European countries are rolling out a mix of tax cuts, price caps, subsidies and regulations to shield households and businesses from surging energy costs. However, risks to growth and inflation are likely to rise if the Strait of Hormuz crisis remains unresolved.

BERLIN, April 14 (Xinhua) -- Germany on Monday announced a temporary fuel tax cut worth around 1.6 billion euros (1.9 billion U.S. dollars) to ease pressure from surging energy prices, as tensions in the Middle East disrupt the Strait of Hormuz, a critical chokepoint for global oil flows.

More broadly, European countries are scrambling to roll out a patchwork of measures, ranging from tax cuts and price caps to targeted subsidies and regulatory interventions, to shield households and businesses from rising costs.

In fact, Brent crude has risen by about 50 percent since the start of the Iran conflict on Feb. 28, following joint U.S.-Israeli strikes, while Dutch TTF gas benchmarks stood at 43.37 euros (51.19 dollars) per megawatt-hour on Tuesday, a surge of 35 percent from pre-conflict level.

However, these measures have drawn skepticism from economists and industry groups, who warn the steps are unlikely to do more than cushion the immediate impact. If disruptions persist, the risks to economic growth and inflation are expected to intensify.

DIVERGING POLICY RESPONSES

Germany has opted for short-term tax relief, cutting petrol and diesel taxes by around 17 euro cents per liter for two months, alongside a scheme allowing companies to grant employees a tax-free bonus of up to 1,000 euros.

France has resisted calls for broad-based tax cuts, citing fiscal constraints and concerns over efficiency. Instead, Paris has unveiled targeted aid for transport, agriculture and fisheries, while offering liquidity support to small businesses through state-backed loan schemes.

The United Kingdom (UK) has taken a similarly cautious fiscal approach. Ruling out a return to the large-scale universal subsidies seen in previous crises, it has focused on reinforcing existing mechanisms such as the household energy price cap, and providing targeted support to vulnerable groups, while allowing earlier temporary tax measures to be phased out.

Meanwhile, Sweden has combined temporary tax cuts with direct payments to households, leveraging relatively strong public finances and lower reliance on fossil fuels. Poland has sharply reduced value-added tax on fuel from 23 percent to 8 percent, and introduced price caps, warning energy companies of potential windfall taxes if profits become excessive. Bosnia and Herzegovina has maintained direct retail margin controls, while Portugal has deployed a broader mix of subsidies, tax adjustments and regulatory tools.

SKEPTICISM AMONG ECONOMISTS, INDUSTRY

Despite differing approaches, there is a common thread: measures have mainly been designed to cushion the immediate impact of rising costs, rather than bring prices down. Economists, industry groups and even policymakers have increasingly questioned the effectiveness of such measures, warning they may fail to address the underlying drivers of the current energy shock.

In Germany, criticism has been particularly sharp. Marcel Fratzscher, president of the German Institute for Economic Research, said that the government's relief measures are insufficient and, in some respects, counterproductive. Temporary cuts to fuel taxes, he warned, risk allowing a significant share of the benefits of such measures to flow to oil companies, rather than reaching consumers.

Stefan Kooths of the Kiel Institute for the World Economy also said the expectation that government action will shield households from rising energy costs is "an illusion". Higher oil prices will erode purchasing power and leave the broader economy worse-off regardless of fiscal intervention, he said, cautioning that tax cuts would widen budget deficits that would eventually need to be offset elsewhere.

Similar doubts have been raised across the continent. In France, Stephane Cauchy, secretary general of the Organization of European Road Hauliers, said the government's targeted measures fall short of what is required by industry. He called for direct aid to be offered, similar to the support offered in 2022.

Price caps, another widely used tool, offer only partial protection. In the UK, the household energy price cap sets a maximum unit price for gas and electricity, but total bills still depend on how much is used. Analysts noted that because the cap is calculated on earlier wholesale prices, it does not yet reflect the latest surge in global energy costs, meaning its cushioning effect is likely to be temporary.

Rising wholesale gas costs will push up household bills later in the year, said deputy director for policy at Energy UK, Ned Hammond.

ENERGY SHOCK DARKENS OUTLOOK, EXPOSES VULNERABILITIES

With fuel prices expected to stay elevated and key supply routes still under strain, analysts warn that Europe remains exposed to external shocks that may prove difficult to offset through fiscal policy measures alone.

Fuel prices, which briefly eased after a temporary two-week U.S.-Iran ceasefire on April 7, surged again after the two sides failed to reach a deal in their peace talks in Pakistani capital of Islamabad over the weekend and U.S. President Donald Trump announced plans to block the Strait of Hormuz.

The price surge is already feeding through into the bloc's economic outlook. Eurozone inflation rose sharply in March, while in Germany it climbed to 2.7 percent, driven primarily by a 7.2-percent year-on-year increase in energy prices -- the first rise since December 2023, data from the Federal Statistical Office showed.

Against this backdrop, forecasts for major economies are being revised down. In Germany, leading institutes have cut their 2026 growth forecast to just 0.6 percent, from 1.3 percent previously, citing higher energy costs and heightened geopolitical uncertainty. Finland's largest financial group, OP Pohjola, has similarly revised its outlook, warning that a prolonged crisis could push the country back into recession.

Hans Joachim Schellnhuber, director general of the International Institute for Applied Systems Analysis, told Xinhua that the crisis should serve as a wake-up call, stressing the need for a rapid response to immediate price pressures, as well as longer-term strategies to reduce reliance on fossil fuels.

Similarly, Austria's Foreign Minister Beate Meinl-Reisinger has said at the International Vienna Energy and Climate Forum last week that the turmoil has exposed vulnerabilities in energy systems built for a different era. "We must accelerate the transition to sustainable, secure and affordable energy through stronger international cooperation," she said.