Spain phases out fuel tax discounts after Iran war, handing price edge to electric cars
The VAT reduction on petrol and diesel expires on 1 July, while a new temporary cut on the hydrocarbon tax will shrink month by month until disappearing in October. Professional drivers keep a flat 20-cent rebate, and a snap-back clause guards against renewed price shocks.
Spain's cabinet approved a decree on Monday that begins the orderly retreat from blanket fuel subsidies introduced during the Iran war, while adding fresh measures to support electrification and shield the most exposed sectors.
What changes at the pump
From 1 July the reduced 10% VAT on petrol, diesel and biofuels returns to the standard 21%, ending the flagship relief that has been in place since March. In its place, the government introduced a sliding cut on the special hydrocarbon tax: 15 cents per litre in July, 10 cents in August and 5 cents in September. No discount will apply from October. Vice-president and Economy Minister Carlos Cuerpo said the step-down is designed to “go on relieving the cost of petrol and diesel and we will adapt it to the normalisation of crude prices so that there is no jump.”
- VAT returns to 21%; special hydrocarbon tax cut of 15 cents/litre begins.
- Hydrocarbon tax cut reduced to 10 cents/litre.
- Hydrocarbon tax cut reduced to 5 cents/litre.
- Hydrocarbon tax cut ends entirely; only professional rebates remain.
The electric gap widens
Letting the VAT reduction lapse while wholesale electricity prices stay relatively steady expands the cost advantage of electric vehicles, the government argues. Petrol averaged 1.46 euros a litre last week, down 6.8% from a month earlier, and diesel 1.538 euros after an 8.7% slide. But the fiscal pullback means drivers will not see the full benefit of falling international oil prices, whereas EV charging costs remain contained. The Ministry for the Ecological Transition also secured a gradual abolition of the tax on electricity production: from 5% this year to 3.5% in 2027 and zero in 2028.
Protections for professionals and a safeguard button
Farmers, fishermen and hauliers keep a flat discount equivalent to 20 cents per litre, unchanged from the first crisis package. An extra 165 million euros is earmarked for fertiliser purchases ahead of the autumn planting season. Should the conflict flare again and year-on-year pump-price inflation breach 15%, a reactivation clause automatically restores a 20-cent rebate for all households; the same safety net applies to electricity and gas.
Canary Islands carve-out and pump watchdog
Because the Canary Islands apply their own indirect tax (IGIC) rather than VAT, the central government and the regional executive led by Fernando Clavijo agreed on additional compensation that could exceed 20 million euros. The decree also hands the CNMC, the competition authority, powers to publish a blacklist of service stations that fail to pass on the discount to consumers.
The political and economic backdrop
The new package is valued at 1.825 billion euros for 2026, on top of 2.7 billion from the electricity production tax phase-out. Cuerpo stressed that uncertainty has diminished but “energy prices will remain above pre-war levels for a while.” National statistics office INE reported that headline inflation held at 3.2% in June for a third consecutive month, aided by the previous rounds of aid.
