The ongoing conflict in the Middle East, which began in late February, has led to a significant increase in crude oil prices, rising from around $70 per barrel to nearly $100 per barrel. This surge in oil prices has had a ripple effect on refined petroleum products, with diesel, kerosene, and gasoline experiencing particularly high pressure. According to TotalEnergies CEO Patrick Pouyanné, the increased transportation costs for companies have risen to around $50 per barrel.
The European Union's reliance on the Gulf countries for refined petroleum products has contributed to the price hike. Following Russia's invasion of Ukraine in 2022, Europe has turned to the Gulf states for a larger share of its refined fuel needs. However, recent attacks on Russian refineries by Ukrainian drones have reduced the global supply of refined products, particularly diesel. This has led to a scramble among buyers to secure available volumes, further driving up prices and increasing profit margins for refiners.
The price of diesel and gasoline varies significantly across EU member states due to differences in national taxation policies. The European Union sets a minimum tax rate of 33 cents per liter for diesel and 35.9 cents per liter for unleaded gasoline, plus value-added tax. Individual member states can add their own taxes, resulting in substantial price disparities. According to data from the European Commission, the average price of diesel in the EU was €2.075 per liter, while unleaded gasoline was €1.924 per liter.
The impact of taxation on fuel prices is significant, with over two-thirds of the price often consisting of taxes. Arne Lohmann Rasmussen of Global Risk Management notes that this structure explains why diesel prices are higher in Europe than in Asia, despite Asia being more directly affected by the Iran-related conflict. In response to rising fuel costs, several governments have taken action, including reducing taxes or providing targeted assistance to vulnerable citizens.
The Portuguese and Romanian governments have directly reduced fuel taxes to mitigate the immediate impact on motorists and transportation professionals. Other countries, such as France, have opted for targeted aid programs. The Bulgarian government has announced a one-time payment of €50 to around 550,000 vulnerable citizens. At the European level, the Commission has established a temporary state aid framework related to the Middle East crisis, allowing member states to cover up to 70% of increased fuel and fertilizer costs for agriculture, fishing, and certain transportation sectors.
The French government has also received approval from the Commission for a €212 million scheme to support agricultural and aquaculture enterprises facing high diesel prices. This mechanism provides €0.15 per liter of non-road diesel purchased between May 1 and August 31, 2026. French President Emmanuel Macron has written to European Commission President Ursula von der Leyen, requesting a relaxation of certain European rules, including fuel quality standards, to increase the available supply.
The trajectory of fuel prices remains uncertain, dependent on geopolitical developments and the availability of refined products. If the situation in the Gulf and Russian refinery activity does not improve, tensions on the diesel market could continue to weigh on European markets. The European Commission and national governments will likely continue to monitor the situation and consider further interventions to mitigate the impact of rising fuel costs on consumers and businesses.
Key points
- European fuel prices have reached record highs due to the conflict in the Middle East and supply chain disruptions.
- The price of diesel and gasoline varies significantly across EU member states due to differences in national taxation policies.
- Several governments have taken action to mitigate the impact of rising fuel costs on motorists and businesses.
