Fair fuel products pricing vs inflation in Egypt

Among the various fuel types, diesel has experienced the most substantial increase, soaring by an impressive 17.3 percent. 

In contrast, the price of Octane 92 saw the smallest rise at 10.9 percent.

Meanwhile, Octane 80 and Octane 95 saw their prices increase by 12.2 percent and 13.3 percent, respectively.

This adjustment is part of Egypt's broader strategy to phase out fuel subsidies, a commitment linked to the country's $8 billion loan programme with the International Monetary Fund (IMF).

Medhat Youssef, a petroleum and energy expert who previously served as the vice president of the Egyptian Petroleum Authority, has drawn attention to the rising costs associated with local oil production, which have now averaged EGP 20 per litre.

This cost surge is attributed to several factors, including the increase in global Brent crude prices and the devaluation of the Egyptian pound, which has led to a tripling of production costs.

Youssef has estimated that the fair price for Octane 95 should be around EGP 21 per litre, while Octane 92 should be priced at approximately EGP 20 and Octane 80 at EGP 19.

He has cautioned that unless international crude prices fall to $60 per barrel, further increases in fuel prices are likely.

Although predicting future petroleum prices is inherently complex, Youssef suggested that a slowdown in global economic growth particularly in China, coupled with the potential for a global recession and inflation, may ultimately lead to decreased consumption and, consequently, a reduction in energy demands.

In line with this, Prime Minister Mostafa Madbouly announced in October that fuel prices will not increase again until the end of 2025, as long as they remain stable at $73 per barrel.

 Furthermore, Madbouly also emphasized in a press conference held in July that the government’s objective is to achieve a break-even point regarding fuel subsidies by the end of 2025.

The previous fuel price hike occurred in July, during which increases ranged from 10 percent to 15 percent.

The first rise was in March following the devaluation of the Egyptian pound.

Economic impact of subsidies
 

Osama Kamal, former minister of petroleum and mineral resources, provided insight into the economic implications of the current subsidy system.

He noted that diesel costs stand at approximately 70 cents per litre, which translates to about EGP 35 per litre.

Before the recent devaluation of the Egyptian pound, diesel subsidies were estimated at nearly EGP 10 per litre.

With a daily diesel consumption between 40,000 and 42,000 tons, the total daily expenditure on diesel subsidies amounts to around EGP 450 million.

He added that, overall, Egypt spends EGP 1 billion daily on subsidies for petroleum products, totalling EGP 350 billion annually or more.

Consequences of recent crises
 

Kamal also highlighted the economic fallout resulting from the COVID-19 pandemic and the ongoing repercussions of the 2022 Russian-Ukrainian war.

These events have compelled Egypt to suspend payments owed to foreign partners, significantly decreasing the funding available for crucial search and exploration operations.

This has negatively impacted local production and increased the country’s dependence on imported petroleum.

Furthermore, ongoing geopolitical tensions have profoundly affected revenues from the Suez Canal, exacerbating the growing disparity between declining revenues and surging import costs denominated in foreign currency.

Fuel prices and inflation
 

The recent surge in fuel prices — including diesel, industrial mazut, and various gasoline types — is anticipated to exacerbate inflationary pressures in the economy, particularly in October, financial market analyst Hanin El-Mahdy noted.