Why Bringing Back the Fuel Price Cap Won't Stop Petrol and Diesel from Getting More Expensive in Czechia

Petrol prices — and diesel prices especially — have a direct impact on the competitiveness of the Czech economy and fuel inflation, since diesel is the backbone of freight transport. Two weeks ago the state scrapped fuel price regulation, and prices almost immediately started climbing again, giving rise to a tempting idea: just bring back the cap and the increases will stop.

In reality, that's not the case. Prices kept rising even while the cap was in place — in step with the rising cost of oil on world markets, which in turn pushed up wholesale prices for petrol and diesel. If the cap were reinstated, prices would keep climbing along the very same trajectory.

How the price cap actually worked

The regulatory system that had been in force in Czechia since April consisted of two separate elements: a cut to the diesel excise tax (roughly 2 crowns per litre) and a ceiling on the maximum retail price — the "cap" itself.

Many people picture the cap as a hard barrier against price rises. But if the state had actually fixed the price at, say, "no more than 40 crowns per litre," that fuel would simply have vanished from filling stations — no one sells at a loss. Something similar already happened in Hungary.

The Czech cap worked differently: it wasn't fixed, but changed every working day. Each afternoon, the state announced the cap level for the following day, calculating it from wholesale prices, which in turn were driven by the global price of oil.

Why prices will keep rising even without scrapping the cap

In the second half of June, when tensions around the Strait of Hormuz temporarily eased, oil briefly dropped to almost 70 dollars a barrel — the level seen before February. But just four days after Czech price caps were lifted, oil climbed back above 100 dollars a barrel.

That automatically pushed wholesale prices upward — and with them, the maximum allowable prices at filling stations, even if the government had kept the regulation in place. The situation is made worse by an especially acute shortage of refining capacity right now — the capacity needed to turn crude oil into diesel. Tellingly, even Russia has plenty of oil but not enough diesel. On top of that, the traditional summer peak in driving across the northern hemisphere is straining even undamaged refineries outside Russia.

What could actually bring prices down

Drivers can still be helped — but not through a price cap, through a tax cut. It was the temporary excise cut, not price regulation, that genuinely made diesel more than 2 crowns per litre cheaper, VAT included.

Further cuts to the diesel excise tax are impossible because of EU-wide minimum taxation limits. But for petrol, which didn't get any cheaper at all under the previous measure, there's still plenty of room to cut — the state could lower its price by more than 3 crowns per litre on its own.

A tax cut would, of course, cost the budget more for diesel than for petrol, simply because roughly three times less petrol is sold. If excise duties were cut to the minimum level allowed by the EU, the state treasury would lose an estimated 2 billion crowns a month.

Bringing back the price cap sounds appealing, especially in the middle of the holiday season. But the only thing that can genuinely bring fuel prices down is another cut to the excise tax — the same approach used for diesel since April.

Source: seznamzpravy.cz