Oil and gas prices soar, the EU considers imposing a windfall tax on energy profits

Ask AI · How should the EU’s windfall tax proposal take lessons from the precedents set during the Russia-Ukraine conflict?

The Iran war led to higher oil and gas prices, and EU countries are considering whether to levy taxes on the profits of energy companies.

After a meeting held in Brussels on Friday, Valdis Dombrovskis, the EU’s economics affairs official, said that finance ministers from some euro area countries proposed addressing the price increases through a “windfall profits tax.” According to media reports citing people familiar with the matter, Germany and Austria support the measure. The European Commission said it would assess its feasibility during the meeting. The Austrian and German governments did not immediately respond to requests for comment.

Currently, the Strait of Hormuz is effectively closed, causing a sharp spike in oil and gas prices. Dombrovskis warned that such price increases could trigger an “stagflation shock.”

In 2022, the EU had already agreed to implement a temporary tax measure—the so-called “solidarity contribution”—to tax the extraordinary profits of certain energy companies. At the time, the Russia-Ukraine conflict caused a similar surge in energy prices.

On Friday, Dombrovskis cited the above measures tied to the Russia-Ukraine conflict as a precedent for current policy. He also said the European Commission will recommend that countries reduce electricity tax rates and ensure that the electricity tax burden remains below that of fossil fuels, in order to optimize the structure of energy taxation.