The Government of the Czech Republic has decided to reinstate maximum prices for gasoline and diesel starting from October 1, 2023. This action comes as the reduction of Saudi Arabian crude oil allocations to Europe adds pressure in the Strait of Hormuz.
Details of the New Pricing and Tax
According to the Czech government, the maximum prices for gasoline and diesel will be determined daily and calculated as a three-day moving average of four price indices: Orlen Unipetrol, MOL, ARA, and Platts, plus a regulated margin of 2.50 crowns per liter (approximately $0.12). Additionally, the tax on diesel fuel will be reduced from 9.95 to 8.011 crowns per liter, which is in line with the EU tax ceiling, and this regulation will be in effect until the end of October 2023.
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Consequences and Economic Impacts
Alena Schillerova, the Czech Minister of Finance, has estimated the cost of this measure to be around 1.1 billion crowns (approximately $51.9 million) for the state budget this month. This tax on refining margins still requires parliamentary approval, but it is set to apply to companies with annual revenues exceeding 2 billion crowns, including Orlen, which operates both Czech refineries. This tax will continue until 2027 and is expected to generate approximately $260 million annually.
Schillerova has stated that this measure could help cover the costs imposed on consumers and public budgets by the crisis. Previously, Poland had also imposed a tax on Orlen's refining margins.
The refining margins at Orlen and MOL, which supply the Czech market, reached $50 to $55 per barrel in September, a significant increase from the historical range of $15 to $20. The Czech Republic imports only about 7 percent of its pre-war oil through the Strait of Hormuz, and refined fuel prices in European markets have risen due to oil shortages.
Analysts also note that the closure of strategic straits, such as the port of Mecca and the island of Perim in the Bab-el-Mandeb Strait, has increased competition among European refineries for limited crude oil supplies. Saudi Arabia has informed European buyers that no allocations will be provided for October, and about 1 to 1.5 million barrels per day will be redirected from Gulf exports to buyers in China, South Korea, India, and Japan.
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