Fuel price shock: Why developing economies are paying the most at the pump

Diesel prices in Nigeria jumped by about 83 per cent between late February and the end of August, compared with nine per cent in Ireland. Gasoline rose by about 51 per cent in Myanmar, but just three per cent in Sweden.

The reason lies partly in local conditions: taxes, subsidies, domestic pricing rules and exchange rates all shape what people end up paying.

Prices tied to the conflict

The price of Brent crude, the most widely used global benchmark, rose from around $70 a barrel in January to over $120 in March, as the closure of a route that normally carries a fifth of the world’s oil sent markets into a spin.

Prices eased between April and June as diplomatic talks progressed, then climbed again when negotiations collapsed and fighting resumed.

Futures markets suggest oil will stay expensive until the end of the year, keeping fuel and transport bills high for businesses and households.

Knock-on costs

Higher fuel prices trickle down to higher costs of living overall – even for those who never buy fuel directly. For instance, higher diesel prices mean it becomes more costly to transport goods, which brings up their price.

Earlier research on developing economies found that a 25 cent rise in fuel prices per litre could reduce household purchasing power by more than five percent on average.

Importers rocked

Economies that depend heavily on imported fuel are particularly affected by oil price increases, UNCTAD noted, as they must spend more to meet their energy needs.  

For some countries, fuel imports already represent a significant economic burden. In 2023, net fuel imports – spending on fuel imports minus earnings from fuel exports – amounted to a quarter of Cabo Verde’s GDP and nearly a fifth of Lebanon’s.

A higher fuel bill leaves less money for other imports like food, medicines and equipment, so governments already facing budget pressures have particularly less room to protect households from rising costs, UNCTAD stressed.

Bring on renewables 

The UNCTAD report called for more varied energy supplies and investment in affordable renewables to reduce exposure to future shocks. 

Renewable energy sources like wind and solar rays are not vulnerable to geopolitical shocks and cannot be depleted. 

UNCTAD also noted that in over 90 per cent of cases, renewables are less expensive than the cheapest new fossil fuel alternatives.