Diesel Price Fluctuations in Herat, Afghanistan
Analysis of OilLoad Group’s Supply from Kurdistan, Iraq (Jan–June 2024)
The diesel market in Herat, Afghanistan, has experienced noticeable price volatility from January to June 2024, as shown by the supply from OilLoad Group, based in Kurdistan, Iraq. This period presents key insights into the trends, drivers, and implications for Afghanistan’s oil market.
Price Overview and Trends
The diesel prices in Herat from OilLoad Group began the year at $865/mt on January 1, 2024. From there, the market experienced a general upward trajectory, with slight fluctuations throughout the first quarter, peaking at $910/mt on several occasions in January and February.
After March, prices saw a consistent rise, particularly during April, when the prices climbed to $930/mt by mid-April, the highest in this period. However, toward the end of April and into May, prices dipped again, reaching as low as $860/mt by early May.
This dip was followed by a recovery in June, where prices stabilized and rose again to end the period at $910/mt on June 30, 2024, similar to the peak earlier in the year.
Key Factors Behind Price Movements
Global Oil Market Conditions: The global oil market plays a significant role in diesel price volatility in Herat. Price spikes often correspond to rising crude oil prices driven by geopolitical events, production cuts, or supply chain disruptions. Given Iraq's reliance on international oil trade and its role as a major oil exporter, fluctuations in global oil prices directly affect the pricing of refined products like diesel.
Supply Chain Disruptions: The region, particularly Kurdistan, Iraq, has seen its fair share of security and geopolitical issues. Any disruptions in supply routes from Iraq to Afghanistan, including border regulations or infrastructural challenges, can affect the availability of diesel, leading to price increases. This might explain the peaks in diesel prices, such as the surge to $930/mt in April 2024.
Seasonal Demand Fluctuations: Diesel demand in Afghanistan tends to rise during specific seasons, particularly in winter and spring when agricultural and transportation activities peak. This could explain the steady rise in prices in the first quarter of the year, as well as the dips in late spring (May), when demand typically reduces before the summer harvest.
Currency Exchange Rates: The value of the Afghan currency (AFN) against the US dollar also impacts diesel pricing. As Afghanistan purchases fuel in dollars, any depreciation in the Afghan currency could make imports more expensive, translating to higher retail prices in local markets. Currency fluctuations often correlate with periods of political instability or changes in foreign exchange reserves.
Market Speculation and Trader Behavior: In many regional oil markets, speculative buying and hoarding can cause temporary price spikes. Traders, anticipating future supply chain problems or currency depreciation, might buy and store large quantities of diesel, limiting the available supply and driving prices up. The repeated occurrence of $910/mt pricing through February and June may be indicative of such behavior.
Impact on the Local Economy
The fluctuations in diesel prices have a far-reaching impact on the Afghan economy, particularly in provinces like Herat, where agriculture, transport, and construction heavily rely on diesel. A rise in diesel prices typically leads to:
Increased Transportation Costs: Herat, being a trade hub near the border of Iran and Turkmenistan, depends on long-haul trucks to distribute goods across the country. Diesel price hikes increase transportation costs, which are eventually passed down to consumers in the form of higher prices for goods and services.
Rising Agricultural Costs: Diesel is essential for powering agricultural machinery and irrigation systems. Any increase in diesel prices leads to higher operational costs for farmers, affecting food production and potentially driving inflation in local markets.
Inflationary Pressure: With the price of diesel rising, inflation across other goods and services follows. This has a detrimental effect on consumer purchasing power, especially for low-income households that rely on affordable fuel for basic needs like heating and electricity generation.
Future Outlook
Given the cyclical nature of global oil prices and regional geopolitical uncertainties, the diesel market in Herat is likely to remain volatile. Factors such as international agreements on oil production cuts (for example, by OPEC+), future developments in the Kurdistan region, and Afghanistan’s own economic policies will play a pivotal role in shaping the diesel price trend for the second half of 2024.
Moreover, the Afghan government’s ability to stabilize the exchange rate and diversify energy imports could help buffer the impact of such fluctuations. The ongoing recovery of the global economy post-COVID-19 and regional dynamics in the Middle East and Central Asia will also determine the extent to which fuel prices fluctuate in the coming months.