German Coalition Agrees on Fuel Tax Cut and Crisis Bonus to Combat Energy Price Surge

Germany's governing coalition of the CDU, CSU and SPD agreed on Monday to cut energy taxes on diesel and gasoline by approximately 17 cents per liter for a period of two months, Chancellor Friedrich Merz announced after two days of coalition talks over the weekend. The relief package, worth around 1.6 billion euros in total, is a direct response to soaring fuel prices driven by the ongoing conflict in Iran and the disruption of oil tanker traffic through the Strait of Hormuz. Merz said the federal government expects the mineral oil industry to pass the tax reduction on to consumers at the pump. Employers will also be permitted to pay employees a tax- and duty-free relief bonus of up to 1,000 euros during 2026. The measures were presented at a press conference at the Chancellery on Monday morning by Merz, Vice Chancellor and Finance Minister Lars Klingbeil, and Labor and Social Affairs Minister Bärbel Bas.

„This will very quickly improve the situation for motorists and businesses in the country” — Friedrich Merz via Deutsche Welle

Germany's fuel prices have surged in recent weeks following the outbreak of the US-Israel military operation against Iran, which began on February 28, 2026, and disrupted the flow of oil tankers through the Strait of Hormuz, a critical global shipping chokepoint. The conflict also led to the death of Iran's Supreme Leader Ali Khamenei in the initial strikes, with his son Mojtaba Khamenei subsequently appointed to the position. The European Union previously introduced an excess profits levy on energy companies during the 2022 energy crisis, a mechanism the coalition is now looking to as a model for counter-financing the current relief measures.

1.6 (billion euros) — total relief for consumers and economy

Tobacco tax to rise as coalition funds the relief To offset the cost of the fuel tax reduction, the coalition agreed to raise the tobacco tax within 2026, according to a joint resolution paper from the CDU, CSU, and SPD leadership. The Federal Cartel Office will also be granted expanded powers to prevent excess profits by large corporations during the crisis, a measure described in coalition documents as giving the office "sharper teeth." The coalition additionally welcomed a European Commission announcement to examine measures against the mineral oil industry, analogous to the excess profits contribution applied during the 2022 EU energy crisis. Counter-financing is to be secured through both antitrust and tax law mechanisms targeting mineral oil companies. Merz said he and Foreign Minister Johann Wadephul were doing everything possible to work toward an end to the war in Iran, which he described as "the real cause of the problems we also have in our own country."

„This conflict, this war, is the real cause of the problems we also have in our own country” — Friedrich Merz via Deutsche Welle

Fuel tax relief package — key measures: Energy tax on diesel and gasoline (before: Standard rate, after: Reduced by ~17 cents per liter for two months); Employee relief bonus (before: Not available, after: Up to 1,000 euros tax-free in 2026); Tobacco tax (before: Current rate, after: Increased within 2026 to counter-finance relief)

Combustion engine ban reversed in long-term deal Beyond the immediate fuel price measures, the coalition reached a long-term agreement to end the so-called combustion engine ban, allowing vehicles with all drive technologies to be registered after 2035. The decision reverses a policy that had restricted new car registrations to zero-emission vehicles from that year onward. The coalition also confirmed that a tax reform targeting lower and middle income groups, as agreed in the coalition agreement, will take effect on January 1, 2027, with Merz noting that the details are "now being worked on intensively." A bill on the reform of statutory health insurance is to be passed in cabinet by the end of April, Merz said, and will proceed on the basis of recommendations from an expert commission recently presented to the government. The coalition leaders — Merz, Klingbeil, Bas, and Bavarian Minister-President Markus Söder — held their deliberations until late into the night at the Villa Borsig in Berlin over the weekend.

Germany coalition relief package — key dates: — ; — ; — ; —

Coalition under pressure as Iran war drives prices higher The package reflects mounting political pressure on the Merz government as fuel prices at German pumps have climbed sharply since fighting in Iran disrupted global oil supply routes. The Strait of Hormuz, through which a significant share of global oil exports pass, has seen tanker traffic blocked as a consequence of the conflict. Merz framed the weekend's decisions as a first step rather than a final solution, saying they were "only the beginning" and "the prelude to a whole series of consultations that we will continue." The federal government's expectation that the mineral oil industry will voluntarily pass on the tax reduction to consumers at the pump has drawn implicit attention to the role of the Cartel Office's new powers in enforcing compliance. Labor Minister Bärbel Bas, who also serves as co-chair of the SPD alongside Klingbeil, was among the senior figures who presented the package publicly on Monday morning, underscoring the cross-party nature of the agreement within the coalition.