Oil Is Falling, but Fuel Prices in Latvia Are Not: The Hormuz Crisis, Russia’s Diesel Ban and the 2027 Excise-Duty Risk

To a driver, the logic of fuel prices often appears simple.

When oil becomes cheaper on the global market, petrol and diesel at filling stations should also become cheaper.

However, in summer 2026, this logic works only partly.

The benchmark crude-oil price had fallen to around 68 US dollars per barrel at the beginning of July, but returned above 80 dollars after renewed tensions in the Middle East.

At the same time, wholesale petrol and diesel prices remained high even on days when crude oil became cheaper.

The reason is simple but frequently overlooked: drivers do not put crude oil into their vehicle’s fuel tank.

They buy a product that has been manufactured through a complex industrial process, transported, blended, stored, taxed and delivered through a retail network.

If there is enough crude oil in the world but not enough operational refineries, tankers, terminals or finished diesel fuel, prices at the pump may remain high even when oil prices fall.

The short conclusion: in summer 2026, the main problem is not only the availability of crude oil. The world is also short of certain finished petroleum products and stable refining capacity. Crude oil can therefore become cheaper while petrol and diesel prices in Latvia fall much more slowly or even continue to rise.

Fuel prices in Latvia on 23 July 2026

These are national average price indicators.

The price at a specific filling station may differ depending on the city, road location, fuel retailer, loyalty-card discount and local competition.

Comparison of the Baltic countries

A single week’s price table does not prove that fuel is always more expensive in one country.

It shows how differently the same global market crisis can affect three neighbouring countries with different tax policies, inventories, supply contracts and levels of retail competition.

Timeline of events in 2026

Why is the oil price not the same as the fuel price?

The filling-station price consists of several consecutive layers.

A change in crude-oil prices therefore does not automatically produce the same percentage change on the filling-station price board.

What does a 10-dollar change in the oil price mean?

One barrel of oil contains approximately 159 litres.

At an exchange rate of approximately 1.14 US dollars per euro, a 10-dollar increase in the price of a barrel mathematically corresponds to approximately 5.5 euro cents per litre of crude-oil equivalent.

However, one barrel does not produce 159 litres of vehicle fuel.

It is processed into petrol, diesel, aviation fuel, liquefied petroleum gases, fuel oil, petrochemical feedstocks and other products.

The final output also depends on the technology of the particular refinery and the proportion of products demanded by the market.

The Strait of Hormuz: the narrowest point in the global oil market

The Strait of Hormuz is a relatively narrow sea passage between Iran and Oman.

It connects the oil- and gas-exporting countries of the Persian Gulf with global shipping routes.

Before the 2026 conflict, approximately 20 million barrels of crude oil and refined petroleum products passed through the strait every day — around one fifth of global consumption.

When shipping was significantly restricted, the market lost more than crude oil.

Supplies of finished diesel, petrol, aviation fuel, liquefied petroleum gas and other products were also disrupted.

Why did oil prices not rise even further?

In theory, a disruption of this scale could have caused an even larger price surge.

Several factors softened the market shock.

However, reserves cannot solve the problem indefinitely.

A reserve buys governments time to restore normal supplies; it is not a permanent new source of oil.

The major paradox: more crude oil, but continued fuel shortages

In June, crude-oil flows from the Persian Gulf began recovering more quickly than exports of finished petroleum products.

Tankers carried crude oil out of the region, but several export refineries had not yet returned to full operation.

The IEA estimated that global refinery throughput in June remained approximately six million barrels per day below the level recorded a year earlier.

As a result, refining margins reached their highest level in approximately four years at the beginning of July.

The figures in this example are illustrative, but the mechanism is the same as the one currently visible in the global market.

What is the refining margin or crack spread?

In simple terms, the refining margin is the difference between the cost of crude oil and the market value of the products manufactured from it.

When crude oil is relatively cheap but diesel is in strong demand and short supply, the diesel refining margin increases.

Why does Russia’s diesel-export ban also affect Latvia?

European Union sanctions significantly restrict direct imports of Russian petroleum products.

However, the diesel market is global.

When a major exporter stops supplying Brazil, Türkiye, African countries or other markets, those countries begin purchasing fuel from producers that also supply Europe.

This increases competition for products from refineries in the United States, India, the Middle East and Europe.

Russia banned diesel exports on 8 July 2026 after repeated Ukrainian drone attacks reduced refining capacity and contributed to domestic fuel shortages.

Reuters data indicated that Russian diesel and gasoil exports had fallen from an average of approximately 817,000 barrels per day in 2025 to around 234,000 barrels per day at the beginning of July 2026.

Do the new EU sanctions increase fuel prices?

The main purpose of sanctions is not to increase fuel prices but to limit Russia’s ability to finance the war.

In the short term, however, every new sanctions package may reorganise shipping routes and increase market inefficiency.

The 21st sanctions package adopted on 23 July 2026:

Over a longer period, the market may adapt through new suppliers and routes.

In the short term, reorganisation often means longer journeys, higher insurance costs and greater price volatility.

OPEC+ is increasing production, so why are prices not falling immediately?

Seven OPEC+ countries agreed on 5 July to increase production by 188,000 barrels per day in August 2026.

This sends a signal to the market that producers are willing to gradually restore part of the output they had previously reduced.

However, 188,000 barrels per day is a small volume compared with the disruption of several million barrels per day caused by the Hormuz crisis in 2026.

In addition, the extra crude oil must still:

An OPEC+ decision may therefore reduce expectations for future crude-oil prices without necessarily solving today’s diesel shortage.

