Since the outbreak of the attack on Iran, fuel prices at stations in Poland have jumped by over 30 percent. Donald Tusk justified this extraordinary increase by pointing to Donald Trump’s decision to attack Iran, which drove up oil prices. The Prime Minister’s use of people’s obvious lack of knowledge serves to patch the budget deficit. There was no need to introduce such a rapid and drastic increase – writes Gazeta Polska editor-in-chief Tomasz Sakiewicz.
What makes up the price of fuel? It includes the price of a barrel of oil, the cost of processing it, the wholesale price of finished fuel, and finally the retail price at stations. On top of these layers, taxes and margins are added.
Price regulation
More than 50 percent of the fuel price consists of taxes. This means the state has the greatest influence over how much it costs. There are two types of taxes – the first is a fixed amount per unit, i.e. per liter, including: excise duty (about PLN 1.5 per liter of gasoline and PLN 1.16 per liter of diesel); the fuel surcharge (18.7 groszy per liter of gasoline and 37.6 groszy per liter of diesel); and the emission fee (8 groszy per liter). The second tax – a percentage of the total value – is VAT at 23 percent.
This means the state can increase or decrease prices by adjusting any of these taxes. And it has considerable flexibility, because at PLN 7 per liter, nearly PLN 4 consists of taxes.
But this is not the only way to regulate prices. Besides layered taxation (VAT applies to all costs, including existing fuel taxes), there is also a layered system of margins. A customer refueling may think they are dealing with just one margin – that of the gas station. Nothing could be further from the truth. There are many such margins. They are imposed by those who extract oil, those who sell it wholesale, and those who transport it. And that is only the beginning.
Poland is a minor oil producer, so what matters most are the margins applied from the moment the raw material reaches the refinery. Each such facility has its own margin, which affects the price of oil. However, this margin is not decisive. In Polish practice, the biggest impact on what we pay at stations comes from wholesale prices of finished fuel. After leaving the refinery, fuel is sold to distributors. The Polish wholesale market has been dominated by the state-controlled Orlen (with the State Treasury holding the majority of shares). It supplies its own stations, franchises, private stations, and even other corporations. This makes it the most important price-regulating mechanism alongside taxes. The final margin is applied by gas stations. Interestingly, in most cases this is not what sustains them. Their main profits usually come from additional products sold alongside fuel, such as coffee, food, or car fluids.
When one Donald raises fuel prices, and when the other does
Before the outbreak of war in Iran, oil prices were around 60–70 dollars per barrel. In the first dozens of hours of the conflict, they jumped to as much as 120 dollars, stabilizing at around 100 dollars. For clarity: at 60 dollars per barrel, with the current exchange rate (PLN 3.7 per dollar), this equals about PLN 1.4 per liter of crude; at 100 dollars – PLN 2.3. I am writing this on Friday, March 13, so the price may differ by the time this article is published.
In Poland, fuel prices at stations rose immediately, by around 30 percent. Donald Tusk said Donald Trump (“the other Donald”) was responsible, because the US President decided to attack Iran. That would be true if fuel prices at stations had increased about a month after producer prices rose. From the moment oil is purchased to when it is sold as fuel, at least a month passes – longer if it is stored. Poland can maintain reserves for up to three months. Even though they were smaller at the time of the Iran conflict, they would still last for many weeks. This means the oil being processed into fuel had been purchased at around 60 dollars per barrel. The effect of the “American Donald” should therefore appear much later. Especially since Poland does not buy most fuel on the spot market, but through contracts, meaning wholesale prices could have remained stable even longer.
So why did fuel prices rise so quickly? The decision was effectively made by the other Donald – the one from the Vistula.
Orlen’s wholesale prices broke through the ceiling
After the outbreak of war in Iran, within dozens of hours, refinery margins at Orlen increased by 9 to 18 groszy per liter – which could still be understood given rising risks. However, the wholesale margin also jumped by about 40 groszy, which is much harder to justify, unless explained by psychological effects. Retail margins at stations initially remained unchanged, and when prices soared, they were even reduced.
The increase in margins was amplified by VAT. This means Orlen was processing cheaper oil but selling fuel to stations at much higher profit margins. By consciously increasing its profits, it raised prices.
When Orlen’s wholesale prices became a political issue, retail margins were reduced. Why those, and not wholesale ones? Because many stations purchasing fuel wholesale from Orlen are not owned by it. This shifted the burden onto station owners, often putting them under financial strain.
Why Tusk allowed it
Fuel taxes constitute a significant part of the state budget – currently around PLN 80 billion annually. Nearly PLN 40 billion comes from VAT alone. Revenue from this tax increases with higher retail fuel prices, meaning more income for the budget. With a gaping budget deficit, every grosz counts. Donald Tusk took advantage of the situation and, at the expense of consumers, slightly improved public finances. However, to extract an extra 20 groszy per liter from our pockets, fuel prices had to rise by more than one złoty. Orlen, as a corporation, benefited even more.
A prolonged price shock may lead to serious economic and social problems, but Tusk’s people – as in many other matters – do not seem particularly concerned. This style of governance suggests ruling as if there were no future. That is exactly what has happened now.
Of course, Tusk may argue that Orlen is a commercial company and he will not set its prices. But aside from the fact that he can quickly replace its CEO, if he truly did not want to interfere, he could simply have lowered taxes. But that was not the point.
Inflation – the killer of incomes
Higher fuel prices usually signal the entire economy to raise prices. Even a few days of elevated fuel prices increases the cost of food (especially affecting farmers in spring), services, and more. An inflationary spiral begins. Its effect is increased tax revenue, especially VAT, and further reduction in household income.
Initially, the state budget benefits. Soon, however, inflation forces higher public spending, suppresses entrepreneurship, and worsens credit conditions. The final stage of inflation may be some form of economic crisis.
The problem could be resolved quickly if global oil prices fell. Then Orlen would have no choice but to adjust. However, little indicates such a scenario. What we are facing instead is genuinely more expensive oil combined with Tusk’s policies driving price increases – a truly explosive mix.