means higher prices in stores and additional pressure on inflation. "This reduces the purchasing power of money and will directly affect both consumption and the cost of living this winter," the prime minister says.

Kulbergs also says that there is no direct correlation between the oil price on the exchange and fuel prices at the gas station, especially for diesel.

"Fuel retailers do not purchase finished fuel on the oil exchange. Prices for finished oil products are largely determined by the Platts international fuel price indices," the prime minister says.

He admits that diesel fuel is a particular problem. According to him, the price and availability of diesel fuel could become a long-term issue, as global refining capacity has been disrupted.

Kulbergs notes that a significant portion of Russia’s fuel refining capacity is currently out of operation. Russia has restricted fuel exports because it needs to provide fuel to its own market, and some products are also being purchased from China. "This increases tension in the global fuel market and demand for diesel," the prime minister writes, adding that this is particularly critical for Latvia, as approximately 67 percent of the country's vehicle fleet consists of diesel cars.

At the same time, an additional problem is about to arise in the winter, Kulbergs warns. Specifically, aviation fuel, or kerosene fractions of crude, is also used in the production of winter diesel fuel, so competition for these raw materials intensifies even further during the cold season.

Kulbergs notes that the greatest external risk at the moment is the situation in the Strait of Hormuz.

He emphasizes that the Strait of Hormuz is one of the world’s most important energy arteries, through which essential supplies of oil, gasoline, and diesel products, aviation fuel, LNG, and raw materials for mineral fertilizers are transported.

"Military action, uncertainty, damage to oil infrastructure, and disruptions at refineries in the Middle East directly affect global fuel prices," Kulbergs says.

He also notes that he is scheduled to meet with Polish Prime Minister Donald Tusk on Monday. One of the topics of discussion will be the Orlen refinery in Mazeikiai and fuel availability in the region.

The prime minister also warns that if the situation in the Middle East does not improve, the European Union (EU) could find itself in a situation where the issue will no longer be limited to fuel prices. According to him, a general fuel availability problem could also arise.

As LETA reported, the Union of Greens and Farmers has proposed reducing the value-added tax (VAT) rate on fuel from 21 percent to 12 percent until the end of this year, to mitigate the impact of the sharp rise in fuel prices on households and the national economy.

According to Greens/Farmers, the situation on the global oil market remains tense, while rising fuel prices in Latvia are significantly affecting the expenses of both households and businesses. The party notes that rising fuel prices increase costs in transportation, manufacturing, agriculture, logistics, and services, thereby contributing to overall rise in inflation.

On September 15, the Ministry of Economics informed LETA that a tax cut on fuel from 21 percent to 12 percent would decrease the diesel price by roughly EUR 0.156 per liter and the gasoline price by approximately EUR 0.146 per liter.

The Ministry of Economics adds that such a reduction in fuel prices would be possible if the tax cut were fully reflected in retail prices.