Oil prices surged Monday, climbing to levels not seen in years as the conflict in Iran continues to escalate. Brent crude reached nearly $120 a barrel before settling to around $105 by midday, a significant jump that is expected to impact fuel costs for consumers. The price increases come amid growing concerns about supply disruptions in the Middle East, a key region for global energy production.
The rising cost of oil is already being felt at the pump, with diesel and gasoline prices increasing noticeably since the start of the Iran conflict. As of Sunday, diesel averaged €1.894 per liter and Super gasoline cost €1.689 per liter, representing increases of approximately 13 and 22 percent, respectively, compared to the day before the conflict began. Prior to the attacks by Israel and the U.S. On Iran, diesel cost an average of €1.554 per liter and Super gasoline was priced at €1.499 per liter.
“I think the prices would have to rise significantly further than they already have to justify an intervention,” said Gabriel Felbermayr, head of the Austrian Institute of Economic Research (WIFO), on Sunday evening. He indicated that a diesel price of €2 per liter wouldn’t yet warrant government intervention, “but it will likely become critical soon after that.”
Fuel Prices are Political and Influence Inflation
Felbermayr also noted that fuel prices are “a very political price” that significantly impacts inflation. Holger Bonin, head of the IHS, estimated on Friday that rising fuel costs would increase inflation by at least 0.4 percentage points. Austria’s preliminary inflation rate for February was around 2.2 percent, according to Statistics Austria.
Given these developments, government intervention in fuel prices may become necessary. “If we have learned anything from 2022 and 2023, This proves that we should not allow inflation to run rampant again,” Felbermayr said.
However, the question is how to intervene. “We will have to think carefully about that.” He pointed to examples of unsuccessful interventions in other countries, such as Germany’s fuel tax cut, which became unsustainable after a few months, and price controls in Hungary, which led to long lines at gas stations. The government is currently reviewing price increases at gas stations. Automobile clubs ÖAMTC and ARBÖ have already called for price interventions.
Felbermayr Suggests Intervention in Merit Order
To generally curb energy prices, intervention in the merit order system could be considered. This system determines how prices are set on the European electricity wholesale market, with the last activated power plant – often a gas-fired plant in winter – setting the price. “It’s a bit of a regret that nothing was done about this in recent years, but it is now very urgent,” Felbermayr said Monday.
The Iberian model, which involves capping prices as implemented in Spain and Portugal, could be implemented across Europe. However, such a cap would need to be implemented for the entire EU.
Regarding gas prices, Felbermayr suggested the possibility of suspending trading during sharp price increases, similar to stock exchanges. He also believes that high market power exists in the fuel price sector and advocates for swift political action to curb companies exploiting their market dominance.
Hattmannsdorfer Warns Against Premature Intervention
Economy Minister Wolfgang Hattmannsdorfer cautioned against intervening too quickly in fuel prices. He emphasized, however, that “there must be no crisis profiteers at the expense of drivers.” He also warned that measures must be taken to avoid supply shortages in Austria, which could leave gas stations empty. If fuel prices remain high for an extended period, he said, measures will need to be considered. The minister currently has no concerns about supply security, as both gas storage facilities and oil reserves are well-stocked, with the latter enough to supply Austria for approximately three months.
FPÖ leader Herbert Kickl called on the government to “take immediate action,” proposing the immediate abolition of the CO2 tax and a significant reduction in VAT and mineral oil taxes on diesel, and gasoline. Markus Achleitner, Energy Regional Councilor of Upper Austria, also called for the same measures Monday. The state’s Chamber of Commerce (WKOÖ) proposed its own pricing system for electricity, where producers would charge a fixed surcharge on their production costs but would not benefit from the “market peak price.”
Economic Forecast Could Be Revised
Due to the Iran conflict and the rapid increase in oil and gas prices, the economic forecast scheduled for April 10th by WIFO and IHS could be revised. In December 2025, WIFO economists predicted economic growth of 1.2 percent for 2026 and 1.4 percent for 2027.
In their previous forecast for 2026, WIFO economists assumed an average Brent crude oil price of $62 per barrel and a TTF natural gas price of €29 per MWh. For comparison, the European gas future for delivery in April was trading at €62.9 (+18 percent) and the Brent oil price at $105 (+13 percent) at midday Monday.
(Source: APA)
