The temporary ceasefire between the United States and Iran was certainly a relief for car drivers across Europe. Ever since the US and Israel began to attack the theocratic Islamic republic, oil and gas prices on the international markets have skyrocketed, affected by the uncertainty about supply and the closure of the Strait of Hormuz.
Consumer prices at filling stations have also been affected. In Germany, this prompted the government to introduce a new law on 1 April. Backed by a decisive majority in the Bundestag, the national parliament, the new legislation stated that filling stations could raise prices just once per day moving forward. More precisely, they are now allowed to raise the price for petrol and diesel only at noon.
Austria was the first European Union member state to regulate petrol and diesel prices in such fashion amid the war in the Middle East. What was meant to protect consumers, however, has not worked out so far, even after the ceasefire came into effect on 8 April. In fact, Germany and Austria’s approach has backfired, as filling stations appear to have started raising prices preventively.
No one knows whether the US and Iran can come to any sort of agreement in the near future
According to statistics gathered by ADAC, Europe’s largest automobile association, the price for one litre of petrol has increased by €0.09 (£0.08) since the introduction of the new rule in Germany. Meanwhile, the price for diesel has gone up by €0.13 (£0.11). The average increase at noon is around €0.10 (£0.09).
Even more alarming is a comparison between Germany and its European neighbours, as prices for petrol in Germany increased much more severely between 30 March and 6 April than elsewhere. Critics of the ‘Austrian model’ voiced their concerns beforehand that the rule could actually push prices upwards instead of protecting customers. Other European countries, such as Italy and Poland, have already taken different measures, including reducing their domestic fuel tax. Spain plans to lower taxes on petrol and electricity, while Hungary and Slovakia have introduced certain price brakes. Belgium and Luxembourg have gone even one step further by setting a price ceiling. Belgium’s ministry for economic affairs sets the price barrier for petrol and diesel for every business day.
The German government has now introduced what is widely being called a ‘fuel discount’, meaning that the government is attempting to force the price for a litre of petrol or diesel down by €0.13 (£0.15). They are doing so by lowering the domestic fuel tax.
A similar thing happened in 2022 when the war in Ukraine affected the cost of oil and gas in Germany. The issue back then was that oil corporations didn’t necessarily lower the price just because the fuel tax went down. Chancellor Friedrich Merz announced that his government may tighten antitrust laws to avoid a repeat of this. ‘We expect that the oil industry will hand down this relief to the consumers,’ he said.
At the same time, any hopes that the ceasefire would quickly push prices down remain unfulfilled. Germany, for instance, saw a slight decrease in the days after the ceasefire was announced. However, the price for a litre of petrol is still €0.38 (£0.33) higher than before the war in the Middle East, even though the price for a barrel of crude oil went down by 14 per cent last week and fell below $95 (£70) last Wednesday.
This is caused by a phenomenon known as ‘rockets and feathers’, meaning that consumer prices often rocket upwards and then only slowly fall again like a feather. Since the price for oil on the international markets has slightly increased again, hopes that a further decrease in the cost for petrol and diesel may happen in the coming days are pretty unrealistic. Even more so because no one knows whether the ceasefire will actually hold and whether the US and Iran can come to any sort of agreement in the near future.
It is now up to the national governments to decide how strongly they want to interfere in the market and possibly prevent price increases. Any interference might sound problematic to those promoting a free market economy, but citizens, particularly in countries where many live outside of urban centres, risk becoming restless if they have to pay more for petrol every time they stop at a filling station.
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