Gasoline prices in Armenia pushing record high

Arthur Khachatryan

Yerevan

Gas prices spiking in Armenia

Gas prices are spiking in Armenia and pushing new record highs, along with a number of other goods in the country which have spiked in price during the Covid-19 pandemic and as a result of the aftermath of the war.

The consumer price index has grown by 7.8 percent since the beginning of 2021.

By itself, this figure is already unprecedented.

Prices in Armenia have not grown so dramatically and so massively in recent years. The reason for this was largely the devaluation of the Armenian national currency – the dram. This factor, as well as world oil prices, make Armenian drivers look with apprehension at the display with prices in gas stations.

How much has gas gone up?

Armenia always reacts painfully to changes in world prices on the hydrocarbons market.

The lack of its own gas and oil reserves makes the country completely dependent on Russia, from where fuel is mainly imported. And if there is an intergovernmental agreement and a fixed price on the gas issue, then it is not possible to plan gasoline quotes.

Gasoline in Armenia began to fall in price in the spring of 2020, when the world economy finally realized that coronavirus was serious, and when Russia and Saudi Arabia provoked a collapse in oil prices. Negotiations between the oil giants resulted in Armenian drivers pouring gasoline at AMD 270 [about 45 cents] per liter. Before that, fuel cost about AMD 380 [about 78 cents].

But the joy did not last long. By the end of 2020, gasoline prices began to rise not gradually, but in leaps and bounds. And already in the first three months of 2021, the main players in the gasoline market now sell it at 420-430 AMD per liter [about 88 cents].

Why have prices skyrocketed?

To this question in Armenia in previous years, experts and the price regulator traditionally answered the same thing: because oil is becoming more expensive.

Now two more factors have been added to the main one – the fall in the exchange rate of the national currency and the increase in import prices.

In May 2020 investors gave less than $20 per barrel of oil, now quotes are almost breaking through the $70 mark. In recent days, prices for “black gold” dropped to $64, but experts believe that these are temporary fluctuations.

As for the Armenian dram, the national currency has not devalued so significantly over the past 10 years. The reason is clear – the dram was influenced not only by the negative economic consequences of the coronavirus, but also by the war in Nagorno-Karabakh. In just a year, public debt from a comfortable 49 percent has reached almost 70 percent of GDP.

As a result, before the war the dollar fetched 485 AMD, while now it is a solid 530.

“The fall in the exchange rate of the Armenian dram directly affects the pricing of all imported goods and, first of all, gasoline. Because all contracts are in dollars. This is not a new phenomenon. Armenia has faced such hesitation before,” says the EU national transport expert Ara Mardzhanyan.

The specialist draws attention to the fact that Armenia remains a closed country in terms of communication. The only way to export fuel from Russia is by rail through Georgia. There remains Iran, from where there are flows that do not yet outweigh the Russian proposal.

The situation could be softened by an agreement with Kazakhstan on trade and economic cooperation in the supply of oil products to Armenia. However, due to the pandemic, supplies from Kazakhstan are not yet available:

“In Kazakhstan, due to the coronavirus pandemic, an excess of gasoline and diesel fuel has formed. And this country is now looking for new markets,” the expert says.

Why the gasoline market in Armenia is problematic

Before the “velvet revolution” of 2018, the gasoline import market in Armenia was more or less monopolized. Two companies accounted for 90 percent of the distribution. Since the change of power in 2018, there have been no significant changes.

According to the State Revenue Committee, 84 percent of supplies in 2019 continued to be made by the same companies. However, competition has emerged. New companies began to operate on the market, exporting gasoline not only from Russia, as it was traditionally before the revolution, but also from Iran.

In 2020, 475,000 tonnes of oil products were delivered to Armenia, 70% from Russia, a little more than 20% from Iran. At a time when prices for Russian-made fuel are directly influenced by the conjuncture of global events, the Iranian market is becoming more and more attractive for Armenian importers.

In the current conditions, the question arises – were there any violations of the conditions of competition? A study published by the State Commission for the Protection of Economic Competition indicates that market players behave in good faith. However, economist Armen Chukhuryan still believes that speculation is still taking place:

“If the price of gasoline rises, economics tells us that this must be related to a growth in demand. In Armenia, over the past months, there has been no significant growth in demand for gasoline, which could have caused a rise in prices. This means that there are speculative risks and a subjective approach to pricing.”

The State Commission for the Protection of Economic Competition has yet to study the gasoline market for the period January-March 2021. It was in this segment that the most significant price jump occurred.

The name of the pro-government businessman Khachatur Sukiasyan is already mentioned in the press, whose company allegedly wants to win a place in the fuel sales market by means of dumping, that is, artificially low prices – below market prices.

Be that as it may, high gasoline prices in Armenia will lead to higher prices for other goods. At the same time, it is already clear now that there is no ceiling, and fuel in Armenia can set new anti-records.