Fuel price hike in Vietnam is hampering the country’s economic recovery. The government tries to relinquish the situation by import accumulation and reducing taxes. Additionally, it seeks additional support from the national reserves.
Fuel Price Hike and High Demand
Vietnam’s demand for petroleum products has increased since last year of October. Along with it is fuel prices buildup following the worldwide demand and surge in costs.
On February 22, the American light crude oil surpassed $94.38 per barrel. It increased by $3.31 or 3.63%, considered the highest since November 2014. Identically, Brent crude oil’s price surged afterward and gained $95.39 per barrel. It’s up by 1.98% or equal to $1.85.
On the same day, Vietnam’s RON 95 gasoline retail price also rocketed to an eight-year high of $1.14 per liter. Despite that, RON 92’s retail price jumped to $1.11. The government increased fuel prices by VND 1,000 (US$0.04) per liter of gasoline. The price of oil per liter, on the other hand, increased to VND 750 (US$0.03). This was the fifth increase since October of last year and the fourth since this year started.
Why Does Vietnam Experience Fuel Price Hike?
Several factors cause price hikes and shortages in Vietnam. Similar to other ASEAN countries, “living with the virus” is the new normal for the Vietnamese. The government started easing restrictions to revive its economy and proceed with production. Doing so will increase fuel demand, generally resulting in higher prices.
Another thing is the Organization of Petroleum Exporting Countries (OPEC) still restricts oil production. Because of this, the supply becomes limited due to the decrease in output.
Additionally, the political apprehension and geopolitics indirectly escalated prices. An example is an ongoing tension between Russia and Ukraine.
Moreover, the domestic gasoline shortages intensified Vietnam’s fuel price hike. The nation’s largest refinery, Nghi Son Oil Refinery, slashed 20% of production since January because of financial issues. Even with a secured temporary investment, it’s possible to cease operation. That is, if the refiner won’t be able to secure sufficient liquidity or debts to pay for Kuwaiti crude to continue its operation.
How Exorbitant Fuel Prices Affect Vietnam’s Economy?
The exorbitant fuel prices in the country greatly concern businesses. It’s because they want to balance fuel price hikes and keep customers at the same time. The government aims to make its economy recover from last year’s lockdowns.
There’s nothing that a fuel price hike cannot affect. When the price of gasoline increases. It raises the cost of living and input materials, directly and indirectly. Fundamentally, it increased the prices of basic commodities such as food.
Production of different sectors is also highly affected, including agriculture, fishing, food processing, and transport. Because of this, the inflation rate also increases.
To discourage businesses from hoarding and imposing excessive pricing, the government conducted strict checks. It targets to reinforce preventive measures and punish violators as needed. Likewise, Vietnam’s Prime Minister Pham Minh Chinh asked the Ministry of Finance to consider decreasing the environmental tax on fuel before the end of February.
Taxes and fees contribute to almost 42% of Vietnam’s gasoline prices. It encompasses import tax, value-added tax, special consumption tax, and environmental tax.
Continuous Increase in Fuel Prices May Reduce Transport Services
Transport firms have no choice but to reduce their transport service if the fuel price hike persists. If it worsens, it’s possible that they will have to stop operation.
“We are operating at a moderate level as we are taking a loss. I am afraid that we won’t be able to contend,” said Tran Cuong, An Phu transportation firm owner.
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