Kuwait’s diesel policy shift yields KD 250 million in savings

• Kuwait’s diesel consumption in the last fiscal year reached approximately 2.44 billion liters, marking a 4.3 percent decline from the previous year’s 2.55 billion liters.

• The diesel price liberalization plan will be implemented gradually, affecting both individual consumers and commercial diesel users, who account for approximately 60 percent of total local sales.

• The Subsidies Committee, in coordination with the Kuwait Petroleum Corporation, will set prices, allocate subsidies to key economic sectors, and strengthen market oversight to regulate the subsidy system and local pricing.

As part of government efforts to enhance the impact of state-funded subsidies for essential commodities, diesel price liberalization and its sale at global rates will be accompanied by alternative subsidies for domestic production sectors to support affected businesses and boost their activity, Al Rai newspaper reported.

According to data from the Kuwait Petroleum Corporation (KPC), Kuwait’s diesel consumption in the last fiscal year reached approximately 2.44 billion liters, marking a 4.3 percent decline from the previous year’s 2.55 billion liters.

Sources expect the general budget to save between KD 200 million and KD 250 million annually from the liberalization of diesel prices.

They stated that as part of the government’s efforts to reform the financial support system with sustainable solutions for rational subsidies, studies conducted on the matter have concluded that diesel prices should be gradually liberalized.

This process should be accompanied by compensation for subsidized entities linked to this product, with an equivalent subsidy allocated to producers of national goods. The subsidy is expected to be directed toward compensating producers and encouraging increased production.

Sources indicated that efforts are underway to determine which products will be eligible for direct subsidies in the future as an alternative to diesel subsidies, along with the specific subsidy amounts for each commodity. They also noted that discussions are ongoing regarding whether the subsidies will cover all large, medium, and small industries or be limited to specific sectors and values, with final details still being refined.

The sources explained that the government’s targeted support aims to provide alternative subsidies to diesel, directed toward productive sectors or essential services, with anticipated positive effects on the economy and financial landscape.

This policy is also expected to encourage the growth and development of national products while strengthening their market position. They added that this could be achieved by partially covering production costs for suppliers, offering discounts that generate additional financial benefits for eligible product owners, and implementing government initiatives to boost consumer demand for these goods.

Added value

Sources noted that by replacing diesel subsidies with national product subsidies, the government has achieved a dual benefit. First, it has eliminated the financial burden of traditional, non-productive subsidies within their set limits, in favor of a system that adds value to the economy and strengthens national industries. Second, it has helped curb the smuggling of subsidized diesel abroad—one of the primary reasons necessitating the liberalization of diesel prices—since some beneficiaries have misused the product and smuggled large quantities for personal gain.

They stated that this approach will enable authorities to better regulate the subsidy system, with market regulators expected to tighten control to maintain local pricing, particularly for diesel-related services such as transportation and consumer goods. They emphasized that all regulatory bodies will activate their oversight mechanisms to ensure the effective implementation of this policy.

Cost considerations

Sources revealed that the diesel price liberalization plan will be implemented gradually, affecting both individual consumers and commercial diesel users, who account for approximately 60 percent of total local sales. They indicated that pricing and future adjustments will be based on local cost assessments in coordination with the Kuwait Petroleum Corporation, while the subsidies committee will review prices quarterly, following the same mechanism used for gasoline fuel products.

They also pointed out that maintaining diesel subsidies under the current system contradicts the government’s financial reform objectives.

Additionally, the existing mechanism fails to achieve social justice and places unnecessary financial strain on the public budget. Redirecting these subsidies toward eligible national goods is expected to enhance economic efficiency and incentivize companies to reduce costs.