Israel Grapples with Rising Fuel Costs and Shekel Volatility: What’s Next for Consumers and Businesses?
Israel is facing a confluence of economic pressures, with soaring global oil prices and a weakening shekel threatening to drive up costs for both consumers and businesses. The Finance Ministry is actively considering measures to mitigate the impact, including potential cuts to fuel taxes and a controversial proposal to allow tax payments in U.S. Dollars.
The Fuel Tax Debate: A Potential Lifeline for Consumers
With global oil prices surging above $100 a barrel – a significant jump from $68 before recent geopolitical tensions – Israelis are bracing for potentially record-high gasoline prices. Without intervention, 95-octane gasoline could exceed NIS 8 per liter for the first time in 14 years. To prevent this, officials are discussing a fuel tax reduction of at least 50 agorot per liter, potentially taking effect around Passover.
This isn’t the first time Israel has considered such measures. Similar tax reductions were implemented in 2022 by then-Finance Minister Avigdor Liberman and continued, at a reduced level, throughout 2023 before being canceled in January 2024. Prime Minister Benjamin Netanyahu reportedly supports a temporary reduction now.
Pro Tip: Keep an eye on global oil market trends. Fluctuations in oil prices are a primary driver of fuel costs in Israel.
Dollar-Denominated Taxes: A Bold Proposal for Exporters
Beyond fuel taxes, a more radical proposal is gaining traction: allowing manufacturers and exporters to pay their taxes in U.S. Dollars instead of shekels. This request, spearheaded by the Manufacturers Association, stems from concerns about the shekel’s recent weakening against the dollar (a rise of 2%-3% since the start of the recent conflict).
The argument is that exporters, who typically earn revenue in dollars, are facing a disadvantage when forced to convert those earnings to shekels to pay taxes. This creates artificial demand for the shekel and contributes to currency volatility. Manufacturers Association President Avraham Novogrotzky argues this system “harms industry, increases currency volatility and undermines the competitiveness of the entire economy.”
The Tax Authority has not yet dismissed the proposal, and it draws parallels to tax policies in countries like Singapore and Ireland. Past instances involving deals with Mobileye and Wiz have also involved direct tax payments in foreign currency.
The Broader Economic Impact: Inflation and Interest Rates
Rising fuel prices have a cascading effect on the Israeli economy, impacting transportation, manufacturing, shipping, aviation, and even the cost of electricity and water. A significant increase in fuel prices could push inflation up by at least one percentage point, potentially prompting the Bank of Israel to raise interest rates further.
Did you know? Fuel prices in the U.S. And parts of Europe and East Asia have already increased by 10% to 30%.
FAQ
Q: What is an agorot?
A: An agorot is a subunit of the Israeli shekel. We find 100 agorot in one shekel.
Q: Why are fuel prices rising globally?
A: Primarily due to increased geopolitical instability and rising demand.
Q: What is the current price of 95-octane gasoline in Israel?
A: As of March 1, 2026, the price is NIS 7.02 per liter. Without intervention, it could rise to over NIS 8 per liter.
Q: What is Section 130A of the Income Tax Ordinance?
A: It relates to reporting in dollars under international accounting standards.
Q: Could paying taxes in dollars stabilize the shekel?
A: It’s a debated point. Proponents believe it could reduce artificial demand for the shekel, while others are concerned about the broader implications for monetary policy.
Stay informed about these developments as they unfold. The decisions made in the coming days will have a significant impact on the financial well-being of Israelis.
Explore More: Read our latest coverage on the Israeli economy
