Fuel Market Structure, Government Interventions Led to Varied Iran War Consumer Impacts, IEA Says
The structure of individual domestic fuel markets and the extent of government intervention determined the varied impacts from the Iran war's oil price surges on consumers, the International Energy Agency said in a commentary on Thursday.The closure of the Strait of Hormuz following the outbreak of the Iran war plus damage to Middle East energy infrastructure caused oil prices to surge, with physical prices briefly approaching $150 a barrel."Yet the surge in international oil prices did not translate into uniform increases of equal magnitude at the pump. How strongly consumers felt the impact of the crisis in their wallets depended heavily on the structure of domestic fuel markets and the extent of government intervention," the agency said."Data show that the connection between wholesale fuel prices and what consumers pay is generally stronger in advanced economies than in emerging and developing countries."While crude prices eased to their pre-war levels following the mid-June interim agreement between the US and Iran, diesel and gasoline prices have remained around 30% higher than before the war.In the US, lower excise taxes compared to other OECD countries mean that international price changes affect motorists more quickly and extensively than other economies. Retail gasoline and diesel prices there rose about 50% from pre-war levels by mid-May, the IEA said.In contrast, a system of price controls ensure that the link between domestic fuel prices and international markets is less pronounced in Japan, where gasoline prices were stable at 169.5 Japanese yen per litre throughout May.Although global gasoline prices in US dollars were similar to 2022 levels after Russia's invasion of Ukraine, a weaker yen made them about 30% higher in Japan. However, fuel subsidies kept prices for Japanese drivers around the 2022 level."Europe sits between these two ends of the spectrum, with an average demand-weighted weekly correlation to global oil prices of around 90% for both gasoline and diesel between 2015 and 2026. While average European fuel taxes are around three times US levels, the way these taxes are structured helps to preserve the relationship with underlying wholesale prices," the agency said.A stronger euro has helped ensure a 20% decline in euro-dominated international diesel prices from their 2022 levels.