Fuel Prices in Serbia Rise While Falling Globally

While crude oil prices and consequently fuel prices globally are entering a significant downward trend, Serbia presents a picture that completely diverges from this global trend. Despite the falling prices of petroleum products traded on the Mediterranean exchange, retail prices at gas stations in Serbia have gained reverse momentum and continue to rise. Compared to the previous week, according to newly released data entering the market, the price of eurodiesel in the country has increased by two dinars per liter, reaching 219 dinars. Similarly, gasoline prices have also seen a two-dinar increase, raising the liter price to 195 dinars. While fuel prices are experiencing a normalization in all neighboring countries and around the world, this price increase in Serbia is being closely criticized by consumers and economic experts.

The main reason for this extraordinary price increase in the country is the special tax policies adopted by the Serbian government in response to fluctuations in global energy markets. Earlier military operations conducted by the USA and Israel against Iran, followed by the temporary closure of the Strait of Hormuz, had caused a serious surge in global oil prices. Wishing to mitigate the devastating impact of these prices on the public during this moment of crisis, the Government of Serbia decided to halt the price increase by reducing fuel consumption taxes (excise duties) by 20 percent. With this measure, the state accepted foregoing approximately 15 dinars in tax revenue per liter. Thus, the full reflection of the international crisis on domestic inflation was temporarily prevented.

However, when the situation in global markets began to normalize and crude oil prices returned to pre-war levels, the strategy followed by Serbia changed again. Following the signing of a memorandum of understanding between Iran and the USA, the easing of geopolitical tensions in the Middle East normalized the oil flow. Following these developments, the Serbian government suddenly decided to return the previously reduced fuel taxes to their former levels. In this context, the government initially increased taxes by 12.5 percent, immediately followed by an additional 5.5 percent. Even though President Aleksandar Vučić had previously promised a tax reduction of up to 60 percent before the local elections, this rate remained at 25 percent in practice. The government's restoration of taxes to their previous levels after partial stabilization in the markets directly paved the way for fuel prices to reach today's high levels.

Experts and economic commentators agree that this excessively high tax burden is the main underlying reason why Serbia sells the most expensive fuel in its region. Economic advisor Bogdan Petrović states that the state's reinstatement of the taxes it waived during the crisis, even while global prices are falling, is the primary cause of the price increases. Petrović emphasizes that Serbia's fuel taxes are at the highest level in the entire Balkans region and that this is not a recently emerging problem, but a structural issue that has been ongoing for years. In fact, to show how dire the situation is compared to its regional rivals, he states that even in countries with higher incomes, such as Croatia, fuel is sold at more affordable prices than in Serbia. The fact that prices are falling on global exchanges while the exact opposite increase is occurring in Serbia reveals that the government's economic policies are highly questionable.

The political opposition and representatives of the energy sector also continue to harshly criticize the government's approach. Goran Đukić, Chairman of the Energy Commission of the SRCE party, stated that the ruling party tried to portray the tax reductions as a great sacrifice made for the public, but stated that this does not reflect the truth. According to Đukić's view, both ordinary citizens and businesses in Serbia are forced to pay fuel consumption taxes that are among the highest rates in Europe. It is argued that the government, using the signs of a return to normality in the Middle East following the Iran crisis as an excuse, moved taxes back to their previous levels very rapidly and disregarded the public's purchasing power while doing so. While these controversial policies increase the cost of living in the country, they lead to the bills of a crisis caused by global waves being entirely handed to the citizens.