EU leaders push windfall tax on energy firms as fuel prices hit records

Across Europe this week, the price of fuel hit levels that forced governments into crisis mode. In Germany, diesel climbed to an average of €2.45 per litre on Wednesday—a record. The Netherlands saw petrol reach €2.73. Finland's diesel prices climbed higher still. These are not marginal increases. Over the past year, petrol across the EU has risen 24 percent. Diesel is up 38 percent. Jet fuel has more than doubled. The cause is clear enough: oil futures have broken back above $100 a barrel, roughly 50 percent higher than before the Iran war, as escalating military strikes across the Middle East threaten supply routes. Traders, looking at derivatives markets, see no near-term relief coming.

The political stakes are enormous. Eight EU countries face elections next year—France, Italy, Spain, Poland among them. In each, voters are already angry about the cost of living. High energy prices are the visible, daily proof that governments cannot protect them. The far right, which has campaigned on a return to cheap Russian gas (abandoned after the 2022 invasion of Ukraine), is gaining ground. In Germany, the far-right AfD heavily defeated Chancellor Friedrich Merz's centre-right CDU in state elections this month. Two more state votes this weekend are expected to bring further gains for the party. The political math is brutal: leaders must be seen doing something, or they risk losing power to parties they consider dangerous.

On Friday, Germany's finance minister, Lars Klingbeil, stood before EU finance ministers in Dublin and demanded action. He called on the European Commission to propose ways to tax what he termed the excessive profits of oil companies. "People can see how oil companies are exploiting the situation, overcharging and significantly increasing their profits," he said. He wanted concrete proposals within a month. The language was pointed: companies were not responding to market forces, they were exploiting them. Several member states, he noted, had been calling for such models for some time.

The EU's economic commissioner, Valdis Dombrovskis, offered a measured response. The Commission had no plans "at this stage" for a bloc-wide tax mechanism, but it was "ready to engage in discussion." Member states, he said, were free to impose their own taxes. This left the door open while keeping Brussels from committing to anything. It also meant that any relief would be fragmented, uneven, and potentially ineffective.

Individual governments, facing immediate pressure, have begun acting alone. Italy's Prime Minister Giorgia Meloni, whose ruling right-wing coalition is trailing in polls, announced this week that she would scrap road tax for 14.5 million cars and motorcycles starting next year—a cost of over €2 billion. This came on top of a diesel duty cut that had already cost €2.8 billion. "We have chosen to redirect a portion of the resources used to address rising fuel prices into a simple, structural measure designed especially for those who use cars and motorcycles every day to work, take their children, or get around," Meloni said. The message was clear: we are on your side.

In France, President Emmanuel Macron demanded the government's "full mobilisation" on fuel supply and prices. He spoke of working toward the "peaceful reopening" of the strait of Hormuz—a diplomatic effort to ease Middle East tensions. The government extended emergency fuel subsidies until year's end for agriculture, fishing, and construction. But it stopped short of blanket price cuts. Finance Minister Roland Lescure explained the logic: "Blanket measures that affect everyone—including those who don't need them—are a false economy. Why? Because ultimately, we'll have to fund them." The calculation was that targeted help was more defensible than universal relief.

Yet even targeted measures were not enough to contain anger. On Thursday, French fishers blocked access to two ports and a fuel depot in southern France, protesting diesel prices that had climbed to €2.37 per litre. After six hours of talks, Fisheries Minister Catherine Chabaud promised zero-interest loans for those with cashflow problems and support measures tied to fuel price changes. The blockades were lifted. Spain doubled its diesel tax discount to €0.20 per litre starting September 1. Germany announced a fuel tax cut of €0.17 per litre from October 1 through year's end, and said it would hold talks with the oil industry aimed at introducing a price cap by January 1, 2027 at the latest. "Anyone who relies on their car every day is reaching breaking point," Merz said.

What remains unclear is whether these measures will be enough to stabilize the political ground beneath European leaders' feet. Benchmark gas is trading at €81 per megawatt hour, up 150 percent from a year earlier, with analysts suggesting it could hit €100. The Commission's hesitation on a bloc-wide windfall tax leaves each country to fend for itself, creating a patchwork of responses that may satisfy no one. The elections are coming. The prices are not falling. And the far right is waiting.