Conflicts in the Middle East and Ukraine are prompting European governments to implement subsidies, taxes, and policy changes to shield their economies and citizens from record-high gasoline and diesel prices. The Organisation for Economic Cooperation and Development (OECD) reports that seven of the ten countries most actively addressing this issue are in the EU.
For instance, Lithuania has halved train ticket prices, Greece is increasing taxes on gambling for public relief, and Italy has delayed closing coal-fired power plants. The Netherlands is funding free energy-saving services for homes, and Poland is proposing heavy taxes on profits of some fuel producers.
The EU relies heavily on imports for its energy, with nearly all of its oil and 85% of its natural gas coming from abroad. As pump prices soar—sometimes exceeding $12 a gallon—the European advocacy organisation Transport & Environment estimates that EU citizens are spending an additional €203 million per day on diesel fuel.
“It’s a cruel irony that the U.S. is the least vulnerable to a crisis of its own making, while Europe’s economy again takes the hit,” Antony Froggatt, an analyst at the organisation, said.
In response, European governments are investing billions to support their economies and have been granted temporary flexibility to provide state aid and invest in energy security measures.
“The pressures from higher energy prices and borrowing costs are biting for people and for businesses,” European Commission President Ursula von der Leyen said in her annual State of the European Union address last week. “We need to double down on our affordable, homegrown, clean energy, be it renewables and nuclear, or biomethane and others” to “give us independence and drive down energy prices.”
France introduces diesel subsidies amid new Red Sea mission
France has announced a €450 million aid package to support consumers and fuel-intensive businesses impacted by rising prices. This includes extending means-tested aid for those commuting over 30 kilometres round trip to work or travelling more than 8,000 kilometres annually, making 5.5 million workers eligible for €100 payments to help with fuel costs until the end of the year.
The package also continues fuel subsidies for farmers, fishermen, and construction companies and provides energy vouchers of €48 to €277 to 5.8 million families to assist with winter energy bills.
French President Emmanuel Macron has requested the EU to relax fuel quality regulations to boost diesel and kerosene production and warned in a letter to the EU executive, viewed by The Associated Press, that global oil prices could rise significantly if the Strait of Hormuz does not reopen and Saudi Arabia’s East-West pipeline is not repaired. He also suggested increasing the EU limit on conventional biodiesel content in diesel fuel from 7% to 10%.
Additionally, Macron announced plans to deploy French troops and defensive systems to Saudi Arabia to protect energy infrastructure from Iran-backed Houthi attacks.
Germany and Spain cut fuel taxes to alleviate driver costs
A two-month round of fuel tax cuts in Germany ended in June, but the government has renewed them, lowering gasoline and diesel prices by €0.17 per litre from 1st October until the end of the year, for €2.5 billion. Talks with the oil industry about a fuel price cap will also begin by 1st January.
In Spain, tax cuts for gasoline and diesel introduced in March have been extended as part of a €5 billion package to address rising energy costs due to the war in Iran. This month’s tax break is €0.5 per litre, with an automatic increase to €0.20 per litre if fuel price inflation exceeds 15% year on year. Additionally, fuel subsidies for transportation companies, farmers, livestock producers, and fishermen have been extended.
US emerges as key EU energy supplier
EU countries are using their strategic reserves, under an agreement with the International Energy Agency, to release 400 million barrels of oil from emergency stockpiles. President Macron plans to rally G7 countries to release additional fuel.
The EU is working to reduce its reliance on Russian energy by promoting renewable sources and converting industries to electric power. Ursula von der Leyen stated that increased electrification could cut the EU’s annual fossil fuel import costs by €260 billion by 2040.
As the EU moves away from Russian energy, it has become more dependent on the US for supplies, having agreed last year to purchase $750 billion worth of American energy over three years.
The situation in Iran complicates this relationship, particularly as the EU has turned to the US for diesel. Trump’s support for banning diesel exports to lower US prices raises concerns for the EU, which is now lobbying Washington to reconsider this ban.
“We believe this is a bad idea,” European Commission spokesperson Olof Gill said Thursday. “EU-US cooperation in the field of energy is strong, stable and mutually beneficial. Any disruption would risk negatively impacting both sides.”
This article used information from The Associated Press.