The euro exchange rate: the invisible fuel tax

Oil is predominantly quoted in US dollars on the international market.

Latvian retailers and consumers pay in euros.

When the euro weakens against the dollar, the same oil cargo becomes more expensive when expressed in euros.

The European Central Bank reference rate was approximately 1.1646 US dollars per euro on 1 June 2026 and approximately 1.1389 dollars on 27 July.

This means the euro had weakened by approximately 2.2% against the dollar during that period.

Latvia’s diesel-excise cushion

At the beginning of 2026, Latvia’s standard diesel-excise rate was scheduled to be EUR 467 per 1,000 litres.

Because of the energy crisis, a temporary rate of EUR 396 per 1,000 litres applies from 1 April until 31 December.

Because VAT is also applied to excise duty, the full mathematical difference in the retail price may reach approximately 8.6 cents per litre if all other price components remain unchanged and the reduction is passed on fully to the consumer.

For a 50-litre fill-up, this equals approximately EUR 4.30.

The tax reduction does not lower the global diesel price, but it acts as a government-created cushion for Latvian consumers.

The hidden risk on 1 January 2027

The current legislation provides for the temporary diesel-excise rate only until 31 December 2026.

If the law is not extended and the standard rate returns, diesel prices may increase even if nothing important changes in the global market.

The actual price may change by less or more because crude-oil prices, diesel wholesale prices, the euro exchange rate and retailer costs will change at the same time.

Nevertheless, the expiry of the temporary tax rate is one of the most important risks to Latvian diesel prices at the beginning of 2027.

Why has petrol not received the same excise reduction?

The temporary reduction applies to diesel.

The excise-duty rate for unleaded petrol in 2026 is EUR 555 per 1,000 litres.

This means petrol-price increases are not currently offset by the same type of tax cushion.

An increase in global petrol refining margins may therefore appear more quickly and directly in Latvian prices.

Is Latvia at risk of a fuel shortage?

On 24 July 2026, experts from the European Commission, EU countries, the IEA, NATO and the industry concluded that the European Union was not facing an immediate shortage of oil or finished petroleum products.

Demand can be met through:

However, availability and affordability are not the same thing.

There may be enough fuel for everyone, but purchasing it from a more distant supplier, using a more expensive tanker and paying higher insurance costs may make it considerably more expensive.

Why do prices rise quickly but fall more slowly?

Drivers often notice that fuel prices rise very quickly after negative news, while reductions are delayed after crude-oil prices fall.

There may be several explanations.

This does not mean prices are always reduced fairly or at the same speed.

However, a delay in retail-price reductions does not by itself prove collusion or an unjustified margin.

Four possible price scenarios for Latvia

What does the IEA forecast?

In its July 2026 report, the IEA forecast that global oil demand could decline by approximately one million barrels per day over the course of 2026.

Demand is forecast to recover by approximately two million barrels per day in 2027.

If shipping and production normalise, global oil supply could increase much faster than demand in 2027.

This could create a potential crude-oil surplus and downward pressure on prices.

Which indicators should you follow instead of only the Brent price?

How much do price changes actually cost a driver?

This demonstrates why it is not economical to drive tens of kilometres merely to obtain a one-cent discount.

However, a regular five- or ten-cent difference between nearby stations may produce meaningful savings over a year.

Example of current driving costs

The calculation uses the average Latvian prices recorded on 23 July 2026.

Actual costs depend on the vehicle, route, speed, temperature, traffic and filling location.

Which saves more — a cheaper station or lower consumption?

At a fuel price of approximately EUR 1.80 per litre, reducing consumption by 0.5 litres per 100 kilometres saves approximately EUR 135 over 15,000 kilometres per year.

To achieve the same saving solely by choosing a cheaper station, a driver covering 15,000 kilometres at a consumption of seven litres per 100 kilometres would need a consistent price difference of approximately 13 cents per litre.

Common myths about the current fuel market

Mini test: do you understand the 2026 fuel-price paradox?

Correct answers: 1 — yes; 2 — yes; 3 — yes; 4 — no; 5 — yes; 6 — yes; 7 — yes; 8 — no; 9 — no; 10 — yes.

A practical fuel-price formula for 2026

Conclusion: drivers buy safely delivered finished fuel, not crude oil

The global fuel market in 2026 clearly demonstrates why the filling-station price is not simply a reflection of the crude-oil price.

Disruption in the Strait of Hormuz reduced flows of both crude oil and finished petroleum products.

When some crude-oil exports resumed, refineries and refined-product supplies recovered much more slowly.

This created a situation in which crude-oil prices fell sharply while petrol and diesel refining margins remained exceptionally high.

Russia’s diesel-export ban further reduced the supply of refined products on the global market.

An OPEC+ production increase may support the crude-oil market, but it cannot replace damaged refineries or missing diesel supplies in a single day.

Latvian drivers are currently being partly protected by the temporary diesel-excise rate.

However, this support mechanism expires on 31 December 2026 unless an extension is adopted.

The most important question for the coming months is therefore not only whether Brent crude costs 70, 80 or 90 dollars.

Drivers should also follow whether refineries return to operation, whether tanker traffic through the Strait of Hormuz recovers, whether Russia resumes diesel exports, how the euro exchange rate changes and what Latvia decides to do with the temporary excise-duty reduction.

The main conclusion for Latvian drivers: cheaper crude oil is good news, but it does not yet mean cheap fuel. For filling-station prices to fall meaningfully, refining, finished-product supplies, secure shipping and competition in the wholesale market must recover at the same time.

Official and data sources