New week to bring higher fuel prices and new mitigation measures

Croatia’s government has little room left to try to curb rising fuel prices under its current mitigation strategy of lowering excise taxes.

The government is expected to announce a new set of measures on Monday, ahead of what is likely to be a significant fuel price hike on Wednesday. Super unleaded is expected to jump by 70 lipa per liter and diesel by 1.5 kuna per liter. The government has signaled that it plans to cut excise taxes to the minimum allowed under EU rules. Once it does that, it will have exhausted this avenue of intervention.

"The room left over for intervening is about half a kuna per liter for both types of fuel. That's probably what the government will do, if the pressure on fuel prices continues. After that, it will have to reach for the VAT and every cut to the VAT threatens the state budget," says oil markets expert Igor Dekanić.

Inflation does not have the same effect on everyone. Economist Ljubo Jurčić argues that low income earners need more protections; however every measure has a cost and repercussions on public spending.

"If the government slashes taxes, then that money is gone from the revenue side and cannot be spent for various things," Jurčić said and suggested the government could limit profit margins or give low income earners relief in the form of fuel vouchers.

Uncertainty over future energy supply because of the war in Ukraine is the leading cause of skyrocketing prices. With Western sanctions imposed on Russian oil exports, Croatia is in a fairly secure position in terms of supply but prices are a different story, says long-time oil industry executive Davor Štern. He believes the decision to impose sanctions by Western leaders was too hasty.

"We are playing a dangerous game. These sanctions will end up doing more harm to Europe and the West than to Russia," said Štern.

Russia has been reducing natural gas flows to Europe in recent days. Since Croatia has the LNG terminal on Krk and produces natural gas to meet part of its needs, it should not have trouble filling its storage facilities for the winter. This means supply is unlikely to be an issue but the same cannot be said for prices.