Europe rolls out fuel relief as Iran war and Ukraine push energy costs up

European governments are rolling out subsidies, tax cuts and policy changes as wars in the Middle East and Ukraine push up petrol and diesel prices and strain households, businesses and public finances. A report by the Organisation for Economic Cooperation and Development, published on Wednesday, said countries around the world have intervened since the start of the Iran war to limit the economic impact of tighter energy supplies and soaring fuel prices, with seven of the 10 most active nations in the European Union.

The pressure is growing across the bloc as fuel costs climb to record levels in some places and anger among consumers rises. The EU imports nearly all the oil it uses and 85 per cent of its natural gas, while imports meet 57 per cent of the bloc's overall energy needs, according to the EU's statistical office. Much of the energy produced within the bloc comes from renewable and nuclear sources.

Governments have responded in different ways. Lithuania has halved train ticket prices. Greece is raising taxes on gambling to help fund relief measures. Italy has delayed the planned closure of coal-fired power plants and cut paperwork for oil and natural gas projects. The Netherlands has increased funding for a scheme that offers free energy-saving services in homes. Poland has proposed a heavy tax on the record profits of some fuel producers and sellers. Europeans are now paying more than the equivalent of USD 12 a gallon at the pump in some countries, while EU citizens are spending an extra 203 million euros a day on diesel alone, according to the advocacy group Transport & Environment. "It's a cruel irony that the US is the least vulnerable to a crisis of its own making, while Europe's economy again takes the hit," said Antony Froggatt, an analyst at the organisation.

EU leaders in Brussels have given member states temporary flexibility to provide state aid to households and energy-intensive sectors such as agriculture, transport and fishing. They have also offered limited room within EU spending rules for investments that improve energy security and reduce long-term dependence on imported oil and gas. "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 has announced a 450 million-euro package to widen its relief measures. The government said 5.5 million workers will now be eligible for 100-euro payments to help cover fuel costs through the end of the year, after aid was expanded for people who travel more than 30 kilometres for a round trip to work or more than 8,000 kilometres a year for professional reasons. Subsidies for farmers, fishermen and construction firms have also been extended until year-end, while energy vouchers worth 48 euros to 277 euros will be made available three months early to help 5.8 million families pay winter bills. President Emmanuel Macron has asked von der Leyen to support a relaxation of EU fuel quality rules on density, sulphur content and other standards to help raise diesel and kerosene production in Europe, a step the bloc also took during the COVID-19 pandemic. In a letter seen by The Associated Press, Macron said the global oil market would soon see "strong increases in prices" if the Strait of Hormuz off Iran's coast did not reopen to tanker traffic and Saudi Arabia's East-West pipeline to the Red Sea was not repaired. He also called for the EU limit on conventional biodiesel in standard diesel to be raised from 7 per cent to 10 per cent.

Germany and Spain have extended fuel tax relief. In Germany, a two-month round of fuel tax cuts ended in June, but the government agreed last week to bring them back from October 1 until the end of the year, cutting petrol and diesel prices by 17 cents a litre at a cost of 2.5 billion euros. Berlin also said it would hold talks with the oil industry on introducing a fuel price cap by January 1. Belgium and Luxembourg have had similar caps for decades. Spain has also extended the petrol and diesel tax cuts it introduced in March as part of a 5 billion-euro package to tackle the impact of the Iran war on domestic energy prices. The cut was 5 cents a litre this month, but an automatic mechanism would raise it to 20 cents a litre if fuel-price inflation goes beyond 15 per cent year-on-year. Madrid has also extended fuel subsidies for transport firms, farmers, livestock producers and fishermen.

Alongside national measures, EU countries have drawn on strategic reserves under an International Energy Agency agreement to release 400 million barrels of oil from emergency stockpiles into the market. The bloc has also tried to cut dependence on Russian energy by expanding renewable power and shifting systems and industries towards electricity instead of fossil fuels. Von der Leyen said greater electrification could reduce the EU's annual import bill for oil, gas and other fossil fuels by 260 billion euros by 2040. But as Europe tried to move away from Russian supplies, it became more reliant on the United States. Von der Leyen struck a deal with President Donald Trump last year under which the EU committed to buy USD 750 billion worth of American energy over three years. The Iran war has made that relationship more important and more complicated, especially as the EU has increasingly turned to the US for diesel. Trump's support this week for banning diesel exports to lower US prices has worried the bloc, which would have to look elsewhere for supplies. Brussels is urging Washington not to suspend overseas diesel sales. "We believe this is a bad idea," European Commission spokesperson Olof Gill said on Thursday. "EU-US cooperation in the field of energy is strong, stable and mutually beneficial. Any disruption would risk negatively impacting both sides."

Europe's response to the fuel price surge now ranges from direct cash support and tax cuts to changes in energy rules and efforts to secure supplies, as governments try to protect consumers and businesses from the fallout of the wars in the Middle East and Ukraine.