Mexico to keep up gasoline, diesel subsidies as prices soar

Mexico’s finance ministry said on Sunday it will keep increasing subsidies for both gasoline and diesel to shield consumers and businesses even as fuel prices on the world market soar.

Commodity prices have hit multi-year highs since Russia invaded Ukraine on Feb. 24 and Western sanctions on Russia, one of the world’s largest energy producers and exporters, began to bite.

“Mexico’s government considers it necessary to make an additional effort in its support to the population,” the finance ministry said in a statement. “Retail prices will not be affected.”

With dramatic price increases of crude oil and benchmark prices, the ministry said that both regular gasoline and diesel have reached 100% of subsidies permitted by law.

Meanwhile, that of the high-octane unleaded premium gasoline is close to 100%, at a level of 97.14%.

The finance ministry said it would provide additional subsidies to make up for price differences.

Brent crude hit $129.11 a barrel late on Sunday, up from $96.84 on Feb. 23, Refinitiv Eikon data showed, while West Texas Intermediate hit $124.56 a barrel, up from $92.10 on Feb. 23.

Not everyone is convinced the subsidies are a good move for Mexican finances, and some experts worry about the price tag.

“The policy to stabilise energy prices has a high opportunity cost,” said Arturo Carranza, director of energy projects at Akza Advisors.

Mexico could collect more revenue by charging the special tax on production and services, known as IEPS, on fuels and then allocate them to other priorities.

“But (the government) has decided to keep the presidential promise,” Carranza noted, referring to President Andres Manuel Lopez Obrador’s vows to prevent sharp increases in gasoline prices locally known as “gasolinazos”.

A landmark energy reform by Lopez Obrador’s predecessor had done away with government-set energy prices.