Global conflicts and fuel burden: Are higher taxes inevitable?

By Akosua O. Osei-Bonsu

Have you ever wondered how conflicts unfolding thousands of miles away can influence the price of fuel at your local petrol station? Global tensions in key oil‑producing regions may seem distant, but their effects on Ghana are immediate and tangible.

Rising fuel prices increase the cost of transportation and everyday goods, while placing additional pressure on businesses that rely heavily on energy to operate. These ripple effects can slow economic growth, strain household budgets, and shape the overall cost of living across the country.

Global tensions and Oil Price volatility

Ongoing conflicts in major oil‑producing regions, especially in the Middle East and Eastern Europe, continue to disrupt global crude oil supply. Current geopolitical tensions involve several key oil producers such as Iran, Iraq, Kuwait, the UAE, Bahrain, Syria, Yemen, and Russia, whose involvement in regional wars has intensified market uncertainty and contributed to rising fuel prices.

This matters because a significant share of global energy flows, 25–30% of the world’s oil supply and 20% of global LNG shipments passes through the Strait of Hormuz, a critical chokepoint currently affected by the conflict. Disruptions in this corridor have increased price volatility and raised the cost of imported petroleum products for countries like Ghana.

Additionally, the Russia–Ukraine war continues to destabilize global energy markets, as Russia, one of the world’s largest oil producers faces sanctions and export restrictions that further tighten global supply.

Ghana’s exposure to external shocks

Ghana is highly exposed to fluctuations in global oil markets due to its dependence on imported petroleum products. Any disruption in supply from these major oil-producing regions can quickly lead to higher import costs, which in turn increase domestic fuel prices. Given that much of Ghana’s energy infrastructure relies on refining and distributing these imported fuels, such shocks have a direct impact on consumers, transport, and businesses across the country.

Fuel Levies and Ghana’s Economic Shield

Ghana’s fuel prices are influenced by several levies, most notably the Energy Sector Levies Act (ESLA), which collects charges on petroleum products to help manage energy sector debts and stabilize supply. ESLA is made up of multiple components, including environmental levies, shortfall recovery levies, and other energy sector-related charges, all of which are embedded in the pump price.

These charges, combined with fluctuations in global oil prices, directly impact on consumers and businesses. To cushion the economy against price shocks, Ghana also relies on the Ghana Petroleum Fund (GPF), which saves a portion of petroleum revenues primarily through the Ghana Stabilization Fund for use during periods of high oil prices or supply shortfalls. While these measures provide temporary relief, prolonged global conflicts and sustained price increases, raise critical questions about the long-term sustainability of fuel pricing strategies and the country’s ability to maintain economic stability.

The hidden cost burden to consumers 

Rising global oil prices creates what can be described as a “hidden tax effect.” Even in the absence of new tax measures, any increase in global oil prices results in a higher overall cost to consumers, as existing levies continue to apply. In effect, consumers bear not only the rising cost of fuel but also the continued weight of existing levies, thereby increasing the overall financial burden.

Impact on businesses and households

Rising fuel prices affect more than just the cost at the pump, however, they ripple through the entire economy. Transportation costs for public transit increase, while electricity tariffs rise because much of Ghana’s power generation relies on crude oil. This can lead to load shedding and power outages, disrupting both daily life and business operations. Higher energy and transport costs push up the price of goods and services, resulting in higher operating costs for businesses and making food and other essentials more expensive for households.

Policy discussion

Policymakers may consider a combination of measures strategically deploying stabilization funds, adjusting levies temporarily, and improving energy efficiency through investments in cleaner and renewable energy sources. Such steps can help protect households and businesses, reduce dependence on crude oil, lower carbon emissions, and stabilize domestic energy costs over the long term, all while maintaining revenue for the energy sector.

To illustrate the impact of such measures, South Africa recently implemented a temporary reduction in its fuel levy in response to the sharp rise in global oil prices. The South African Finance Minister announced a R3.00 temporary reduction in the fuel levy for the month of April, introduced to cushion consumers from price hikes driven by the ongoing Middle East crisis.

While global conflicts remain outside Ghana’s control, their economic consequences are not. As the country continues to navigate rising fuel costs driven by external shocks, a careful review of fuel pricing mechanisms and levy structures may be essential. Such reforms could help strike a balance between safeguarding government revenue and protecting consumers from mounting financial pressure.

The author is an Associate (Tax), KPMG Ghana

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