Drivers enjoy lower gas prices, but at no small cost to the treasury

Gasoline prices are lower in Mexico than many other countries, but subsidizing fuel is predicted to cost the government over 550 billion pesos this year, according to one study.

The office of President López Obrador posted an infographic to Twitter Monday that showed that gas prices in Mexico are lower than those in Germany, France, Spain, the United States, Canada, China and Brazil.

“Thanks to the energy policy we have implemented, we are able to have one of the cheapest gasoline prices in the world: 22.42 pesos [US $1.08] per liter,” the president’s office tweeted.

In an earlier post, it said that the government will cover 100% of the IEPS excise tax on regular and premium gasoline and diesel until March 18. It began 100% subsidization of the excise tax on regular gasoline on February 18.

“With this support, the Finance Ministry seeks to control fuel prices in favor of consumers,” the president’s office said.

López Obrador said Sunday that it was a point of pride for Pemex workers and Mexicans in general that the price of gasoline in Mexico is among the lowest in the world.

“Imagine, in the United States it costs 32 pesos a liter and 22 a liter here,” he said. “Why? Because Pemex is being rescued, there’s no corruption [and] there is efficiency.”

In a video message filmed at the construction site of the new US $9 billion Dos Bocas refinery on the Tabasco coast, López Obrador reiterated that Mexico is on the path to achieving self-sufficiency for fuel by the end of next year.

While gas prices are indeed lower here than in many countries, the government’s claim that they are among the lowest in the world doesn’t stack up. According to the latest data published by website Global Petrol Prices, which the government cited, gas prices in Mexico are higher than those in almost 60 countries including 10 in the Americas.

And if the government didn’t subsidize gasoline, its price would be between 28 and 29 pesos per liter, which would be the eighth highest in the Americas, the newspaper El Financiero reported.

The average price in the United States, according to Global Petrol Prices, is US $1.24 per liter, or 25.7 pesos, although the nationwide U.S. average was US $4.30 per gallon, or US $1.14 per liter, on Wednesday, according to AAA Gas Prices.

Keeping gasoline prices artificially low in Mexico, even as they increase in many other countries due to factors related to Russia’s invasion of Ukraine, will cost the federal government more than 554 billion pesos (US $26.76 billion) in 2022 if subsidies remain at their current level, according to the Center for Economic and Budgetary Research (CIEP).

In an analysis published Tuesday, the Mexico City-based think tank said the amount represents 2% of GDP. CIEP also said that the government’s excise tax subsidy disproportionately benefits Mexico’s highest wage earners, who are more likely to drive.

Héctor Magaña, head of the economy and business research center at the Tec de Monterrey university, said the government will have to adjust its budget if it wants to maintain its current subsidy level.

Doing so could result in decreased funding for some public programs, he told Tec de Monterrey news site Conecta.

The academic said the war in Ukraine doesn’t directly affect gasoline prices in Mexico, but does have some negative impacts as Mexico imports more gasoline than it produces and is thus affected by higher prices for crude, although the cost of unrefined oil has decreased significantly over the past week, falling below US $100 a barrel on Tuesday.

Mexican crude closed at US $92.26 per barrel on Tuesday, down 23% compared to a week earlier, but its price is still well up compared to January.

Magaña said that some government programs could be suspended “if the authorities believe that the gasoline subsidy must continue until the price of oil normalizes.”

Public resources are limited, the academic noted, making it complicated for the Finance Ministry to continue subsidies indefinitely.

With reports from El Universal, El Financiero, Conecta and Oil & Gas Magazine