Marketing-Börse PLUS - Fachbeiträge zu Marketing und Digitalisierung
print logo

Egypt on the way to another inevitable fuel price hike

Amid the mounting economic pressure resulting from the implications of global and regional geopolitical tensions and under a commitment to reforms.
26.03.25 | Source: Ahram Online

With global factors, rising costs, and a loan programme with the International Monetary Fund (IMF), the government is preparing for a critical decision regarding fuel prices.


As a key meeting looms in April 2025, the question arises: will Egypt take another step towards fuel price liberalization, and how will it balance the anticipated hike with commodities prices in the local market?


Energy subsidies: A daily nightmare
 

The current situation is extremely difficult economically, politically, and socially due to the repercussions of the Israeli war on Gaza, Osama Kamal, former minister of petroleum and mineral resources, told Ahram Online.


He emphasized that energy subsidies remain a nightmare with negative economic impacts.


Kamal noted that the daily cost of energy subsidies is overwhelming.


"The subsidy for diesel alone exceeds EGP 750 million daily, while the subsidy for various types of gasoline is estimated at EGP 250 million, with butane gas cylinder subsidies being approximately the same. Subsidies for gas and mazut used in electricity have exceeded EGP 1 billion daily," he explained.


He pointed out that the heavy reliance on importing gas and mazut to meet the local electricity needs increases the budget pressure while turning to renewable energy could have been a less costly and more sustainable alternative.


According to Ministry of Finance data, the government allocated EGP 154 billion for fuel product subsidies in the current FY2024/2024, which ends on 30 June 2025.


Undesirable but necessary 10% increase
 

Despite the issue's social sensitivity, Kamal believes price adjustments have become unavoidable.


"I believe there will be an increase in prices by about 10 percent; although socially undesirable, it has become economically necessary," he stressed.


According to Kamal, the local prices of retail fuel products do not reflect their actual cost.


"The fair price is about 75 cents. It is sold locally at an average of 35 cents, while the global price ranges between $1.50 and $1.75. The gap is large, and the state cannot continue to bear it," he stated.


The FX rate pressures the import cost
 

Hisham Hamdi, a financial analyst, told Ahram Online that developments in the exchange rate have significantly increased the cost of importing fuel. Thus, the government is compelled to review prices.


"The exchange rate rose by about 55 percent in March 2024, leading to a significant increase in the cost of importing fuel, and the state absorbed this cost for a period, but it is natural for them to start passing it on gradually to the final consumer," he added.


Despite global oil prices stabilizing at levels lower than expected in Egypt's budget, continued high local consumption is putting increasing pressure on the government to gradually reduce subsidies.


In the FY2024/2025 budget, fuel subsidy allocations amounted to EGP 154.5 billion, one of the highest levels in recent years. The government aims to reduce this figure by reviewing domestic prices and aligning them with actual costs.


Hamdi estimated the expected savings from price hikes during the current fiscal year to be around EGP 72 billion, with two additional increases possible before the end of June.


New wave of inflation?
 

Fuel price hikes are not being applied in isolation. As Kamal noted, diesel, in particular, is the most sensitive product in this equation due to its direct impact on public transport, trucks, services, and food prices.


"Raising the price of diesel leads to an immediate increase in transportation costs, and thus everything rises. Therefore, the state is working on introducing alternatives such as high-speed trains, monorails, and periodic buses as effective transportation solutions to reduce reliance on diesel," said Kamal.


Hamdi also confirmed that price hikes will reflect on inflation rates but stressed that gradual implementation could ease the impact.


"It is natural for this move to lead to higher production costs and prices, but gradual adjustments and the activation of social protection tools can reduce the inflationary shock and give markets time to adjust," said Hamdi.


Inflation rates in Egypt have remained on a downward trend over the past four months, dropping to 12.8 percent for the annual headline inflation rate and 10 percent for the core rate.


Moreover, Tharwat Ragheb, a professor of Petroleum Engineering and Energy with extensive experience working with global oil and gas companies, told Ahram Online that Egypt still sells retail fuel products at prices much lower than their actual costs.


"Diesel is sold for EGP 13.75 per litre, while its cost is EGP 20 per litre, meaning the state bears a subsidy of more than 45 percent,” Ragheb explained.


"80-octane gasoline is sold for EGP 13.75 per litre despite its actual cost being EGP 16 per litre, while 92-octane gasoline is sold for EGP 15.75 per litre despite its cost being close to EGP 19. The numbers reveal a huge gap,” he added. 

FREE NEWSLETTER