The consequences of the war in Iran have gone beyond the battlefield, immediately becoming a shock factor for global energy markets.
During more than a month of fierce hostilities – with US and Israeli attacks on one side and Iranian retaliation on the other – the price of Brent crude oil, the global benchmark, has risen by almost 50 percent at the height of the crisis.
This growth, driven by uncertainties around global supply, has been quickly reflected in European energy markets – all the way to Kosovo.
Without its own oil refinery, Kosovo is completely dependent on imports and, consequently, directly exposed to price fluctuations in international markets.
From the start of the conflict on February 28 to mid-April, oil prices in the country have increased by more than 50 cents per liter.
In an attempt to control the market, the Ministry of Industry, Entrepreneurship and Trade (MINT) set a maximum trade margin for petroleum products, thus limiting the profit margin for sellers, and then replaced it with ceiling prices.
But the effect of this measure remains controversial, especially for businesses that directly depend on imports and global supply chains. Some of them report that it is not enough to offset the increase in production costs.
In Ferizaj – in the southeastern part of Kosovo – the cleaning products factory “Cadi Cleaning” is a direct example of this pressure. Within a few weeks, the costs of its raw materials, which are imported from abroad, have increased drastically.
Its owner, Sadri Gashi, says that the basis of their production – plastic granulate – is closely linked to oil, as it comes from refining. As a result, any movement in the price of oil translates almost immediately into increased costs for his factory.
"Mainly, the raw material here is almost oil. The granulate contains oil, meaning from the refinery, so here there is an extremely high price increase, around 100% is the price increase," Gashi says for Radio Free Europe's Expose program.
In addition to the increase in the price of raw materials, transportation and supply costs have also increased, further weighing on the company's balance sheet. Currently, the Gashi factory, with 75 employees and about 70 percent of its production oriented towards export, is operating with previously secured stocks, while new supplies come at significantly higher prices.
"We have dealt with the new prices a little, with the hope that the market will be regulated and stabilized, because with these prices I don't know how we will be competitive in international markets," says Gashi.
This uncertainty does not stop only with exports, but gradually shifts to the domestic market, where businesses are faced with the choice between reducing profits or increasing prices for consumers. In both cases, the economic pressure ends up on the citizen.
Data from the Kosovo Agency of Statistics show that consumer prices continued to rise in March, confirming the inflation trend in the country. According to the Harmonized Index of Consumer Prices, monthly inflation reached 1.5 percent compared to February, while the annual rate was 6.7 percent, compared to March last year.
This wave of price increases comes on a terrain already tired from the record inflation of the early 2020s, which was driven by the COVID-19 pandemic, and then by the war in Ukraine.
Lulzim Rafuna, president of the Kosovo Chamber of Commerce, says that oil prices are one of the main drivers of inflation in the country.
In an economy like Kosovo, almost entirely dependent on foreign markets – with over 7 billion euros in imports and less than 1 billion euros in exports last year, he emphasizes that fuels constitute a basic cost for any business, and their rise in price is directly reflected in transportation, production and final prices.
In his words, Kosovo is also importing the consequences of the recent crisis in the Middle East.
"The price of petroleum products has not only increased in Kosovo, but also in Europe and around the world. In the countries where the raw material is produced, operating costs directly affect the increase in its price. Then, our producer buys that raw material and imports it at the new price set by the producer in that country," Rafuna tells Exposena.
According to him, the sector most affected by the rise in the price of petroleum products is manufacturing. He warns that rising costs weaken the competitiveness of local businesses in the face of imports, leading to a decline in demand for local products and, subsequently, the risk of production contraction, business closures and job losses.
In this context, Rafuna emphasizes the need for more active government intervention to protect local production - he says that ceiling prices for petroleum products are not enough.
"We have been requesting since a month ago, when there was a tendency for prices to increase, that measures be taken: either to reduce the excise tax rate, or to reduce the Value Added Tax rate, or even to completely eliminate VAT. But no action has been taken, with the justification that it damages the state budget," says Rafuna.
The excise tax on petroleum products in Kosovo is 36 cents per liter, while VAT is calculated at 18 percent of the final price.
In the region, several countries have intervened directly to mitigate price increases. North Macedonia has temporarily reduced VAT on fuels, while Serbia has reduced excise duty and temporarily banned their export, to ensure domestic supply and curb price increases.
Meanwhile, major European economies, such as Germany, have also intervened by reducing taxes on oil and gasoline – in some cases by as much as 17 cents per liter, for limited periods.
Government institutions in Kosovo say that the impact of rising oil prices on inflation is being managed through targeted measures and limited market interventions.
In response to Radio Free Europe, the Ministry of Industry, Entrepreneurship and Trade says that the focus is on the most sensitive sectors, such as agriculture and transport.
For these categories, according to the ministry, direct support is foreseen, including the review of subsidy schemes and the continuation of excise duty coverage for agricultural fuels, as a practice that has been applied for years.
As for consumers, institutions are preparing a draft law that aims to create intervention mechanisms in the event of market destabilization, including the possibility of setting profit margins or price ceilings for basic products.
"This draft law is currently being treated as a priority in the Kosovo Assembly - which reflects the institutional commitment to creating a stable legal basis for rapid and effective interventions in consumer protection and the fair functioning of the market," say MINT.
In a statement to journalists last week, the Minister of Industry, Mimoza Kusari Lila, assessed that there is no need for additional measures, such as reducing excise duty or abolishing VAT, emphasizing that the price increase has not been extreme, despite movements on international stock exchanges.
The International Monetary Fund, on the other hand, issued a grim forecast. The Washington-based financial institution warned that the global economy could be heading towards recession if tensions between the US, Israel and Iran continue and energy prices remain high.
in report The IMF's "World Economic Outlook" estimated that, in a negative scenario - with sustained increases in oil, gas and food prices - global growth could fall below 2 percent in 2026.
The IMF did not specifically mention Kosovo, but emphasized that the slowdown in growth and rising inflation are expected to be particularly pronounced in emerging economies, which includes Kosovo.
The country ranks among the poorest economies in Europe when measured by gross domestic product per capita. Its economic structure continues to rely on imports, remittances, and consumption, while the manufacturing sector is relatively weak.
In these circumstances, Gashi remains awaiting market stabilization - otherwise, he warns of price increases for his products by the end of April.
"I hope this situation doesn't continue, because if it continues, it will get worse. I don't know. If it continues, it will continue for everyone... but I hope it gets fixed," he says.
And, as international analyses warn, even if the conflict ends quickly, the energy market will not immediately return to normal, as supply shortages and uncertainty are expected to continue for months, if not years.
"The end of cheap oil does not mean the end of its use. It means higher costs in everyday life," the medium writes. The Conversation.
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