Lebanon’s fuel prices are set to skyrocket as oil prices continue to climb in international markets, the head of the Oil Importers Association said. Bahije Abou Hamze added that the government could do little to curb hikes aside from amending fuel taxes, a vital source of Treasury income.
“[Fuel prices] are still headed for increases as international oil prices continue in an upward trend,” he told The Daily Star.
Although Abou Hamze said it would be impossible to give an estimate for the levels gasoline prices could reach, he insisted the increases had little to do with local factors.
“The increases in fuel prices here are closely following the international trend,” he said.
Gasoline prices rose sharply for the seventh week in a row with the 98-octane and 95-octane varieties rising by LL800 and LL900 respectively to reach LL36,000 and LL35,300, the Energy Ministry said Wednesday.
Diesel gained LL400 to reach LL27,000 and fuel oil increased by LL500 to reach LL26,500 per 20 liters.
Gasoline prices started to rise again in the first week of July when the 98-octane fuel cost only LL32,500 and the 98-octane variety sold for LL31,800 per 20 liters.
Oil fell to nearly $114 after hitting its highest price in three months Wednesday, with investors voicing concerns over European economies’ ability to overcome the raging debt crisis, according to Reuters.
Tensions in the region, however, have heightened concerns of oil supply disruptions.
Brent crude prices have been increasing gradually as measures to curb the European crisis have taken shape and worries about Iran’s nuclear program have escalated. Oil traded as low as $88.49 back in June.
Abou Hamze, who is also CEO of leading oil importer Cogico, was highly skeptical about whether Lebanon would be able to clamp down on fuel price increases if it eventually manages to rehabilitate its two obsolete oil refineries in Tripoli and Zahrani.
“The two facilities would require billions of dollars in investments and it is very unlikely that they [would be economically feasible to operate] as long as Lebanon does not produce crude oil,” he said.
He said that many refineries in Europe and elsewhere were being forced to shut down operations as global competition increased and operation costs soared.
“The profitable refineries are the gigantic ones producing at least 250,000 barrels [a day],” he said.
Investing in such a high-capacity refinery would be unlikely unless Lebanon starts oil production or resumes importing crude from Saudi Arabia and Iraq, he said.
“Such a step would be very unlikely given the political and security situation in the region,” Abou Hamze added.
While agreeing that slashing fuel taxes remains an option to lower gasoline prices, Abou Hamze said that increasing financial obligations render such a step unfeasible.
The same was echoed by Louise Hobeika, Notre Dame University professor, who said Lebanon’s fuel taxes were already low compared to other non-oil producing countries.
“Lowering the tax would automatically translate into increasing the budget deficit and this will have very bad consequences particularly as measures, including a costly wage increase for public servants, become effective,” he said.
Despite agreeing with Abou Hamze that the increases on gasoline prices are largely due to increases on international oil prices, Hobeika said more transparency is needed when importers make import contracts with suppliers.
“Often oil importers have access to [cheaper] fuel from countries demanding quick cash payments. The government should monitor such deals and enforce the sale of fuel at the prices it was bought for and not in par with international prices,” he said.
Asked whether the higher fuel prices would increase pressure on the economy, which has been slowing on plummeting tourism and the crisis raging across Syria, Hobeika said it would surely contribute to increasing production costs and inflationary pressures.
“We need to rush the process of tapping Lebanon’s offshore oil and gas reserves,” he added.