Spain Approves Emergency Measures To Soften Energy Price Hike

The Spanish government has approved a series of emergency measures to soften the inflationary impact of the economic fallout from the conflict in the Middle East, including a reduction of VAT on fuel from 21% to 10%.

The measures, approved at a specially convened cabinet meeting on Friday 20th March, comes as fuel and electricity costs surge following disruptions linked to the closure of the Strait of Hormuz.

The Spanish Prime Minister, Pedro Sánchez said the measures are designed both to ease the immediate burden on consumers and to protect the sectors most exposed to rising energy costs, while also reinforcing Spain’s longer-term transition toward renewable energy.

In addition to the reduction in VAT on electricity, gas and fuel from 21% to 10%, a move expected to cut fuel costs by up to 30 cents per litre depending on the type. For drivers, this could mean savings of around €20 per average tank.

Additional support includes direct fuel subsidies of 20 cents per litre for the agricultural and transport sectors, as well as equivalent aid for fertiliser purchases and increased flexibility in energy supply contracts. Industries with high electricity consumption will benefit from an 80% rebate on tolls, reflecting their vulnerability to energy price spikes.

The government has also extended the electricity social bonus until December 2026 and pledged to ‘substantially strengthen’ the thermal, or heating, bonus. Vulnerable households will be protected from energy supply cuts, while a maximum price will be set for bottled gas.

Authorities estimate the measures will benefit around 20 million households and 3 million companies nationwide.

Sánchez emphasised that the package combines short-term relief with structural reforms, including incentives to accelerate decarbonisation and energy independence. These include a ‘massive’ expansion of income tax deductions for installing solar panels, heat pumps and electric vehicle charging points, as well as support for improving building efficiency and scaling up renewable energy deployment.

‘Today we are more resilient thanks to the deployment of renewables, and we must continue on this path,’ the prime minister said.

At the same time, regulators will be given greater powers to monitor and penalise companies that attempt to exploit the crisis through excessive pricing.

Despite the scale of the intervention, Sánchez expressed frustration at the broader situation, linking the economic strain directly to the conflict. He said the measures would remain in place as long as needed but warned that ‘no plan can neutralise the misery of this ‌illegal war ’.

‘These are 5 billion euros that we could be allocating to scholarships, healthcare, and long-term care. I’m very, very angry with the situation,’ Sánchez said, noting that much of the cost stems from lost tax revenue that would otherwise fund public services.

The emergency package will require parliamentary approval and comes at the expense of Spain’s annual budget presentation, which Sánchez has postponed in order to prioritise the crisis response.

Spain has shown during previous inflation shocks that temporary VAT rate changes can be implemented and effectively.

Front photo credit: Engin Akyurt