Recent increases in fuel and passenger transportation tariffs will provoke a new price increase

The Tariff Council's recent decision to increase fuel prices in Azerbaijan is expected to drive further price hikes and push a transition towards cleaner energy sources. On June 30, the Council raised the price of AI-92 gasoline, widely used by the population, by 10 kopecks to 1.10 manat, and diesel fuel by 20 kopecks to 1 manat.

The Tariff Council justified the increases by highlighting the higher environmental damage caused by diesel and the need to narrow the price gap between gasoline and diesel to encourage a shift to gasoline consumption. "The price change will accelerate the transition to fuel-efficient hybrid, electric, and compressed natural gas (CNG) engines, while ensuring the sustainability of energy security," the Council stated.

In the first five months of 2024, motor gasoline and diesel fuel worth 1.25 billion manats were sold in the retail network, marking a 5% increase compared to the same period in 2023, according to the State Statistics Committee. The most popular fuels were AI-92 gasoline and diesel.

Independent experts suggest that the government is trying to offset declining oil and gas revenues over the past five months through these price increases.

Aydin Huseynov, a member of the Milli Majlis Committee on Economic Policy, Industry, and Entrepreneurship, emphasized the necessity of the price hikes. "Our priority is to protect citizens' health and the environment. Diesel fuel releases the most harmful gases. In many countries, diesel prices are higher than gasoline. Aligning diesel prices with gasoline will encourage the use of gasoline," he told Turan.

Huseynov added that reducing the import and use of diesel vehicles would positively impact environmental issues. He also noted that the shift to hybrid and electric vehicles is already underway, and the European Union's ban on the registration and production of diesel and gasoline vehicles after 2035 necessitates Azerbaijan's readiness for these changes. The price changes are also expected to prompt a transition of diesel-powered agricultural machinery and passenger transport to other fuel types.

Huseynov assured that the agricultural sector would not suffer from the fuel price hike, as state subsidies would cover the increased costs. "The state provides significant support to farmers, exempting them from many taxes, and will compensate for losses through subsidies. Efforts to inflate agricultural product prices will be curbed by the state," he said. He also mentioned that the upcoming production of EU-5 gasoline according to the Euro-95 standard in Azerbaijan would boost the number of gasoline cars and that tax incentives would support the increase of hybrid and electric cars.

Economist Rashad Hasanov, in a commentary for Radio Azadlig, predicted that the fuel price increases would lead to higher prices in other sectors. "Changes in production and consumption costs will affect product prices. This will be particularly evident in transport and the agrarian sector, with agricultural goods prices expected to rise by at least 15% due to the diesel price increase," he explained.

Hasanov believes that the primary goal of raising fuel prices is to generate additional income to cover state oil company investment costs and reduce the need for subsidies. "The government aims to create a revenue source for public spending. However, this price hike alone will not offset the annual decline in oil and gas revenues," he concluded.