Government adjusts fuel pricing formulas as domestic gas becomes the costliest subsidy.

A dramatic drop in diesel spending

Ecuador’s fuel subsidy structure will undergo one of the sharpest shifts in recent memory in 2026, with the Ministry of Economy and Finance projecting diesel support to fall from roughly $1.2 billion to just $191 million. The recalibration comes after the government eliminated the automotive diesel subsidy in September 2025, ending years of artificially low prices for transport fleets and private drivers. The change pushed diesel from $1.80 to $2.80 per gallon overnight, setting the stage for a drastically reduced state obligation next year.

According to the 2026 Pro Forma Budget submitted to the National Assembly on October 31st, total subsidies will amount to $6.928 billion—equivalent to 15% of all government spending. The number marks a $987 million decrease compared to 2025, when subsidies represented one of the largest pressures on public finances. Officials describe the adjustment as both a savings mechanism and a structural response to long-held distortions in fuel pricing.

Gasoline formulas tighten fiscal pressure

Gasoline subsidies are also dropping sharply due to a series of pricing changes rolled out since mid-2024. A banded pricing system—adjusted monthly based on international oil prices—reduced the cost of maintaining low-octane fuels starting in June of that year. Further modifications introduced on August 12, 2025, incorporated new components aimed at aligning Ecuador’s gasoline prices more closely with global market behavior.

These changes caused the gasoline subsidy to shrink to an estimated $41 million for 2025—just 4% of what the government spends on petroleum product subsidies and 76% lower than the previous year. Ministry analysts say the adjustments narrow the gap between production costs and retail prices, reflecting the administration’s broader effort to curb the fiscal impact of fuel support while still protecting households from sudden swings in global markets.

Domestic gas becomes the largest subsidy

The elimination of diesel support for vehicles redirected attention to the country’s long-standing dependence on Liquefied Petroleum Gas (LPG) for home use. As diesel spending collapses, LPG rises to become the single largest fuel subsidy, accounting for a projected $722 million in 2025 and a similarly heavy burden heading into 2026.

Despite ongoing fiscal tightening, the government intends to maintain the domestic gas cylinder price at $1.65—a rate it describes as essential for social protection. LPG accounts for 59% of all fuel subsidies by sector, far surpassing gasoline or diesel, a reflection of the widespread use of gas cylinders in Ecuadorian households for cooking and heating.

Electricity sector still heavily dependent on fuel support

The electricity sector continues to represent the second-largest consumer of subsidies, receiving about 34% of the fuel allocation. The country’s reliance on thermal generation—including diesel-based systems that operate during droughts—keeps the sector tied to fuels even as the state promotes electrification of the national vehicle fleet.

Government planners argue that technical demands, climate variability, and infrastructure gaps make complete elimination of electricity-related fuel subsidies unlikely in the short term. Instead, they present electrification policies as a medium-term solution for reducing dependence on imported diesel and petroleum derivatives.

A politically charged adjustment year

The rapid changes in subsidy design did not emerge in a vacuum. Ecuador’s 2025 budget was originally submitted late due to the election cycle, arriving at the Assembly on August 22nd. Within weeks, the administration moved to dismantle the diesel subsidy—an announcement made on September 12th, triggering price increases the next day. The timing fueled debate over whether the move represented a delayed campaign promise or a necessary corrective delayed until after votes were counted.

Regardless of political calculations, the 2026 Pro Forma reflects a profound transformation in state spending priorities. Diesel, once the undisputed giant of Ecuador’s subsidy system with a share hovering between 40% and 50% of petroleum product support from 2020 to 2025, will lose its dominance almost entirely. By the time next year’s budget takes effect, domestic gas and electricity will shape the subsidy landscape, with structural reforms continuing to ripple through fuel markets nationwide.