Europe’s Answer to the Oil Shock Is Yet Another Tax

The Strait of Hormuz is barely functioning, diesel prices have surged and refineries are running at their limits. Europe is facing a historic supply shock. Six governments already know what they want to discuss next: a new tax.

Crude oil tankers heading to the Strait of Hormuz.

Crude oil tankers on their way to Strait Of Hormuz. Photo: Elke Scholiers/Getty Images

The war with Iran has disrupted one of the world’s most important shipping routes and damaged refining capacity across the Middle East. Since the conflict began on 28 February, oil prices have risen by roughly 25%. European diesel prices are up more than 70%, while gasoline has climbed around 20%.

Europe’s response is characteristically European: before securing more supply, six governments want to discuss a new tax. Germany, Austria, Italy, Spain, Portugal and Poland have called for an EU-wide debate on taxing the windfall profits of oil companies. Their finance ministers want the issue placed on the agenda when their European counterparts meet in Dublin on 18 and 19 September.

The countries say measures taken so far have failed to stabilize prices. They want the European Commission to examine the sharp rise in refinery margins and discuss whether exceptional profits in the oil industry should be subject to an additional levy.

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Refining Becomes the Bottleneck

Families and businesses are paying dramatically more for fuel while some energy companies are recording extraordinary profits. That makes windfall taxes politically attractive, but price pressure is increasingly concentrated at a point in the supply chain that cannot be expanded quickly: refining.

More than 20% of the Middle East’s roughly 9.6 million barrels per day of refining capacity is currently unavailable. Global refinery runs fell by 5.1 million barrels per day year-on-year during the second quarter. Crude oil still has to be converted into diesel, gasoline and other products before it can reach consumers, making refinery outages particularly important for fuel prices.

American refineries have been operating above 95% utilization for more than 11 consecutive weeks, the longest such stretch in more than 25 years. Global refining output is running nearly two million barrels per day below demand, while margins have climbed above $50 per barrel in some markets.

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The Windfall Tax Returns

The European Union has used such a measure before. During the energy crisis that followed Russia’s invasion of Ukraine, Brussels introduced a temporary “solidarity contribution” on fossil-fuel companies. Profits exceeding the companies’ average earnings between 2018 and 2021 by more than 20% were subject to a levy of at least 33%.

The measure applied to profits earned in 2022 and 2023 and was explicitly designed as an emergency intervention. Four years later, the same idea is returning to the political agenda. Portugal has already introduced a 33% levy on extraordinary oil and refining profits for 2026.

The six governments are also considering profits earned outside the European Union by multinational oil companies. No common formula has yet been agreed, and the initiative has not advanced beyond a request for discussion among EU finance ministers.

The Dublin meeting will therefore not introduce a new EU tax. Tax policy remains politically sensitive among the 27 member states, and the six countries would still have to attract broader support before their initiative could become a formal proposal.