Israel Braces for Price Hikes in Electricity, Water, and Fuel Post-Election

Following the upcoming elections, Israelis are likely to face significant price increases across essential services, including electricity, water, and fuel. The outgoing government's efforts to postpone these hikes have accumulated costs, pushing the burden onto the future. Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich recently intervened to prevent a sharp rise in gasoline prices, foregoing approximately 500 million shekels in tax revenue to keep the price per liter below 8 shekels. This measure involved reducing excise tax by one shekel per liter, a subsidy estimated to cost 500 million shekels over two months, funded by other taxes or budget cuts.

Despite these temporary measures, fuel prices are expected to surge in November. Global factors such as the ongoing conflict in Iran and damage to Russian refining capabilities due to Ukrainian attacks, coupled with a weaker shekel, have driven up international fuel costs. The tax reduction on gasoline, primarily used by private vehicles, is seen as a subsidy for private transport, while public transportation operators face higher diesel costs. Public transportation fares are also slated to increase, possibly in January 2027, after a 45% rise in 2025 that saw single bus fares jump from 5.5 to 8 shekels. This increase was part of a transportation reform by then-Minister Miri Regev, which aimed to expand public transport and offer discounts, though its uptake was limited. Regev had previously announced a freeze on public transport fare hikes for 2026, but this only deferred the inevitable increase.

Electricity and water prices are also on the horizon for increases, though the exact percentages remain unclear. Electricity tariffs are influenced by a formula factoring in the consumer price index, interest rates, the dollar exchange rate, and coal prices, alongside long-term natural gas contracts. A potential 0.5% reduction in electricity tariffs could result from the sale of the Electric Company's stake in the IBC fiber optic project, but this is expected to only partially offset rising costs. Conservative estimates suggest a 2% increase, or 1.5% after accounting for the IBC sale. However, intensive conflict with Iran has led to gas platform shutdowns and increased reliance on more expensive fuels like coal and diesel for electricity generation. Additionally, the Electricity Authority is reviewing claims by the Electric Company for increased costs related to new power units at the Orot Rabin plant in Hadera, attributed to manufacturer defects and the recent conflict.

Water tariffs lack a rigid formula for adjustments and are expected to be a subject of debate within the Water Authority. The water sector operates as a closed financial system, with tariffs intended to cover all expenses. Factors influencing water costs include electricity prices, as desalination plants and Mekorot are major electricity consumers. New filters for desalination plants, necessitated by an algae bloom causing accelerated wear, will also impact costs. Furthermore, suboptimal operation of desalination plants during the algae crisis and the depletion of natural water reservoirs will require increased desalination, further affecting tariffs. Past efforts by former Energy Minister Eli Cohen to curb price increases, despite warnings of future failures, led to reduced purchases from desalination plants and exacerbated the impact of the algae crisis. These decisions are expected to result in a sharper tariff increase, potentially between 3% and 5%, in November or December, during a transition period or the start of a new government's term.

The cumulative effect of these price hikes in electricity, water, and fuel, which are central to the economy, could trigger further price increases across food and other goods and services, ultimately impacting consumers' shopping baskets.