Global oil markets have seen a notable decline in prices in recent days, amid the announcement of a memorandum to halt the war between Washington and Iran, ending a conflict that had caused major disruptions to global energy supplies.

This was quickly reflected in markets, as Brent crude fell by up to 3.1% to below $78 a barrel, its lowest level since the beginning of March. Gasoline prices in some global markets also fell to lower levels than before.

In the United States, gasoline prices fell below $4 per gallon for the first time since March.

The decline came as navigation resumed through the Strait of Hormuz, according to the terms of the agreement. The strait is considered one of the most important strategic routes for transporting oil globally, and its reopening eased fears of supply shortages and higher shipping and insurance costs.

But this global decline was not reflected in fuel prices in Syria, where local prices remained at their levels, even though part of the justification for their earlier rise was linked to changes in global markets.

This reality raises questions about the nature of the relationship between local and global prices, and whether fuel prices in Syria still respond to market factors or have become tied to other economic and financial factors.

What Are Fuel Prices in Syria?

The Syrian Petroleum Company raised fuel prices in Syria on May 7 by between 17% and 30%.

At the time, the price of a liter of first-grade diesel rose to $0.88 from $0.75, about 17.3%.

The price of a liter of 90-octane gasoline rose to $1.10 from $0.85, about 29.4%, while a liter of 95-octane gasoline rose to $1.15 from $0.91, about 26.4%.

The price of a household gas cylinder rose to $12.5 from $10.5, about 19%, while the price of an industrial gas cylinder rose to $20 from $16.8, about 19%.

Today, Thursday, June 18, the Syrian pound’s exchange rate against the US dollar stands at 14,230 Syrian pounds for buying and 14,300 pounds for selling.

A Distorted Economic Structure

Economically, falling global prices would be expected to lower import costs in Syria and therefore reduce prices for consumers, but Syrian markets do not fully operate according to this mechanism.

Economist and Hama University professor Dr. Abdul Rahman Mohamed believes that analyzing fuel price behavior in the Syrian market cannot be separated from the distorted economic structure left by more than a decade of war, sanctions, and institutional collapse.

In any healthy economy, price reflects the balance of supply and demand and production costs. In Syria’s current economy, however, price has become a reflection of other balances: the state’s fiscal deficit, the dominance of the war economy, and the complexity of supply chains subject to sanctions.

Therefore, the failure of fuel prices to respond to the global decline, even though part of the previous increase was linked to global pricing, is not a paradox. It is an inevitable result of the multilayered nature of Syria’s crisis.

Internal Factors Dominate

According to Dr. Abdul Rahman Mohamed, the phenomenon should be read economically from the perspective of a decoupling between the local pricing mechanism and external factors, in favor of the dominance of emergency internal factors. This does not negate economic logic, but confirms that the prevailing logic is now that of a “managed scarcity” economy, not a free market economy.

He explained that this reading is based on the following points:

• Breaking the mechanism of impact transmission: Under normal circumstances, lower global prices, such as the price of Brent crude, lead to lower import costs, and therefore lower refining costs or direct import costs for derivatives, allowing the price for the final consumer to fall.
  But in Syria, this mechanism is completely disabled. Imports are no longer an ordinary commercial process, but a highly complex political and security process, making import costs fixed or high regardless of the global barrel price.
• Fixing the price as a tool to maximize tax revenues: With the collapse of the productive base and the erosion of other income sources, such as taxes and customs, fuel sales have become the most important and fastest source of sovereign revenue.
  Any price reduction would mean a direct and immediate deduction from public revenues that barely cover salaries and basic expenditures. The government views the price not as a reflection of cost, but as a tool to maximize returns.
• The political and social economy of price: The current price is not a market equilibrium price, but a political price aimed at managing the state’s fiscal balance on one hand, and managing public anger on the other through the remaining in-kind subsidy policy, even if it is minimal.
  A price reduction may be interpreted financially as a luxury that cannot be afforded at the moment, especially amid uncertainty over the sustainability of the global price decline.

