Dizzying fuel hikes stoke popular grievances in Turkey

A seemingly endless stream of fuel price hikes has sparked a national outcry in Turkey, where soaring global energy prices have been amplified by the depreciation of the Turkish lira, with annual inflation already at 54.4% .

Since Russia’s incursion into Ukraine on Feb. 24, Turkish consumers have struggled to keep up with gasoline and diesel increases, including a series of increases announced for six straight days this month.

Fuel prices had already risen 10% in February and 131% year-on-year, according to data from the Turkish Statistical Institute. The annual increase threatens to climb to 155% by the end of this month. Fuel hikes alone should add two percentage points to monthly consumer inflation in March.

While soaring world prices – the result of an energy crisis fueled by Russia’s invasion of Ukraine – have spared few countries in the world, it has had a snowball effect in Turkey, whose currency lost more than 40% of its value last year, adding to the cost of energy imports on which the country is heavily dependent. Turkey’s crude oil needs are almost entirely met by imports, with its energy import bill rising to $50 billion in 2021. To top it all off, the beleaguered government has terminated a mechanism through which he controlled fuel prices.

In a stark illustration of skyrocketing prices relative to purchasing power, the amount of fuel the monthly minimum wage can buy has fallen by 45% year-on-year. The minimum wage – the salary of almost half of workers in Turkey – bought 387 liters of gasoline in February 2021, when it was 2,825 liras and gasoline cost 7.3 liras per liter . Although the minimum wage was increased by 50% to 4,254 lira in 2022, he buys some 212 liters of petrol now that the price has reached 20 lira.

Oil prices hit multi-year highs of over $130 a barrel earlier this week before falling on March 9 after OPEC member the United Arab Emirates said it backed production increases .

Although the Turkish lira has stabilized relatively this year, the price of the dollar has averaged 14.2 liras so far in March, an increase of more than 85% compared to a year ago, which also inflated Turkey’s energy import bill.

Turkey’s largest refining company, TUPRAS, sets fuel prices based on world prices. Then the government levies a special fixed consumption tax (SCT) of 2.2 lire per liter on fuel, coupled with a value added tax of 18%. The two levies represent almost 30% of what Turkish consumers pay at the pump. The Energy Market Regulatory Authority takes a share of 0.07 lira per litre, and the shares of distributors and retailers make up the remaining components of the consumer price.

Last year, the government introduced an automatic price adjustment system, which allowed it to largely shield consumers from fuel price hikes by waiving taxes. Revenue from the SCT, for example, fell 55% to 31 billion Turkish liras last year as the government waived 46 billion pounds in taxes, according to the Treasury and Finance Ministry. This system is no longer used and price increases are fully passed on to consumers.

Skyrocketing prices have hit farmers hard, who rely heavily on diesel to grow and ship their produce. Turkey’s agricultural sector was already in decline, with supply shortages contributing to food inflation of almost 65%. Farmers have repeatedly asked for help from the government.

The same is true for the transport sector, including intra-city public transport provided by local governments. Mayors of the main opposition Republican People’s Party, which rules most major urban centers in Turkey, have urged Ankara to cut energy tariffs for local government, warning that public transport services are becoming unsustainable.

Demand for public transport, meanwhile, is expected to increase as car owners are forced to drive less. Passenger car traffic is said to have already fallen, which also suggests a drop in demand in the automotive market.

Fuel retailers are also reeling from price increases, whose profits remain pegged at a certain sum per liter rather than a percentage of the price, meaning their profits cannot keep up with rising fuel costs. operation and capital requirements. Of some 13,000 gas stations across the country, around 1,000 are said to have closed, mostly in areas away from city centers. Some 4,000 more are on the brink of closure, according to industry representatives.

More importantly, fuel price hikes have aggravated costs in various manufacturing and service industries, driving up prices across the board. Fuel prices alone could add two percentage points to monthly consumer inflation in March.

Could the government forgo tax revenue and subsidize fuel again at a time when it is already facing budget shortfalls? It’s hard to predict how much revenue she might lose and how much such a move might help the economy, as global prices remain volatile.

Moreover, Ankara has to deal with rising world gas prices. It has refrained from raising home gas prices since the start of the year, given the winter conditions. More recently, gas prices increased by almost 50% for industries and power plants in November and by 25% for households at the turn of the year. A cascade of delayed increases could be triggered with the arrival of spring, and sharp price increases seem inevitable for both industry and households.

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