Five finance ministers. One letter. A crisis playbook Europe hoped it would never need to open again.

The finance ministers of Germany, Italy, Spain, Portugal, and Austria have written to the European Commission demanding a windfall tax on energy companies profiting from the price shock triggered by the Iran war — a direct echo of emergency measures the EU deployed after Russia invaded Ukraine in 2022.

In a letter dated Friday and seen by Reuters, the five ministers told EU Climate Commissioner Wopke Hoekstra that a tax on windfall profits would signal that “we stand united and are able to take action.”

“It would also send a clear message that those who profit from the consequences of the war must do their part to ease the burden on the general public,” they wrote.

Follow the money

The economic chain reaction is straightforward, even if the politics are not. Since US-Israeli military strikes on Iran began on February 28, European gas prices have surged more than 70% and oil prices roughly 60%, according to EU Energy Commissioner Dan Jørgensen. The bloc’s import bill for fossil fuels has jumped by €14 billion in just over five weeks.

Those higher commodity prices flow directly into household energy bills and industrial costs. They also flow into the revenue columns of energy companies that sell gas and oil at prices set by global markets they do not control — but from which they handsomely benefit.

The ministers’ letter did not specify what rate of tax they envisage or which companies would be covered. That omission is telling. The 2022 windfall tax, cited in the letter as a precedent, was the product of months of fraught negotiation among 27 member states with very different energy mixes and fiscal priorities. Repeating the exercise will require the same delicate coalition-building.

The coalition and its limits

Germany is the anchor. As the EU’s largest economy and one battered by energy price spikes — both now and in 2022 — Berlin’s backing gives the proposal weight. Italy and Spain were among the loudest voices demanding emergency energy measures four years ago. Portugal and Austria round out a group that spans the continent’s geography and its political spectrum.

Notably absent from the letter: France, the Netherlands, and the Nordic states, all of which have significant energy sectors or different domestic calculations. The five signatories cannot implement an EU-wide tax alone. They need a qualified majority in the European Council and a legislative proposal from the Commission — a process that could take months even on an emergency timeline.

Jørgensen said Tuesday that a one-time windfall tax was “a possibility” and confirmed the Commission was preparing a “toolbox” of measures to be unveiled “quite soon.” He urged member states to coordinate rather than act unilaterally to “avoid fragmented national responses and disruptive signals to the markets.”

Practical headwinds

The 2022 windfall tax was not without controversy. Energy companies argued it penalized investment in production and infrastructure precisely when more supply was needed. Some member states complained the revenue raised fell short of expectations. The legal basis was contested.

Any new tax faces the same hurdles, compounded by a war whose duration and depth remain unknown. Jørgensen warned this week that even an immediate peace would not normalize markets because “energy infrastructure in the region has been ruined by war.”

The immediate supply picture is mixed. The EU sources most of its crude oil and natural gas from outside the Middle East, so the closure of the Strait of Hormuz has not cut off primary supplies. But Europe buys roughly 15% of its kerosene from Middle Eastern refiners, and the last shipments that transited the Strait before its closure are due to arrive around April 10, according to Benedict George, head of European products at Argus Media. European stockpiles can cover up to three months of jet fuel demand — but localized shortages and volatile prices are possible as those reserves are drawn down.

What comes next

The Commission is now under pressure to move from consideration to legislation. The ministers’ letter asks for a “swiftly” developed instrument “grounded on a solid legal basis” — language that implicitly acknowledges the legal and political obstacles ahead.

Commission President Ursula von der Leyen has already floated electricity tax cuts as one measure. Jørgensen has suggested decoupling gas prices from electricity prices and reviving the 2022 gas price cap.

The deeper question is whether Europe can summon the collective will to tax companies reaping windfall gains from a war they did not start, while the bloc’s energy transition — the long-term answer to price shocks like this one — remains years from insulating consumers from the next crisis.

Sources