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(Bloomberg) — Turkey is assessing whether to revive a fuel tax mechanism aimed at cushioning consumers from rising oil prices as war in Iran drives up crude, according to people familiar with the matter. 

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The Treasury and Finance Ministry is assessing potential revenue losses and the budget impact of reviving the so-called escalator system, the people said, speaking on condition of anonymity as deliberations continue. A decision is expected later this week, they said. 

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The ministry declined to comment.

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Global benchmark Brent rose above $80 a barrel after spiking about 7% on Monday. The gains followed strikes by the US and Israel on Iran, which prompted retaliatory attacks across the region and fueled concerns about supply disruptions.

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“We are working to limit the inflationary impact of rising oil prices caused by geopolitical developments,” Treasury and Finance Minister Mehmet Simsek said in a post on X Tuesday.

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In Turkey, pump prices are calculated by adding a special consumption tax, value-added tax and distribution margins to the refinery price. As oil prices rise, retail prices automatically increase.

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Under the escalator system, first introduced in 2018 after a currency crisis, the government cuts the special consumption tax to cushion consumers from price spikes, sacrificing tax revenue in the process. The mechanism was scrapped in 2022.

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Rising energy costs risk adding to Turkey’s inflation pressures as the country relies heavily on energy imports. Annual inflation in February climbed to 31.5% from 30.7% the prior month. Analysts now expect monthly inflation at around 2.5% in March.

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—With assistance from Patrick Sykes.

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