Ministry: Prices of petroleum products could continue to rise, especially diesel, due to developments in the Middle East

The prices of petroleum products could continue to rise, especially diesel, due to geopolitical developments in the Middle East, the Ministry of Energy and Mining warned, adding that it is not possible to avoid the impact of global price increases on the domestic market.

The Ministry said that the re-escalation of the conflict in the Middle East and the risk of further restrictions on transport through the Strait of Hormuz have caused a new strong increase in the prices of oil and oil products on the world market.

"All countries that depend on imports of petroleum products, including Montenegro, are facing the same consequences," the Ministry said.

The department emphasized that the supply of the Montenegrin market is currently proceeding smoothly and there is no reason for concern regarding the availability of petroleum products.

"However, the international market remains extremely unstable, which is why the duration and full extent of further price increases cannot currently be reliably predicted. The Ministry of Energy and Mining will inform the public about the results of the next calculation in a timely manner," the statement added.

The latest escalation followed renewed military attacks in southern Iran and Iranian retaliatory attacks in the region, followed by reimposed restrictions on navigation through the Strait of Hormuz and a blockade of Iranian ports.

Additional uncertainty is caused by the possibility of disruptions spreading to routes through the Red Sea and the Bab el Mandeb Strait.

"This would simultaneously endanger two key maritime routes for the transport of oil and petroleum products, which has already led to an increase in transport and insurance costs on the market, a decrease in the availability of certain derivatives and an increase in their prices," the Ministry stated.

The Strait of Hormuz is one of the most important points in the global energy market. Under normal circumstances, around 20 million barrels of oil and petroleum products are transported through this route daily, or approximately one fifth of total world consumption.

"Therefore, any restriction on navigation or increase in security risk directly affects the availability of energy sources, the prices of maritime transport and insurance, and then the prices of petroleum products worldwide," the Ministry stated.

After the latest escalation, the price of Brent crude oil reached around $84 per barrel and rose by approximately 12 percent over the past week.

"However, for the calculation of maximum retail prices in Montenegro, it is not only the movements in the price of crude oil that are crucial, but primarily the international quotations of finished petroleum products on the Mediterranean market," the Ministry explained.

The diesel market is under particularly strong pressure, due to the combined impact of limited transport through the Strait of Hormuz, problems in supplying crude oil to refineries, reduced processing and limited global supply of middle distillates.

Additional uncertainty is created by the risks of the disruption spreading to other important shipping routes, as well as restrictions on diesel exports from certain major producing countries.

"Such developments are already reflected in fuel prices in numerous countries. Since Montenegro imports petroleum products and purchases them at prices formed on the international market, it is not possible to avoid the impact of global price increases on the domestic market," the Ministry warned.

The department said that further price developments will depend primarily on the duration of the conflict and the possibility of re-establishing regular transport through the Strait of Hormuz.

In the short term, continued instability and upward pressure on prices, especially diesel, is expected.

"If transport restrictions and refinery operating problems persist, derivative prices could continue to rise in subsequent accounting periods. Conversely, the stabilization of security conditions and the restoration of regular supply flows could gradually alleviate price pressure," the Ministry said.

Maximum retail prices in Montenegro are determined according to the prescribed methodology, based on average international quotations of derivatives and the euro-US dollar ratio during the calculation period.

Therefore, as they explained, daily changes on the international market are not immediately and fully transferred to domestic prices, but are included in the average on the basis of which the subsequent calculation is made.

"The purchase price of derivatives from the international market currently makes up approximately half of the maximum retail price. The remaining part consists of costs recognized by energy entities and state duties, namely excise duty, value added tax and fees for the formation of mandatory reserves of petroleum derivatives," the Ministry added.