Are the sanctions really to blame for the expensive fuel? The numbers reveal quite the opposite
December 19. 2022. – 12:19 PM
Sanctions-induced inflation, sanctions-induced petrol price increase, Western Europe bogged down by rising prices. These phrases have been regular occurrences in statements from the Hungarian government, articles in propaganda media and explainer videos about the things of the world recently, and now, with the abolition of the fuel price cap, they are once again popping up more and more often.
According to the explanation, the price of fuel oil has skyrocketed because of the sanctions imposed on Russia, from which Hungary has been exempted. For a very long time, the government tried to counteract the price spike with a gasoline price freeze, but the day after the sanctions were triggered, the country ran out of gasoline and had to phase the price caps out. According to the government's communication, in return, Hungary still has one of the lowest fuel prices in the EU.
In an attempt to investigate these claims, we looked back at weekly petrol and diesel prices for the last year in every country in Europe. It should be added that there are also fundamental differences in the price of diesel between countries because:
- the sources and possibilities of supply are different;
- the taxing rates and the adjuncts vary
- in several places, recent government concessions similar to the Hungarian gasoline price freeze have been introduced.
First of all, it is worth looking at how petrol and diesel prices have been affected in different European countries since the outbreak of the war in Ukraine. To do this, we compared the first post-war prices on 28 February with the current prices on 12 December 2022. On 28 February there were no energy sanctions yet, thus we cannot talk about their effects.
The graph clearly shows that since the beginning of the war in Ukraine, the price of petrol in the EU has fallen by an average of 1 percent, while the price of diesel has risen by 11 percent. In Hungary, petrol is now 20 per cent more expensive and diesel is 34 percent more expensive, mainly due to the abolition of the fuel price cap. However, the average for EU countries shows that we can't really talk about a 'sanctions-induced petrol price increase' nine months later.
Indeed, of the much-talked-about EU sanctions, only the sixth package (announced in May) applies to energy carriers, from which Hungary has been exempted. This package bans European states from importing Russian oil on tankers as of 5 December. Hungary, however, imports oil by land pipeline, which is not covered by the ban. The other sanctions do not have anything to do with energy at all.
The rise in prices did not start with the sanctions
The price of fossil fuels (such as fuel oil and natural gas) started to rise significantly in 2021, during the rapid economic recovery after the coronavirus epidemic. To put a limit on this, on 11 November 2021, the Hungarian government announced that it would freeze the retail price of petrol and diesel at HUF 480 starting on 15 November. We have therefore examined the data from 1 November 2021, the period before the announcement.
The graph demonstrates that the price of fuel in most European countries rose slowly but steadily until the outbreak of the war in Ukraine. The price of petrol spiked in the first weeks of the war, then rose relatively steeply until June, but – with the exception of a small wave – has been falling steadily since the summer. The price of diesel, on the other hand, rose sharply at the outbreak of the war and has remained at the same level with minor fluctuations since then.
In Hungary, on the other hand, the November fuel price freeze brought fuel prices down slightly, and petrol prices have remained relatively stable over the last 13 months. Diesel prices, on the other hand, have been rising slowly but steadily since the outbreak of the war, with the lifting of the price cap bringing the price of both fuels to just below the EU average. The minor and major fluctuations in the graph are due to the fact that the price is in euros here, and the forint-euro exchange rate has been on an exciting roller coaster ride since the outbreak of the war.
In the period between the outbreak of the war in Ukraine and the abolition of the petrol price freeze, Hungary had the cheapest petrol and the second cheapest diesel among EU member states, but since the return to market pricing we have found ourselves more in the mid-range of fuel prices.
Prices don’t go up as much elsewhere as they do in Hungary
It is also worth looking at the same price change in terms of percentages, as that makes it possible to take the different tax rates and contributions in each country out of the equation. As a starting point, we looked at the last prices before the fuel price freeze on 8 November last year.
The graph clearly shows that, compared to the price level at the beginning of November last year, in most countries in Europe
- the price of petrol shot up when the war broke out, peaked in the summer and has been steadily falling since;
- the price of diesel also shot up in March, but has tended to fluctuate since then and it's still much higher than before the war.
By contrast, in Hungary:
- petrol has been cheaper throughout the 13 months of the price cap than it was in November last year, but is now significantly more expensive than the European average;
- diesel was initially cheaper, but its price has been rising steadily since the beginning of the year, and the rate of price increase has now exceeded the European average.
Beause of the sanctions, huh?
The above timeline clearly shows that the change in European gas oil prices has little to do with the EU sanctions on oil that have been in place since 5 December. Rather, the figures show that gasoline was very expensive in the summer, long before the energy sanctions came into force, while now, despite the sanctions, it is getting cheaper, it costs almost the same as it did last November.
It is also clearly seen that despite Hungary's exemption from the sanctions, the alleged benefits of this are far from being felt by the population.
The figures show that diesel in Hungary has become as expensive as in the rest of the EU, and petrol even more so.
The reality, of course, is that the Hungarian state is making a lot of money from the fact that we are exempt from oil sanctions. After all, Mol is still buying Russian oil cheaply and selling it at a high price at the pumps, and the state has just claimed 95% of the difference, having included MOL in the extra profit tax, which is in the order of hundreds of billions of forints. It's a pity that this is not what is being communicated instead of the posters with the bomb.
For more quick, accurate and impartial news from and about Hungary, subscribe to the Telex English newsletter!