Portugal raises fuel tax discount as diesel and gasoline prices set to climb again

Government ISP discount adjustment

The Portuguese government will increase the extraordinary and temporary discount on the ISP fuel tax next week, adding 2.1 cents per liter for diesel and 1.4 cents per liter for gasoline, according to a decree published in the Diário da República on 14 August. The decree explains that, given the prospect of a rise in road diesel and unleaded gasoline prices next week, the government decided to adjust the extraordinary and temporary ISP discount currently in force. The resulting total ISP discounts stand at €80.52 per 1,000 liters of road diesel and €49.61 per 1,000 liters of unleaded gasoline on the mainland. The government has committed to applying such a reduction whenever fuel prices rise by more than 10 cents per liter, to mitigate price escalation.

Expected price increases

Fuel prices are set to rise sharply next week, reversing a brief decline that lasted only one week. ANAREC, the national association of fuel retailers, estimates an increase of 8 cents per liter for diesel and 8.5 cents for gasoline. The Automóvel Club de Portugal (ACP) projects larger rises of 10 and 9 cents respectively. Based on Thursday's average prices compiled by the Direção-Geral de Energia e Geologia (DGEG), simple diesel should reach between €2.047 and €2.067 per liter, and simple 95 gasoline between €1.970 and €1.975 per liter. The final average may still change depending on the evolution of international oil quotations over the coming hours, and the final cost at the pump can vary by station, brand, and location.

Market drivers

Brent crude, the benchmark oil in Europe, rose approximately 6% over the week despite a decline on Thursday. The same upward trend was observed in diesel quotations. Fuel prices continue to be affected by the war in Iran, geopolitical tension in the Middle East, and the consequent closure of the Strait of Hormuz, through which 20% of global oil supply passes. If the predicted increases are confirmed, they would cancel out last week's decrease and push fuel prices back above €2 per liter. The outcome remains open, as it will depend on market movements in the coming hours and on the government's decision regarding the discount applied to petroleum products.

ERSE analysis and consumer reaction

The ERSE, Portugal's energy services regulator, published an analysis on Thursday evening at the request of the Minister of Environment and Energy. The study concluded that fuel companies in Portugal did not take abusive benefits from the evolution of fuel prices, and that the price differential with Spain stems primarily from taxation rather than retailer margins. A driver interviewed by SIC Notícias described the situation as very complicated, noting that his family runs three cars and fills up with diesel daily, calling the prices unbearable. He also questioned why diesel prices in Spain remain so much more affordable compared to Portugal.