The formation of international energy prices and their impact on the Cypriot economy are the focus of an analysis by the Cyprus Institute, under the scientific supervision of Dr. Theodoros Zachariadis. The report presents the real data shaping the current energy crisis, examining the burden across income groups and the resilience of different business sectors.

Despite the recent rise in prices, historical data shows that the market has experienced higher cost levels in the past when adjusted for inflation. In the summer of 2008, the nominal price exceeded 147 dollars per barrel, which corresponds to over 200 dollars in today’s prices. Similarly, prices between 2011 and 2014, which hovered around 100 dollars, equate to approximately 140 dollars in current purchasing value. The study notes that retail prices in Cyprus are not determined solely by crude oil, but are also influenced by refining and transportation costs, company profit margins, and existing taxes.

Data from the 2023–2024 Household Budget Survey shows that energy spending functions in a regressive manner. The poorest 10 percent of households spend 12.8 percent of their income on energy, while the wealthiest 10 percent spend only 4.3 percent, despite paying higher amounts in absolute terms, at 6,074 euros compared to 1,609 euros annually. The greatest disparity is observed in electricity, where the share of income spent by lower-income households is nearly four times higher than that of wealthier households.

The Cyprus Institute’s analysis questions the effectiveness of across-the-board reductions in excise duties and VAT. Estimates suggest that reducing fuel taxes saves the poorest 20 percent of households around 40 to 45 euros annually, while the benefit for the wealthiest 20 percent ranges from 140 to 175 euros. Similarly, reducing VAT on electricity benefits wealthier households by roughly double the amount, at 70 to 95 euros compared to 35 to 40 euros for lower-income households. The study highlights that such measures do not encourage energy conservation and instead proposes direct income support based on socioeconomic criteria as a more effective alternative.

In the business sector, most industries in Cyprus report energy costs that do not exceed 10 percent of their total operating expenses. However, certain sectors are significantly more exposed. Water supply services, particularly desalination, see energy costs approaching 40 percent of total expenses, mainly due to electricity consumption. Other vulnerable sectors include the production of non-metallic minerals, such as cement and ceramics, as well as printing. To address energy costs in the commercial and industrial sectors, the study proposes implementing a cap on electricity prices for a portion of consumption, for example 70 to 80 percent, in order to maintain incentives for energy savings on excess usage.

Source: Brief