The past few days at Polish petrol stations have brought a painful confrontation with geopolitical reality. Escalating tensions in the Middle East and reciprocal missile attacks between the United States and Iran have rapidly restored not merely a geopolitical premium to the market, but what analysts describe as a war premium.
The effect is already visible. At many petrol stations across Poland, the price of 95-octane petrol has exceeded the psychologically important threshold of PLN 7 per litre. Although the situation is causing concern, a sober analysis of the available facts and market commentary suggests that investors are not yet pricing in a scenario of complete chaos. Is that good news for Polish motorists?
Oil Approaches the Three-Digit Threshold as Donald Trump Changes Tactics
The key question for drivers’ household budgets is how high crude oil prices could rise. At their peak, Brent crude prices tested USD 87.50 per barrel, despite trading at around USD 70 per barrel at the beginning of July.
The current situation is still far from the panic observed in the spring. Brent has fallen back below USD 85 per barrel following Donald Trump’s latest comments. Although the United States has reinstated a maritime blockade against Iran and Tehran has responded with targeted attacks on tankers, shipping through the strategically important Strait of Hormuz continues, albeit at a significantly reduced level.
The market currently appears to agree that, provided shipping flows are maintained and the conflict does not enter a phase of extreme escalation — for example, through the physical occupation of Iran’s Kharg Island and its oil terminal — crude oil prices should remain below the three-digit level of USD 100 per barrel.
A surprising change in Donald Trump’s position has also helped ease negative market sentiment. The US president has withdrawn his earlier proposal to charge commercial vessels a 20% fee for military protection.
Instead, the United States now wants to act as a “security guarantor” in the Persian Gulf in exchange for favourable trade agreements and investment commitments from the region’s Gulf states. This pragmatic approach is reducing some of the speculative pressure on the market, although it does not eliminate the risk of the Strait of Hormuz being fully closed.
Orlen’s Wholesale Price Paradox and the Polish Driver’s Pain Threshold
From the perspective of Polish consumers, however, the scale of the price increase may appear somewhat exaggerated. The market is currently facing a notable paradox.
Measured in Polish złoty, a barrel of oil now costs approximately PLN 325, dramatically less than in March, when the price approached PLN 450. Despite this, Orlen’s published wholesale prices are only around PLN 0.10 per litre below their March peaks. The current wholesale price of 95-octane petrol stands at PLN 5.64 per litre.
Wholesale diesel prices have risen slightly less, although diesel is the segment facing the most serious supply shortage. This indicates that margins and expectations of possible tax increases for fuel companies have quickly absorbed the benefits of earlier declines in crude oil prices.
Where is the limit of motorists’ patience? All indications suggest that PLN 8 per litre of diesel could become the critical threshold at which public pressure forces the government to take more radical action. Only at that level might the Ministry of Finance be compelled to cut excise duty again or reduce the VAT rate.
Costly CPN Programme in Doubt as Minister Sets Strict Conditions
Many drivers are looking to the government in the hope that the “Lower Fuel Prices” programme, known by its Polish acronym CPN, will return. However, a repeat of that intervention currently appears unlikely.
Energy Minister Miłosz Motyka has confirmed that the ministry is working on contingency plans, but he has also set out a clear condition. For the CPN programme to be reintroduced, the Strait of Hormuz would have to be completely blocked, pushing oil prices back towards the levels recorded in March or April.
Why is the government so reluctant to reactivate the support scheme? The answer lies in its cost to the state budget. The CPN programme was extremely expensive, costing the government approximately PLN 5 billion.
At the same time, its effectiveness cannot be denied. The programme helped prevent inflation from inflicting greater damage on consumers, with the annual inflation rate ultimately falling to just 2.5% in June — exactly in line with the National Bank of Poland’s inflation target.
Unfortunately, the restoration of the full 23% VAT rate on fuel at the beginning of July, combined with the current turmoil in the Middle East, will almost certainly worsen the inflation figures. Inflation in July is likely to rise above 3% again.
This would not necessarily trigger an immediate response from the National Bank of Poland, however, because such a reading would still remain within the permitted fluctuation band around the central bank’s inflation target.
Instead of introducing another costly subsidy programme, the Ministry of Energy may consider implementing a mechanism that would force petrol stations to change their pricing policies.
The aim would be to prevent retailers from raising prices immediately in response to movements on global commodity markets while encouraging them to introduce reductions more quickly when international conditions stabilise. Similar solutions have already been introduced in other countries.
For now, however, such measures remain a prospect for the future. The coming weeks at Polish petrol stations are likely to be dominated by efforts to keep fuel prices below the critical thresholds whose breach would hit the finances of households and businesses alike.
Author: Michał Stajniak, Deputy Director of the Analysis Department at XTB
