Europe's Diesel Dependency Has No Quick Fix — and Portugal Is Caught in the Middle

Diesel prices across Europe have surged more than 30 percent since the outbreak of the Middle East conflict, hitting levels not seen since the early months of Russia's invasion of Ukraine in 2022. In Portugal, the government responded on Friday with a fresh increase to its ISP fuel tax discount -- 8.34 cents per litre for diesel and 4.58 cents for petrol -- but the structural problem runs far deeper than any weekly tax adjustment can solve.

The per-barrel price of diesel in Europe breached $200 this week, according to AFP data, the highest since March 2022. And unlike that earlier spike, which was driven by a single geopolitical shock, this one is layered on top of years of tightening supply, underinvestment in refining capacity, and a European continent that never fully weaned itself off a fuel it once actively encouraged everyone to use.

How Europe Became Diesel-Dependent

The roots of the current crisis trace back decades. In the late 20th century, European governments and automakers promoted diesel as cleaner and more fuel-efficient than petrol. France, Germany, and others offered tax incentives to buy diesel cars. The strategy worked: diesel became the dominant transport fuel across the continent.

But refining capacity never kept pace with demand. Europe became a net importer of diesel while simultaneously becoming a net exporter of petrol, creating a structural imbalance that leaves it vulnerable every time supply lines are disrupted.

According to FuelsEurope, diesel accounted for 86 percent of transport fuel sales in Latvia in 2024, 73 percent in France, and 66 percent in Germany. The dependence extends well beyond passenger cars. Trucks, buses, farm machinery, construction equipment, and shipping all run on diesel. Portugal is no exception -- the country's logistics, agriculture, and transport sectors are heavily diesel-reliant.

The Russia Problem That Won't Go Away

Before 2022, Russia was Europe's primary diesel supplier. EU sanctions following the Ukraine invasion forced a rapid diversification. Europe turned to India, Turkey, the United States, and Saudi Arabia. But Middle Eastern suppliers provided more than half of Europe's diesel in 2025 -- some 554,000 barrels per day out of 1.06 million, according to Rystad Energy. About a third of that passed through the Strait of Hormuz, now effectively closed.

The irony, as Rystad's Susan Bell told AFP, is blunt: "The most efficient and economical solution for Europe would be to source its diesel from Russia." That is not happening anytime soon. With sanctions firmly in place, Europe has few options: run refineries at maximum capacity, tap strategic reserves, or find ways to reduce consumption.

Portugal's Balancing Act

Portugal has been adjusting its ISP excise tax on a weekly basis since early March, when fuel prices climbed more than 10 cents above the reference level. The mechanism mirrors what Portugal did in 2022 during the Ukraine crisis. Xinhua reported Friday that the latest discount amounts to 8.34 cents per litre on diesel -- a 21 percent reduction in the excise duty that has actually pushed Portugal below the EU-mandated minimum threshold, according to an EU analysis of fuel tax interventions.

But even with the discount, diesel at the pump sits around 2.15 euros per litre, up from roughly 1.60 euros before the conflict. For a country where the median net salary hovers around 1,100 euros per month, the squeeze is real -- particularly for those who commute by car or work in transport and logistics.

The government's 600 million euro energy resilience credit line is aimed at businesses, but offers no direct relief to individual consumers. Meanwhile, inflation has climbed to 2.7 percent, with energy costs as the primary driver.

Why This Time Feels Different

The 2022 fuel shock was sharp but relatively brief. Markets adjusted, alternative supply routes were established, and prices gradually normalised over about a year. This time, the outlook is less clear. The Strait of Hormuz disruption is open-ended, European refining capacity is maxed out, and the continent faces the additional challenge of building up depleted gas reserves ahead of next winter.

Slovakia has already imposed restrictions on diesel sales to foreigners. Ireland and Spain have cut fuel taxes. The Portuguese government keeps ratcheting up its ISP discount week by week, but each adjustment is reactive, not strategic.

For residents -- including the growing number of expats who rely on cars in areas poorly served by public transport -- the message is sobering. There is no quick structural fix. Electric vehicles are growing but remain a fraction of the fleet. Public transport networks outside Lisbon and Porto are thin. And the geopolitical conditions driving prices higher show no sign of resolution.

Europe built its economy on cheap diesel. That era is over. Portugal, caught between Atlantic exposure and continental dependency, is learning what that means in real time.

Related reading: Diesel Set to Jump Eight Cents Next Week