The recent raise in gasoline price stirred up the nation as many protested against the decision to raise prices to 8 NIS per liter. Eventually, Prime Minster Netanyahu intervened and cut back the raise so that the new 95-Octane Petrol price reached as of March, 1st 2012 reached 7.74 NIS ($2) per liter – its highest level ever. The main reason for the raise in the price was due to the high oil prices that reached $110 for WTI. Is the price in Israel high? Is it high just because of the recent increase in crude oil prices?
To seriously answer the first question we should examine the prices of fuel in other countries. The gasoline price in the U.S. is low and is at an average of $3.72 per gallon, i.e. $0.98 per liter. On the other hand, in the EU the average price is € 1.537 per liter i.e. $2 per liter. So the price of gas in Israel is nearly the same as in EU.
Thus, gasoline prices in Israel are high but are at least in the ballpark of the gasoline price in Europe.
Now let’s move to answer the second question.
The chart below shows the development of gasoline price in Israel in the past three years from 2009 to 2012.
There are three main components that affect the price of gasoline: crude oil prices, taxes (excise taxes and VAT), and changes in USD/NIS exchange rate.
Between January 2009 and March 2012 the price of 95-Octane Petrol rose from 4.75 NIS per liter to 7.74 NIS per liter i.e. a 62.9% growth. Let’s breakdown this growth to the above-mentioned components:
During said period, crude oil price WTI rose by 131%; the USD/NIS declined by 4.41%; the VAT rose from 15.5% to 16% – a 0.5 percent point gain; and Excise Taxes increased by 19.1%.
The chart below presents the development of the excise taxes on gasoline price in the past three years.
This means the component most responsible to the rise in gasoline prices besides crude oil prices, is the gains in excise taxes.
This figure above also means that the recent raise in gas price could have been offset by reducing some the excise taxes to their level from 2009.
The chart clearly shows that the Ministry of Finance raised these taxes in the past three years, usually justifying this raise by voicing its concern to the environment by reducing car pollution.
In order to protect the environment people will still need an alternative and until there will be a substantial and viable public transportation among cities inter-cities running all days of the week, it will be hard to justify raising taxes on fuel on behalf of the environment.
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