With built-in price protections, Ecuador gasoline prices remain low despite war in the Middle-East

As gasoline and diesel prices soar in most of the world, Ecuadorians are only seeing small increases at the pump. In a recent survey of Latin American countries, Ecuadorians were paying the lowest per gallon rates.

The reason for the low prices is a 5% limit on monthly increases. The limit was part of President Daniel Noboa’s 2024 plan to eliminate the long-standing fuel subsidy and base prices on international market rates.

According to former Petroecuador director Carlos Goya, the 5% limit was intended to protect consumers from price shocks. “The system is working as intended although I’m not sure the government expected market disruptions like we are seeing today because of the war in Iran,” he said. “While we are paying only a few cents more per gallon, prices in other countries in the region have more than doubled. In Uruguay, people are paying more than $7.”

He added that prices in Peru and Mexico are approaching $6 a gallon.

In the most recent price adjustment, Ecuadorian motorists are changed $2.89 for a gallon of regular gasoline.

Despite the country’s move to a market-based pricing system, Goya says the fuel price-increase limit constitutes a subsidy under current circumstances. “The government is covering the difference between the price at the pump and market prices,” he says, adding that the cost is “well-into the 10s of millions of dollars” per month. “Obviously, the 5% monthly increases will continue and, as it does, there will be complaints from the public, especially from users of diesel fuel.”

Goya says that a more immediate impact of fuel increases will be felt in other areas of the economy. “Soon, we will see inflation based on international market rates since there is no protection for most manufactured good and trans-national transport costs,” he says. “The president of the U.S. is saying prices will drop quickly once the war is over but he is not considering lingering effects, like the mounting damage to petroleum production infrastructure. It will take many months for the price impacts of the war to subside.”