Fuel Price Relief Measures: Political Posturing

The oil price is rising, and policymakers are responding with a package of measures — but are government interventions really needed now? Or would restraint be the better option? “The government would be better advised to prepare for a possible escalation, but to let prices take their course for as long as possible. You can make headlines by political posturing, but it is rarely sound economic policy,” writes Achim Wambach for the journal Wirtschaftsdienst.

The war in Iran and the de facto blockade of the Strait of Hormuz have caused the oil price, which was at around $72 per barrel at the end of February, to briefly surge to $120 per barrel. This has pushed up pump prices: E10 petrol currently sells for well over €2  and prices for diesel have at times hit the €2.50 mark. The slump in the ZEW Indicator of Economic Sentiment by almost 59 points shows just how deep the uncertainty runs. Nevertheless, the situation is not comparable to the energy crisis of 2022. Europe’s gas supply is more diversified today, and the appreciation of the euro is cushioning the price rises for commodities traded in US dollars.

When crude oil becomes scarcer, prices rise. That is the way of the world. But people tend to grumble about the way things are. So, policymakers feel compelled to intervene. The identified culprits: absent competition and absent intervention by the relevant authorities. There is little truth to either of these claims. Analyses by ZEW show that the margins of petrol station operators have not been particularly high so far. Prices have risen largely in line with wholesale prices; higher margins at petrol station level amount to a maximum of 2 cents per litre. The situation may be different at the upstream level. The Monopolies Commission points out that price increases in Germany are higher than the European average. This suggests potential structural problems in the wholesale and refining markets, but not at the pump. However, there may be other reasons – it is a well-known fact that simple comparisons between countries are not very reliable.

The German government initially responded with a package of fuel price relief measures comprising stricter antitrust regulations and a cap on price increases modelled on the Austrian system. The call for stricter competition controls in times of crisis is a familiar pattern: it was heard during the gas crisis, in the context of the bank bailouts during the financial crisis – and now once again. There is no empirical evidence that the Austrian model, which permits price increases only once a day at 12 noon, actually has a price-dampening effect. This seemingly harmless intervention violates two principles of sound competition policy: In a social market economy, interventions that limit the freedom to set prices require robust evidence. And the rule is that without evidence it is better to let the market take its course.

The potential problem lies at the wholesale and refining level. This market has been under investigation by the Federal Cartel Office for over two decades. In February 2025, the Cartel Office concluded its sector inquiry, having identified indications that such a distortion of competition might exist. On this basis, proceedings under Section 32 lit. f of the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkung, GWB) have been pending since March 2025. This legal instrument, newly created in 2023, allows the Cartel Office to make targeted interventions in concentrated markets without being required to prove illegal conduct. However, the enforcement of antitrust laws has a structural effect rather than a short-term one. Anyone who promises a rapid reduction in fuel prices through stricter antitrust measures is raising expectations that no competition authority can fulfil. The sector-specific reversal of the burden of proof envisaged in the relief package and tightening the law, as in Section 32 lit. f of the GWB, go beyond this and represent a step backwards in terms of regulatory policy. Special provisions in antitrust law should not be hastily added to an emergency bill. It is to be expected that, in the next crisis, politicians will demand even more drastic measures from the Cartel Office – the politicisation of competition policy is set to intensify further.

This political posturing is not limited to competition law. New measures are being introduced almost daily: fuel discount, price caps, excess profits tax, higher commuting allowance, lower vehicle tax. The German coalition committee has now agreed on a temporary reduction in fuel duty and decided to allow companies to pay their employees a tax-free relief bonus of up to €1,000. The fundamental problem is this: Suppressing price signals through subsidies weakens the incentive to economise when there is a scarcity situation. The second problem: These measures are motivated by the idea of protecting consumers from high prices. However, protection is only needed by those who are struggling – not by those can afford buying more expensively. The 2023 gas price cap provided relief to consumers based on their historical consumption, thereby allowing the market price to apply to every unit consumed or saved. This preserved the incentive to economise. In practice, however, the gas price cap was ambiguous in terms of its sociopolitical effect as the large villa received the same subsidy as the block of flats if their consumption in the previous year was identical. In the present situation, the relief bonus and the tax cut also follow this approach of broad distribution instead of providing targeted relief to those who are struggling. 

The government would be better advised to prepare for a possible escalation, but to let prices take their course for as long as possible. You can make headlines by political posturing, but it is rarely sound economic policy. This was true of the 2022 fuel discount, and there is a risk it will be true for 2026 as well.

This opinion piece first appeared in the journal Wirtschaftsdienst.