Croatia's government on Monday decided to cap retail margins on fuel also impose a "temporary cut" on excise tax included in the price of diesel and gasoline, in response to a fresh surge in oil prices.

As of Tuesday, when the new regulation comes into force, the price of diesel will be 12.53 kuna (€1.66) per liter and gasoline will cost 12.19 (€1.61) per liter. Without the government’s intervention, Prime Minister Plenkovic calculated, the prices would have ended up around 9 percent higher than that.

The government had earlier tried to respond to volatility in global markets by capping the retail prices of fuel, but this time they opted to intervene in the pricing structure. According to some estimates, the wholesale price accounts for 30-35 percent of the retail price, with retail margins amounting to 5-10 percent. Around 60 percent of the retail price is charged by the government via excise duties and VAT.

Since October last year, the government resorted to capping prices three times, and the last cap was introduced on February 7, and was due to expire by Tuesday, March 8. However, capping retail prices as the global price of crude oil has exploded to 13-year highs means that many retailers might be forced into bankruptcy.

“At midnight today, the capping of fuel prices expires and that measure will not be extended as in that scenario many distributors would have faced losses, and consequently many gas stations would have to close,” Plenkovic said on Monday at a cabinet meeting. “Therefore we opted for capping the retail margins on diesel and gasoline fuels to 0.75 kuna per liter (€0.10),” he said, and also announced lower excise rates.

“This is our contribution to soften the impact (of rising fuel prices) of the standard of living, and excise cuts will cost the budget 150 million kuna (€20 million) in lost revenues,” Plenkovic said.