Fuel Prices Set to Climb Again Despite Recent Tax Cut

Despite a recent reduction in excise tax that lowered the price of gasoline, Israeli fuel costs are expected to rise again this week, potentially exceeding 8 shekels per liter for 95-octane fuel. The price had previously dropped to 7.75 shekels per liter from a high of 8.25 shekels following Finance Minister Bezalel Smotrich's decision to subsidize the excise tax.

The anticipated increase, estimated at around 35 agorot, is attributed to a deepening global oil crisis. Chen Herzog, chief economist at BDO, explained that rising international oil prices are driven by the escalating crisis in the Persian Gulf, impacting the Houthi situation, and ongoing global refining capacity shortages. These shortages are exacerbated by the closure of the Strait of Hormuz, the war in Ukraine, and damage to refineries in Russia.

While the excise tax reduction was intended to mitigate costs, Herzog noted its limited effectiveness against global market trends. He pointed out that the price of a barrel of oil recently surpassed $100, nearing peaks seen during past conflicts. Herzog described this as a "triple market failure" in the global oil market, involving the Strait of Hormuz, the Houthis, and Ukrainian attacks on Russian infrastructure.

Herzog further commented that the current price hike highlights the ineffectiveness of the excise tax reduction policy. He stated that the government is forced to subsidize the tax cut from other sources, ultimately at the public's expense, without altering the overarching global trends influencing fuel prices. The previous price increase in September had matched an all-time high recorded in 2012.