Fuel price policies in Latin America
Venezuela
Venezuela has a long history of providing exceptionally low energy prices to its population. Fuel prices there are just a few cents per liter, although the amount consumers can purchase at that price is limited each month. This ultra-low fuel price policy has been in effect for decades. It is a byproduct of abundant energy resources and a political system designed to provide low energy costs to a broad segment of the population in order to maintain political support.
Argentina
Argentina offers another compelling example. In principle, its fuel market is liberalized, meaning suppliers are free to set their own prices. In practice, however, price setting occurs in an environment of significant political instability, repeated market reforms, and high levels of inflation and exchange-rate depreciation - conditions that periodically reach hyperinflation. As economic theory suggests, price formation becomes extremely difficult under such circumstances, and prices struggle to convey accurate market information. What we observe in Argentina is some degree of responsiveness of fuel prices to oil prices, but this relationship is overwhelmed by the influence of inflation and exchange-rate volatility. These factors drive price movements in the medium and short term to such an extent that they mask the impacts of oil prices and seasonality. Argentina is a country where predicting future fuel prices is very difficult, if not impossible - consistent with the overall unpredictability of its political and economic environment.
Brazil
Brazil is also an interesting case. Fuel prices in Brazil are formally liberalized, but the state-owned Petrobras dominates the wholesale fuel market and therefore has substantial influence on final retail prices. Moreover, Petrobras does not operate entirely at arm’s length from the federal government. As a result, it may be pressured to keep prices in check during periods of high oil price volatility or in the run-up to elections, when it is politically important for incumbents to maintain relatively low and stable prices. Consequently, fuel price forecasting in Brazil shows alternating periods: some in which fuel prices adjust rapidly to oil price changes, and others in which oil price effects are significantly dampened. As noted earlier, these latter periods tend to coincide with high oil price volatility and politically sensitive moments. Because of this, historical data alone is insufficient to generate reliable forecasts. One must also monitor current political developments and infer from past behavior how such events may influence fuel price policy. In recent years, Brazil has significantly expanded domestic oil production, including investments in offshore extraction. When domestic oil production becomes an increasingly important part of the economy, there is added political pressure to keep domestic fuel prices low and stable. Time will tell whether this dynamic will shape Brazil’s future policies.
Mexico
Mexico, one of the region’s largest economies, also has a distinctive fuel price policy. Several years ago, the government pursued partial liberalization of the fuel market, allowing foreign companies to sell fuel in Mexico and granting suppliers some flexibility in setting prices. One might expect fuel prices in Mexico to start behaving like those in fully liberalized markets (e.g., in Europe). However, this has not occurred. Instead, fuel prices have shown a slow but steady increase that appears largely unrelated to movements in global oil prices or the peso–dollar exchange rate. The underlying policy seems to be a gradual adjustment of fuel prices toward regional and global averages. The purpose is to reduce the fiscal burden of subsidizing fuel, particularly during periods of high oil price volatility, and to create financial capacity for investment in the energy sector. Generally speaking, governments prefer higher fuel prices - provided they remain politically acceptable and do not harm domestic competitiveness. Mexico has managed this gradual adjustment quite successfully so far.
Colombia
Colombia, another important regional economy, has maintained a far stricter grip on fuel prices. Prices have been set by the government at levels well below regional and global averages. Naturally, this has placed significant strain on public finances and on the country’s price stabilization fund. In response, the government began a policy of gradual increases in fuel prices. Gasoline prices were raised incrementally over several years until they converged with international averages. Around that time, the government initiated a similar process for diesel. However, initial diesel price increases were met with strong public opposition, given diesel’s importance in agriculture, transportation, and small business operations. The government subsequently rolled back some of the increases, though not to pre-reform levels, achieving a moderate degree of initial success. When political conditions allow, the government continues to raise diesel prices, albeit in smaller increments than originally intended. The expectation is that diesel prices will eventually align with gasoline and with international levels, though the pace depends on global oil prices and domestic politics. Importantly, there is currently no serious discussion of fully liberalizing fuel prices in Colombia. This aligns with the broader observation that transitioning from a fixed-price system - especially one delivering low prices - to a liberalized system is politically difficult. Citizens and businesses become uncertain about energy costs, making rapid policy shifts unlikely.
Other countries
Many of the remaining countries in Latin America - including Chile, Guatemala, El Salvador, and several Caribbean nations - tend to have more liberalized market structures. Even when governments intervene in price setting, they do so while fully considering developments in global oil prices and exchange rates. As a result, fuel prices behave similarly to those in other liberalized markets. However, in several countries, exchange-rate fluctuations play a particularly strong role in fuel price movements. This is due to historical currency volatility and the fact that oil imports are priced in U.S. dollars. Theoretically, both oil prices and exchange rates should have similar impacts on domestic fuel prices. Practically, oil prices often matter more because they are more volatile. Yet in countries with unstable currencies, exchange-rate movements may become the dominant factor.
Finally, quite a few of these countries maintain explicit or implicit price stabilization funds. These funds accumulate reserves during periods of low oil prices and use them to cushion retail prices when oil prices rise sharply. The goal is to stabilize fuel prices and insulate consumers from short-term oil price swings. Such mechanisms are typically activated during periods of extreme price volatility, such as the shock experienced in 2022. Notably, several European countries adopted similar measures by reducing fuel taxes, even without formal stabilization funds. Once governments intervene in this way, however, removing the supports becomes politically challenging. While the 2022 oil price spike lasted only a few months, it took over two years for most price-support policies introduced at that time to be fully withdrawn.
Further resources
The latest prices in Latin America are available here:
- gasoline prices
- diesel prices
Analytical measures of fuel prices policies in the countries that we track:
- fuel price regulations
Forecast of diesel prices in Latin America and elsewhere:
- forecast
A bit dated paper from the World Bank but still valid, including for Latin America:
- Political determinants of fuel prices
A paper from the Inter-American Development Bank on fuel prices and inflation in Latin America:
- Fuel prices and inflation
