Consumers are stunned by the course of fuel prices, as they see their purchasing power decrease and eventually their pockets empty. The scenarios of the coming weeks do not leave much room for optimism, while the ominous predictions of experts extend the current situation until mid-2027.
At the same time, the competent authorities have been put on alert, since both the Cypriot economy and the economies of the EU countries are facing the risk of stagflation, as well as the possibility of problems in fuel supply, after Trump's statement on the reduction of exports from the USA.
At record levels
Yesterday Friday, the average price of diesel in Cyprus climbed to historic highs, reaching €1,997 per litre, with more than 100 petrol stations already selling above €2.
According to the Consumer Protection Service's Retail Fuel Price Observatory, diesel is sold from €1,879 to €2,098 per litre. The average price exceeded the previous record of €1,989, recorded on July 12, 2022, as the president of the Consumers Association, Marios Drousiotis, told KYPE.
In fact, he estimated that the average price of diesel will exceed €2 per liter to date, as the increases continue every day. He explained that the price increases announced by the companies are not implemented at the same time by all gas stations, but gradually, over two to three days.
For his part, the president of the Association of Gas Station Owners, Savvas Prokopiou, estimated at the same time that those gas stations that have not yet adjusted their prices may do so on Monday, instead of during the weekend. Meanwhile, heating oil has also been moving to levels higher than the previous historical record in recent weeks.
Its average price is €1,608 per liter, compared to €1,515 in July 2022, with prices at gas stations ranging from €1,489 to €1,735. Unleaded 95-octane gasoline sells for an average of €1,718 per litre, with a lower price of €1,613 and a higher of €1,798. Therefore, it remains below the all-time high of €1,828 in July 2022.
State support is necessary
Both the Cyprus Consumers Association and the Pancyprian Association of Gas Station Owners are calling for a reduction in VAT on fuel and a refund to consumers of the additional tax revenues resulting from the price increases. Characteristically, Mr. Drousiotis pointed out that due to the price increases, the state collects additional VAT per liter of 7.5 cents on gasoline, 11 cents on diesel and 12.34 cents on heating oil. "The additional revenues of the state resulting from the increases should be returned to consumers," he said.
The president of the Consumers' Association proposed a reduction in the VAT rate from 19% to 5%, following the example of electricity, arguing that this can be done without the approval of the European Commission.
Mr. Drousiotis made a special reference to the upcoming subsidy for heating oil, which he described as a "one-way street", pointing out that its price has increased by 65 cents per liter since March. He underlined, however, that it must be ensured that the subsidy will benefit consumers and will not be absorbed by the gas stations.
As price increases are now a pan-European phenomenon, the reduction of VAT on fuel throughout the EU should be considered, argued the president of the Association of Gas Station Owners, Savvas Prokopiou, even proposing that the relevant initiative start from Cyprus. If it is not possible to reduce VAT, he added, the return of the relevant revenues to consumers should be considered.
He also cited the lack of realistic travel alternatives in Cyprus, observing that the quantities of fuel consumed do not decrease according to the rise in prices, as is the case in other countries. "We could ask for an exemption as a country," he said, arguing that in other member states public transport can serve 90% of the population.
Besides, in his statements a few days ago, the Director of the Consumer Protection Service, Konstantinos Karagiorgis, said that "we cannot predict what will happen in the future", when asked about the prices of the cargoes that are expected to be received in the next period. However, he added that, recording the current situation "we cannot say that it is very optimistic", given the continuous increases in refinery prices.
Ominous predictions of a Greek
The bad news doesn't stop there. The price of diesel in Cyprus is expected to exceed €2.10-€2.20 per liter in the next one to two months, estimates in turn the energy expert, Charalambos Ellinas. In recent statements to KYPE, he warned that the high prices of petroleum products, mainly diesel and aviation fuel, may persist until mid-2027.
Mr. Ellinas attributes the pressure to the damage suffered by Russian refineries from Ukrainian drone attacks and the reduction of more than 50% in exports of diesel and petroleum products from the Persian Gulf due to the war. "We should expect problems and be ready to deal with them for a long time," he stressed, adding that the reduction of the consumption tax should continue in 2027.
Fears of stagflation
Stagflation scenarios are increasingly intensifying across Europe. The persistently high prices of oil and natural gas foreshadow a new rise in inflation for September.
On the other hand, the ECB, which has twice raised euro interest rates from 2% to 2.5%, is seriously considering continuing the rise to bring inflation back to 2% faster. This, despite knowing that this inflationary surge is also not the result of excessive demand, but of limited supply. Therefore, the transmission of monetary policy will not be automatic and will not have immediate effects. The combination of high inflation and high interest rates will have a negative effect on the growth rate.
In this regard, low growth, combined with high inflation, will put a lot of pressure on incomes in the EU member states. Based on the assessment that the crisis in the Persian Gulf will continue into early 2027, it will not be difficult to see European growth approaching zero in the coming quarters.
Cold sweat with Trump's statements
Just 15 days ago, the Commission reassured Europeans that there was no problem with diesel supply to the EU, because demand was covered by increased European production and alternative imports. Now, things are very different. Donald Trump's announcement in the early hours of Wednesday that he has given instructions to stop US diesel exports has left the leaders of European countries in a cold sweat, fearing a reduction in oil reserves.
For his part, US Secretary of Energy Chris Wright initially stated that an export ban would lead to a temporary surplus of diesel in the US domestic market (and price reductions at the pumps), but at the same time it would push US refineries to reduce production rates, which would quickly reduce fuel production and lead again to increased prices per gallon in the domestic market.
Yesterday, however, Reuters and other networks reported that Mr. Wright had contacts with major refineries on the US coast, asking them to follow a policy of voluntarily restricting exports, in the hope of increasing quantities in the domestic market and falling prices. Many Republican candidates are pushing for a restriction on exports in the November 3 midterm elections, as there are reactions among voters.
The European Commission president said last week that imported fossil fuels have cost Europe an additional €90 billion since the start of the war in Iran. These costs are passed on throughout the economy, causing inflationary pressures (in Cyprus inflation slightly exceeded 5%) and shrinking real income for households.
In the meantime, one after the other, European countries have already begun to take measures to support the economy and consumers. Yesterday, the German Parliament approved the reduction of the fuel tax by a large majority. In this context, from October 1, the tax on fuel will be reduced by €0.17 per liter.
In Cyprus, the reduced consumption tax by €0.83 was extended until the end of November.
