Germany cuts fuel tax as Middle East conflicts send prices soaring

Germany will lower tax on petrol and diesel by 17 cents per liter in a relief package worth €2.5 billion, the German government announced Friday.

“Those who rely on their cars every day are reaching their financial limits. … The relief package of €2.5 billion is no small sum in times of strained budgets,” German Chancellor Friedrich Merz said. The tax discount is to be implemented next month.

The measure, brokered between Germany’s federal and state governments, is part of the package promised by Merz as fuel prices continue to climb in response to the war in Iran and the escalating conflict between Yemen’s Iran-backed Houthis and Saudi Arabia.

Two weeks ago, a key oil benchmark reached $100 a barrel for the first time since July following the latest escalations in the Middle East, sending pump prices soaring all over Europe.

The Merz government also plans to introduce a temporary fuel price cap on petrol and diesel modeled on similar policies in Luxembourg and Belgium. The price cap would take into account price moves on the oil markets, transportation and distribution costs, and retailers’ profit margins. Berlin aims to introduce the measure by Jan. 1, 2027.

Germany, through the voice of its Finance Minister Lars Klingbeil, is among the EU member countries calling for a bloc-wide windfall tax on oil companies that have reaped billions of euros in excess profits since the start of the war. The topic is high on the agenda at an informal meeting of EU finance ministers in Dublin on Friday and Saturday.

Ahead of the meeting on Friday, Klingbeil has called on the European Commission to present a proposal by the end of October.

“Several member states have been calling for models for a long time,” Klingbeil, from Germany’s Social Democratic Party, told reporters. “People can see how oil companies are exploiting the situation, overcharging and significantly increasing their profits.”

But Merz’s conservatives have pushed back on the proposal. Germany’s Economic Affairs and Energy Minister Katherina Reiche said a windfall tax would only make sense in case of abusive price increases, she told Handelsblatt.

“The fact that eleven refineries are producing in Germany makes us less dependent on foreign countries; that must not be put at risk,” Reiche said.