With the global rise in oil derivatives prices... Will Jordan continue the "gradual" policy?

Amman, Jordan - The Jordanian government faces a challenge in continuing the gradual policy of raising the prices of petroleum derivatives locally, while prices continue to rise globally. The government has not reflected the entire global consumer increase since April until now, and was content to raise some derivatives prices in stages before fixing some of them in recent months, while the price differences borne by the government amounted to about 224 million dinars (about 316 million dollars) until the end of August.

The local oil derivatives pricing committee will announce, on Wednesday, the new pricing for October, amid expectations that the cumulative cost will reach about 260 million dinars (about 367 million dollars) by the end of this month, with a likely limited increase in the prices of some oil derivatives, with an increase ranging between 3-5%. According to successive data from the Ministry of Energy and Mineral Resources, the government bore cumulative price differences amounting to about 170 million dinars (about 240 million dollars) until the end of May, before rising to 198 million dinars (about 279 million dollars) at the end of June, then 212 million dinars (about 299 million dollars) at the end of July, reaching 224 million dinars (about 316 million dollars). By the end of August.

The cumulative cost, according to these data, includes subsidies and price differences borne by the government, including subsidies for household gas cylinders. For his part, energy expert Hashem Akl said that the prices of oil and its derivatives witnessed sharp increases globally during the recent period, as a result of the risk premium and the rise in insurance and shipping fees, which added a cost to the prices of oil derivatives.

Akl explained to the Ofoq News website in Arabic that the Jordanian government’s policy since the beginning of the crisis in the region with the outbreak of the war against Iran in March, to adopt a gradual increase in prices, aimed to avoid the impact of large increases all at once on the purchasing power of citizens, transportation costs and commodity prices, noting that Jordan depends on the port of Aqaba to import about 85% of consumer goods, which makes the rise in transportation costs a factor influencing commodity prices. Akl said that this policy represents “a kind of balanced policy between raising prices by a small percentage and the state treasury bearing the difference,” until global prices decline and prices are recalculated according to the pricing equation, allowing the government to recover part of the support cost.

He added that freezing prices or postponing the reversal of real increases “protected the citizen,” but at the same time it may lead to an accumulation of the cost of subsidies and increased pressure on the general budget, according to Akl, noting that the options available to the government in the future “may include increasing taxes, resorting to borrowing, or raising prices.” In a related context, Akl pointed to the global repercussions of the crisis, indicating that oil prices have become dependent on political statements, military tensions, and wars, moving away from real market fundamentals such as supply and demand, Chinese demand, and American stocks, in addition to OPEC decisions and OPEC and International Energy Agency reports.

He pointed out that the United States of America witnessed, according to his estimate, sharp increases in diesel prices, which reached 94%, and the price exceeded $6.35 per gallon, describing this as “a record that has never occurred in the history of the United States.” Akl said that this prompted US President Donald Trump to propose imposing restrictions on the export of diesel abroad, considering that this measure may calm prices for a short period in the United States, but it may later lead to a decline in refinery production by about 15%, which reduces the supply of gasoline, jet fuel, and diesel, and restores prices to rise, while the price of diesel in importing European countries may rise significantly.

October forecasts Since global rises began to reflect on local prices in April, the government followed a gradual policy of raising prices, the most prominent of which was raising the price of 95 octane gasoline from 1,050 to 1,200 fils per liter in April, while the price of 90 octane gasoline rose to 1,000 fils and diesel (diesel) to 850 fils in June, before stabilizing the main prices at these levels during the following months. According to unofficial personal estimates by Akl, “the prices of local petroleum derivatives may rise between 3 and 5% in the October pricing scheduled to be announced on Wednesday,” pointing out “the possibility of an increase in the price of octane 90 gasoline by about 30 fils per liter, diesel by about 30 fils, and octane 95 by about 50 to 60 fils.”

Akl explained that Jordan's daily consumption amounts to about 250,000 liters of 95 octane gasoline, compared to 4 million liters of 90 octane gasoline, and about 5 million liters of diesel. Speaking to the website, Akl estimated that the cumulative cost borne by the government would reach about 250-260 million dinars, considering that continuing to bear this cost would put pressure on public spending and government projects in the future.

Akl stressed that "there is no risk of interruption of supplies to Jordan," noting that there is a strategic stock of oil derivatives, sufficient for about 50 to 70 days, in addition to a stock of crude oil amounting to about two million barrels. He noted that these stocks allow Jordan to continue meeting local demand without the need for measures such as rationing fuel or imposing restrictions on movement, and that the main challenge is the rise in prices and not the availability of supplies, and that this is a global problem.

Local energy sources: On Tuesday, the Royal Court announced that King Abdullah II would chair a meeting at Al-Husseiniya Palace to follow up on the government’s work in the gas sector and its development plans to support energy security, including the development of the Risha gas field. In this context, Akl said that the rise in global energy prices should constitute a greater incentive for the expansion of local energy sources, including electric cars, solar energy, and wind energy, in addition to the development of the Risha gas field.

He pointed out that work on developing the Risha gas field is continuing, expecting production to reach about 420 million cubic feet in 2029, a level he said could achieve self-sufficiency in gas with a surplus. He stressed the importance of expanding the conversion of vehicles and trucks to run on natural gas, pointing out that using gas can achieve savings in operating costs of up to about 50% compared to gasoline or diesel.

He pointed out that Jordan possesses diverse sources and capabilities in the field of energy, including oil shale, solar energy and wind energy, in addition to the liquefied gas receiving station in Aqaba and the Arab Gas Pipeline, in addition to electrical interconnection projects with neighboring countries, which helps to make Jordan a regional energy center. Iraqi Oil Pipeline Regarding the Iraqi Oil Pipeline Project (Basra - Aqaba), Akl indicated that consultations are currently taking place regarding activating the project, explaining that its idea dates back to the early 1980s, and it was proposed again in 2016, but its implementation was delayed as a result of the exceptional political circumstances that the region went through.

He explained, "Iraq today is forced to resort to this pipeline because its oil exports are almost at a standstill with the crisis in the region, due to Iraq's dependence on 95% of its budget and financial revenues on oil, which places it facing a huge financial crisis." Akl added, "The existing pipeline from Kirkuk to the Turkish port of Ceyhan has a limited capacity, and its capacity does not exceed a maximum of 350,000 barrels per day, while Iraq has the ability to export 3.5 million barrels per day," noting that the implementation of the Basra-Aqaba line project "will constitute a good financial source for Iraq, and spare it some of the crises it is suffering from."