(Bloomberg) -- Hungarian Prime Minister Viktor Orban’s government scrapped a controversial fuel price cap after a gasoline shortage swept the country.
The cap that had set gasoline costs at 480 forint ($1.2) per liter, by far the cheapest in the European Union, ceased at 11 p.m. local time on Tuesday, Cabinet Minister Gergely Gulyas said at a late-night briefing in Budapest. He blamed EU sanctions on Russian oil for roiling supplies.
Initially hailed by Orban as a way to shield consumers from a jump in energy costs in the wake of the Russia-Ukraine war, the cap became unsustainable after a surge in demand, a drop in supply and maintenance at Hungary’s only refinery that had almost halved domestic output.
Pump stations in Hungary this week offered contrasting images: one with snaking lines of motorists hoping to put fuel in the tank and many others that were cordoned off after running out of gasoline.
The situation had become “chaotic” and prolonging it threatened the country’s energy security, Zsolt Hernadi, the chairman and chief executive officer of energy company and refiner Mol Nyrt., said at the same briefing.
“It’s not good when something is expensive,” Hernadi said. “The only thing worse is when we don’t have something at all.”
Hungary must now “restore confidence” among oil importers, who shunned the country over the past year to avoid taking losses, Hernadi said. He said “market stability,” including refilling reserves, would take up to two months.
Hungary must “immediately” end its regime of price caps as they go against “the basic rules of the economy,” central bank Governor Gyorgy Matolcsy told lawmakers on Monday.
Read more: Hungary Becomes EU Inflation Hotspot as Food Prices Spiral
He said price caps, far from slowing inflation, added as much as 4 percentage points to headline data, making government estimates of a peak of 25% inflation sound optimistic. Price growth may average 15% to 18% next year, the highest in the EU, Matolcsy said.
Orban had hailed the cap as the result of his tough negotiations with the EU that exempted Hungary from the bloc’s ban on importing Russian oil.
He subsequently instituted caps across the economy, including on mortgages, some corporate loans and even food staples. Hungary currently has by far the highest food-price growth in the EU.
(Updates with Mol CEO comments from fifth paragraph.)
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