Fuel price surge sparks call for smart subsidies

DAR ES SALAAM: POLICY experts advise the government to avoid permanent universal fuel subsidies, recommending instead a strict readiness for targeted, time-bound interventions if surging prices threaten essential transport, agriculture, and household welfare.

The recommendation, issued jointly by the National Planning Commission and the United Nations Development Programme (UNDP) in their latest report, Assessment of Economic Impacts on Tanzania Arising from the Gulf Crisis, identifies petroleum products—specifically diesel and kerosene—as the primary channels through which the external shock hits the local economy.

Left unchecked, rising fuel costs threaten to spike production and transport costs, erode consumer purchasing power, and slow down national economic growth. Recent notices issued by the Energy and Water Utilities Regulatory Authority (EWURA) for April and May show that domestic fuel prices have risen sharply in response to the crisis, driven by attacks on oil infrastructure, closure of the Strait of Hormuz, higher shipping costs and increased cargo insurance premiums.

In Dar es Salaam, retail cap prices for petrol increased from 2,778/- per litre in January 2026 to 4,115/- in May 2026. Diesel prices rose from 2,726/- to 4,248/-, while kerosene climbed from 2,763/- to 4,677/- over the same period. The increases represent price jumps of 48.1 per cent for petrol, 55.8 per cent for diesel and 69.3 per cent for kerosene.

Diesel remains central to freight transport, public transportation, distribution, construction, manufacturing and agricultural logistics, while kerosene and liquefied petroleum gas (LPG) are closely tied to household cooking and energy affordability.

In the latest joint report titled Assessment of Economic Impacts on Tanzania Arising from the Gulf Crisis, the National Planning Commission and the United Nations Development Programme noted that the diesel subsidy of 259/- per litre introduced in May 2026 provides a precedent for targeted intervention, although fiscal exposure must be monitored weekly.

“The immediate policy priority is to protect the most exposed households and essential economic activity without undermining macroeconomic stability,” the report states.

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The report explained that the recommended response is built around three priorities: protect, stabilise and position.

“Protect households and essential services through targeted, timebound affordability measures. Stabilise productive sectors through fuel-stock management, fertiliser access, market monitoring and fiscal-monetary coordination. Position Tanzania for medium-term opportunities in domestic gas, CNG (Compressed Natural Gas), LNG (Liquified Natural Gas), gold, critical minerals, regional food supply, ports, logistics, tourism and investment attraction,” the report says.

It also stressed the importance of monitoring LPG and clean-cooking affordability to prevent rising energy prices from reversing gains in clean cooking and increasing dependence on charcoal and firewood.

“Kerosene is critical for low-income household energy access, while LPG should also be monitored because it is linked to clean cooking and household welfare,” the report notes. Looking ahead, the report advises the government to consider establishing a time-bound Gulf Crisis Economic Coordination and Monitoring Framework to improve coordination among institutions during the evolving external shock.

The 2026 Gulf War is an ongoing conflict that began on February 28, 2026, when a US-Israeli coalition launched large-scale airstrikes against Iran. The Strait of Hormuz has since become the focus of high-level negotiations between the United States and Iran aimed at reopening the route and restoring stability to global fuel supplies.

The strait is a critical artery for global energy and economic stability, with about 20 per cent of the world’s petroleum consumption and a significant share of global liquefied natural gas shipments passing through it from major producers including Saudi Arabia, Iraq, Kuwait, the United Arab Emirates, Qatar and Iran.