Factors Limiting Lower Fuel Prices

Rising global oil prices in previous periods led the international market factor to be used as a justification for raising fuel prices locally, but the continuation of high prices despite the global decline in oil indicates the presence of other, more influential factors.

Dr. Abdul Rahman Mohamed explained that linking price increases to global changes was a justification for the policy of lifting subsidies, but the failure to reduce prices clearly reveals the real structural reasons, including:

• The real hidden cost of imports, the risk and sanctions premium: Syria does not buy oil and its derivatives at the global price or through normal transport and insurance methods. It pays a large sanctions premium that includes the costs of smuggling or ambiguous maritime transport operations, multiple intermediaries, expensive insurance fees, and payments in hard currency through complex financial channels. This cost is not immediately linked to the Brent price, but to the assessment of geopolitical risks and smuggling networks.
• The chronic fiscal deficit and the priority of covering expenditures: Syria’s public budget structure suffers from a severe deficit. Domestic oil revenues from the Qamishli (northeastern Syria) and Deir Ezzor (eastern Syria) fields are outside the government’s effective control or have stopped. As a result, what the government imports and sells domestically is a vital source of net revenue.
  Reducing the price means deepening a deficit that cannot be financed by printing money, for fear of runaway inflation, or by borrowing, due to the absence of financial markets or international lenders.
  Refining and domestic distribution costs: Local refineries, such as the Baniyas and Homs refineries, operate far below capacity due to crude shortages. They depend on refining imported crude, while operating and maintenance costs under sanctions and aging infrastructure are very high. These fixed costs make the margin for reduction practically nonexistent.
• The parallel exchange rate, not the global price, is the determining factor: Domestic pricing is no longer based on the Brent price against the official dollar rate, but on the dollar price in the parallel market. Even if Brent falls, if the Syrian pound’s exchange rate in the parallel market remains weak, the local price in pounds will remain high or stable.

As a result, import costs are paid in dollars bought from the parallel market, making the exchange rate more influential than the global oil price.

The Syrian Fuel Company said the adjustment of petroleum product prices came in light of continued global increases in oil prices and the costs of supply and shipping, along with repercussions linked to current regional conditions and the additional pressures they have imposed on the energy sector.

Linking Pricing to a Transparent, Flexible Mechanism Tops Proposals

As the gap between global and local price movements continues, debate is growing over the need to reform the pricing method, not merely adjust prices.

Economist Abdul Rahman Mohamed suggested that solutions in the Syrian situation cannot be conventional. Rather, they must be gradual and realistic, focusing on managing the crisis before its final resolution, which is tied to a comprehensive political settlement and the lifting of sanctions. These include:

1. Linking pricing to a transparent and flexible cost-basket mechanism: Instead of purely administrative pricing, a transparent and publicly announced pricing formula should be adopted and linked to:
   • The global oil price, Brent.
   • The Syrian pound exchange rate against the dollar in the Central Bank’s official bulletin, with a realistic margin.
   • Fixed transport, insurance, and refining costs, to be reviewed every three months.He explained that this does not necessarily mean an immediate reduction, but it creates a new “social contract” and prepares public opinion to accept that any global decline will have positive effects, even partial ones, and vice versa. This would end the state of doubt and anger
2. Investing any savings in support for specific productive groups: If any cost decline is achieved, the reduction should not be generalized to everyone. Instead, support should be redirected to consumers through direct support for vital productive sectors such as agriculture and public transport. This would stimulate the overall economy and reduce living costs indirectly in a more sustainable way than lowering the price at the station.
3. Rationalizing consumption and demand as a parallel solution: The solution is not limited to supply and price, but also includes demand. Investment in electric public transport, such as buses and trams, support for converting vehicles to locally available compressed natural gas, CNG, and expansion of building thermal insulation programs are all solutions that reduce the total import bill and ease pressure on demand, allowing for better pricing margins.