Numerous proposed solutions to combat high fuel prices have proven ineffective, largely due to their foundation on flawed assumptions. Surprisingly, some of these approaches have nevertheless found their way into the new legislative package, which is set to come into effect soon.
Since the onset of the US-Israeli attack on Iran, few topics have dominated German political discourse as much as the surge in fuel prices. Politicians from nearly all parties appear to agree that pricing mechanisms are unfair. The current black-red coalition has already presented a legislative package aimed at regulating the fuel market, and further measures are under discussion.
For a long time, petrol and diesel in Germany have been significantly more expensive than in most neighboring countries, primarily due to relatively high taxes and duties. To support the accusation that oil companies are exploiting the current crisis to gouge German consumers, it has often been argued that prices here have not only been absolutely higher but also increased more sharply in percentage terms than elsewhere in Europe.
Members of the black-red task force on fuel prices expressed outrage after a meeting with the oil industry, as the companies allegedly could not explain the particularly sharp price increase compared to international figures. The simple reason: the assertion is simply incorrect. Comparative data published by the European Commission shows that Germany is in the European mid-range, with a price increase of 40 percent for diesel (17th place among 27 EU states) and 29 percent for petrol (16th place among 27 EU states).
Assumption 1: “Fewer Price Adjustments Mean Lower Prices”
Fuel prices at German petrol stations are not only high but also constantly adjusted, sometimes dozens of times a day. As this can be confusing and irritating for consumers, Austria introduced a regulation allowing petrol stations to increase their prices only once a day. This rule, often cited as a measure against alleged price gouging during the current crisis, will also be implemented in Germany starting April 1, 2026. However, a brief look at fuel price trends in Austria reveals that this model has no price-dampening effect. One month after the war began, petrol prices in Austria had even risen slightly more than in Germany.
This is not surprising. Competition economist Justus Haucap warned against the Austrian model 15 years ago, when transparency rules for petrol stations were introduced in Germany. “This safely allows for a big swig from the bottle,” Haucap explained. Companies could drastically raise prices once a day. While they could still lower prices if undercut by nearby petrol stations, if others also increase their prices, providers would secure additional profits. “The Austrian rule leads to high profits,” Haucap stated as early as 2012.
Assumption 2: “State-Regulated Margins Benefit Consumers”
As it’s already evident that the Austrian model won’t lead to significant price reductions, German politicians are looking to other neighboring countries. In Luxembourg, the state intervenes particularly strongly in the pricing of the oil industry. There, a maximum price for fuels is calculated using a fixed formula, by adding a fixed margin for providers to international wholesale prices. This is intended to prevent alleged price gouging during crises.
In reality, however, even in normal times, prices in Luxembourg are not cheaper because companies earn less from fuel sales, but because taxes and duties are lower than in Germany. In the past month, fuel prices in Luxembourg temporarily rose even more sharply than in Germany, partly due to the practically state-guaranteed distribution margin. In a monthly comparison (as of March 23, EU data), premium petrol without taxes and duties became over 34 percent more expensive in Luxembourg, while in Germany it rose by just under 29 percent.
Assumption 3: “Fuel Prices Must Exactly Follow Crude Oil Prices”
A frequently cited, alleged proof of supposedly anti-competitive behavior by oil companies during the current crisis is the assertion that the movement of fuel prices at petrol stations cannot be explained solely by rising crude oil prices on the global market. While crude oil is the most significant cost factor in the production of petrol and diesel, its price only indirectly influences fuel prices. For refined products like petrol, diesel, and the diesel precursor gasoil, there are separate international markets where wholesale prices are formed based on supply and demand.
These markets are influenced not only by crude oil supply and fuel demand. A significant portion of diesel, for example, is not refined in Europe but imported as a finished product or as gasoil. Due to the war in the Persian Gulf, important refineries are currently cut off from the global market, which has further reduced diesel supply. Premium petrol, on the other hand, is partly exported from Europe to the USA. Consequently, petrol prices here are also affected by developments in America.
Assumption 4: “Fair Prices Mean Only Passing On Costs”
Particular outrage at the beginning of the attacks on Iran and the blockade of the Strait of Hormuz was triggered by the observation that prices at German petrol stations immediately began to rise when world market prices increased. It was argued that manufacturers had already purchased and processed the raw material for the petrol or diesel being dispensed at that time long before the crisis. Thus, prices were being raised even though production costs had not yet increased. This was criticized as unfair and economically inexplicable.
The argument that price increases can only be justified by equivalent changes in costs has been heard repeatedly since the beginning of the crisis. However, prices in a market economy generally form as an equilibrium of supply and demand, and thus only indirectly reflect costs. In this specific case, oil companies raise prices as soon as they foresee that their product is likely to become more valuable in the near future. It is rational for any market participant not to sell their petrol cheaply – even if it could temporarily boost sales – if they can sell the same product at a higher price soon. This requires no collusion whatsoever.
