Analyzing Barbados' High Fuel Costs and Their Economic Impact on Businesses and Consumers

Following last week’s discussion on the impact of the electricity rate increase on firms and consumers, the cost of fuel will engage our attention this week due to its pervasive impact on the cost of doing business and by extending the high cost of living in Barbados.

Several factors contribute to high costs in the country; utilities and fuel are arguably the most prevalent as all stakeholders in the society are users of these resources. Every effort, therefore, should be employed by the government to make these affordable for citizens through the use of the regulatory and policy apparatus available.

Economists and development specialists will continue to analyse the contributors to the cost of living and what is required to reach a state of equilibrium where prices are affordable. For sure, the current price point of various utilities is not affordable thus the state of austerity being experienced in the society.

Citizens already complain about the VAT rate of 22 per cent applied to telephone bills. Compound this with the anticipated increase in the electricity rate, the sewage tax on water rates, and current fuel costs, and this produces a perfect storm of utility taxation.

The government, through its regulatory powers, can bring some relief to consumers.

It is with consternation that we consider where Barbados is globally relative to its fuel costs.

According to globalpetrolprices.com the current average cost of gasoline worldwide is US$1.24 per litre. The site further states that Barbados’ current fuel price is 157.82 per cent of the world average gasoline price. Understandably the price of gas will differ amongst countries due to various taxes and subsidies a country may introduce based on its policies and overall fiscal approaches. Barbados’ fuel prices are projected to be the fourth highest globally, recorded by Global Petrol Prices, following the likes of Hong Kong – US$3.30 per litre, Monaco at US$2.26 and Iceland at US$2.18 per litre. Barbados is at the unenviable position of US$2.09 per litre. The closest Caribbean country is the Cayman Islands with a rate of US$1.46 per litre.

Appreciatively, Trinidad & Tobago and Guyana are lower, due to their oil reserves, with rates of US$1.14 and US$1.02, respectively. Jamaica on the other hand, similar to Barbados, has no significant oil resources but has a rate of US$1.27 per litre.

Why is Barbados’ rate so high?

Some of the major issues affecting the cost of fuel include:

1. Crude oil supply

Crude oil is what makes up gasoline. As the laws of supply and demand go, when the supply of crude oil decreases, the cost of petroleum-based products, i.e. gas, increases.

2. Geopolitical events

The conflict between Ukraine and Russia has made an impact on global oil production, as Russia is one of the world’s largest crude oil exporters.