Tax on Fuel in Israel is Among Highest in the World; Expert Says it Won't Change Any Time Soon

The price of fuel in the Jewish state is comprised of three components. The first, 30.5 percent, is dictated by international trends. The second goes to the marketing of the product, while 61 percent enriches the treasury.

On Saturday, Israelis will take to Habima Square in Central Tel Aviv to once again protest the high costs of living. Their main concern is the rising price of real estate. Another is the constantly growing cost on fuel.

Since the beginning of the year, costs of fuel have been lifted five times. In January, one liter was sold for 6.37 shekels, or $1.92. In February, it reached $2.017. In March $2.12, in April $2.24, whereas May has registered the highest spike, with prices hitting $2.32, a peak since 2013.

In the end of this week, costs will jump once again, this time by $0.10 for every liter.

The climbing prices are already being felt in the pockets of many Israelis. According to estimates, a household forked out some $561 per month on fuel, as compared to $497 that the same household spent in June of last year.

Global Trends

Dr. Alex Coman, an economic expert from Tel Aviv University, explains the recent spike in prices by global trends that influence the Israeli market.

"What we see now is a set of parameters occurring at the same time," says the expert.

"Russian energy is boycotted [due to sanctions triggered by the hostilities in Ukraine - ed.]. North African oil, especially that coming from Libya, hasn't reached Europe, whereas the Saudis and other members of OPEC [Organisation of Petroleum Exporting Countries] haven't been pumping more oil. And that caused the prices to go up," he notes.

Strangling Taxes

But it is not only geopolitics, and Coman admits that the soaring cost of fuel is also dictated by the tax that Israel imposes on all energy-related products.

The price of fuel in Israel consists of three components. The first, 30.5 percent, is dictated by the oil prices on the international markets. The second, 8.5 percent, goes to the marketing of the product. 61 percent is simply a tax that enriches the budget of the state. Last year, the revenues from this tax alone brought the Jewish state some $6.5 billion.

The Israeli masses have long been raving about this tax, considered the highest among many developed nations. Local media has been showing examples of how other states have come up with ideas to reduce energy costs, including offering subsidies for gasoline. But Coman says this is unlikely to happen in Israel.

"Israel initially introduced this tax because we were a socialist society. Back then it was believed that if you had enough money to afford a car, you should have enough money to pay for its fuel. Things have evolved since then, but the tax has remained," explained the expert.

"Officials in Jerusalem will not want to change anything in this regard. They use this money to help the weaker layers of the population and for other purposes. So giving up on this income would deal a blow to our economy, and this is something the government would like to avoid".

Now, however, things might be changing. Last week, then Prime Minister Naftali Bennett announced he would support the dissolution of the parliament, triggering another round of general polls set for early November. Shortly after his declaration, politicians have started making pre-election campaign promises, appealing to the masses by vowing to reduce fuel prices. But Coman believes that even if these promises are kept they won't be significant.

"Of course, politicians will now try to please people to get re-elected. The tax on fuel might be reduced but it won't be eliminated. What will influence the drop in prices is geopolitics".

Some glimpses of hope have already been seen lately. The North African nations have started mulling over more crude production. Saudi Arabia has recently agreed to pump more energy, although the scope is still limited, and the West has been trying to reach a nuclear deal with Iran, partially because of its desire to diversify its oil resources. But with Russia still being boycotted the prospect of stable markets or affordable prices is nowhere in sight.