Fuel Prices Surge as Portugal Leads Europe's Response to the Energy Shock

Fuel prices in Portugal are about to take another painful leap. Starting Monday, diesel is expected to rise by around 10 cents per litre and petrol by roughly 11 cents, driven by crude oil prices that have surged past $100 a barrel for the first time since the early months of Russia's invasion of Ukraine in 2022.

The government moved quickly on Friday, announcing an expanded emergency reduction in fuel taxes. The ISP (Imposto sobre Produtos Petroliférios) discount on diesel will increase to a cumulative 6.1 cents per litre, and for the first time, unleaded petrol will also receive a cut of 2.7 cents. When the knock-on effect on VAT is included, the real savings at the pump will be approximately 1.8 cents on diesel and 3.3 cents on petrol, according to the Ministry of Finance.

It is a meaningful gesture, but one that barely dents the scale of the price shock. Even with the discount applied, drivers can expect to pay around €1.90 per litre for standard diesel next week — the highest since July 2022 — and roughly €1.85 for petrol 95.

A European front-runner

Portugal finds itself in an unusual position: leading the European fiscal response to an energy crisis. According to a report published Thursday by Oxford Economics, Portugal, Greece, and Croatia are the first EU member states to enact concrete tax measures in response to the spike in energy costs triggered by the US-Israeli military operations against Iran. Spain, Germany, and Austria are still studying their own packages.

"The economies of Southern Europe, which have stronger fiscal positions than four years ago, are leading the fiscal response this time," wrote Angel Talavera, Oxford Economics' chief European economist. The Brent crude benchmark has risen 42% in euro terms since the first strikes on Iran, while European natural gas prices have jumped over 60%.

The limits of intervention

Oxford Economics cautions, however, that this round of fiscal intervention will be far more modest than the massive response to the 2022 energy crisis. The Portuguese government is deliberately calibrating its support week by week, adjusting the ISP discount each Monday based on cumulative price increases since the reference week of 2-6 March.

For residents who commute by car — a necessity for many living outside Lisbon and Porto's transit networks — the practical impact is immediate and tangible. Transport costs feed into everything from grocery bills to delivery charges, and businesses in sectors like tourism, agriculture, and logistics are watching margins tighten. The distribution sector has already called for deeper cuts to fuel taxation, noting that Portugal's combined tax burden on fuel (ISP, carbon tax, and VAT) remains well above the EU average.

The European Central Bank and the US Federal Reserve both meet next week, and markets will be listening closely for any signal that the energy shock might alter the trajectory of monetary policy. On Friday, the euro stood at $1.14 against the dollar, weakened by the dollar's renewed appeal as a safe-haven asset. European stock indices closed the week lower, with the Portuguese PSI slipping 0.09%.

For now, the government's strategy is clear: act fast, keep the measures temporary, and hope the conflict does not drag on long enough to require something bigger.