On Deficit of Gasoline and the Impotence of the Cabinet

The deficit of the most popular brand of gasoline (92, 93) and its growing retail prices in Kazakhstan have caused a vivid discussion between the government agencies and the citizens outraged to the extreme by the lines at gas stations and the prices for the product. Moreover, the citizens’ resentment of the situation has led to some dismissals in the government and the KazMunayGaz national company which is not usual given the country’s current regime.  

Note that Prime-Minister Bakytzhan Sagintayev dismissed KazMunayGaz President Daniyar Berlibayev for the “improper execution of his duties”, submitted for the presidential consideration a reprimand to Minister of Energy Kanat Bozumbayev (which was signed by Nazarbayev), fired Vice-Minister Aset Magauov.

However, hunting for the scapegoats will not solve the problem.

The problem is that, from the standpoint of the market practice, everything happening today in the Kazakh domestic fuel market is inevitable, logical, and right. Satisfying consumer demand in the conditions of a domestic production deficit depends on the two factors, the import, and the level of retail prices. If enough product is imported, the market level of the prices will fluctuate around the marks that make the import profitable. If not, the prices rise higher.

The state of Kazakhstan has long been in control of the fuel retail prices. The Kazakhs have become accustomed to the idea that the latter are significantly lower in their country than in the neighboring Russia (not to mention the far-abroad countries). And even though the government have already abandoned the retail price ceiling regime for the most popular brands (92, 93), de-facto it is still in operation thanks to the informal pressure from the local authorities and the mentality of both the sellers and the buyers of the product.

Judging from the official explanations, this autumn, they have not imported enough fuel from Russia to satisfy the demand of the Kazakhstan market. As a result, Kazakhstan has a fuel deficit in many regions of the country. This has led to limiting its sale, forming lines at gas stations, and price growing at certain outlets. Besides, small gas stations want to earn some extra money out of the situation (it is understandable – timing is everything).

However, according to the normal market practice, a product deficit and the price growth that accompanies it lead to evening the product supply and the consumer demand. This is how things work in the countries with the normal market economy. Unfortunately, in Kazakhstan, elevating the retail prices to at least the Russian level will cause a big scandal and a mass scale consumer resentment even though such a development would be economically right since the two neighboring states have created a unified economic space.

For this reason, we are skeptical as to the promises given by the government and the Ministry of Energy that they will solve the problem and amend the situation.

Earlier, the Kazakhstan authorities were forced to abandoned regulating the retail fuel prices for the most popular brands because they were no longer able to ensure the price ceiling by the means of putting the administrative pressure on the domestic market.

Therefore, the inflation level in Kazakhstan will rise once again and, since everyone uses the gasoline, a new inflation cycle will start in the country. No one can predict how it will end given that the national currency will be weakening as well.


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