From Hormuz to the pump: Why oil price shocks hit consumers differently

Global crude oil prices soared after the outbreak of the war in the Middle East on 28 February. Disruptions to Middle Eastern crude supplies through the Strait of Hormuz – a critical waterway through which roughly a fifth of the world’s seaborne oil and gas transits – together with attacks on the region’s oil infrastructure resulted in a global supply shock of unprecedented magnitude. Physical crude prices briefly surged to just shy of USD 150 per barrel. Although they have since eased, they remain above their pre-war level of around USD 70 per barrel.

Yet the surge in international oil prices did not translate into uniform increases of equal magnitude at the pump. How strongly consumers felt the impact of the crisis in their wallets depended heavily on the structure of domestic fuel markets and the extent of government intervention. In some countries, pump prices rose almost in lockstep with international markets, while in others they barely moved. This commentary examines the link between international prices for gasoline and diesel and their retail equivalents in certain advanced economies – and how this relationship has been affected by a recent wave of government support measures in response to the global surge in fuel costs.

The sharp rise in crude oil prices in March quickly spread through to wholesale markets for refined oil products such as gasoline, diesel and jet fuel. Refined products generally trade at a premium to the price of crude oil – a difference termed the “crack spread”, which gives an indication of refiners’ profit margins from converting crude oil into fuels such as gasoline. While wholesale refined product prices generally track crude oil prices closely, they rallied disproportionately after the outbreak of the Middle East war. The increases for diesel and jet fuel were particularly strong, aggravated by the loss of Middle Eastern heavy crudes, which produce especially high yields of these products.

Crude prices pulled back to their pre-war levels in recent weeks on optimism that an interim agreement in mid-June which sought to end the conflict and reopen the Strait of Hormuz could soon normalise shipping flows through the Strait. At the same time, prices for diesel and gasoline remain around 30% higher than before the war.

Data show that the connection between wholesale fuel prices and what consumers pay is generally stronger in advanced economies than in emerging and developing countries. Government retail fuel price subsidies and price controls are relatively common in emerging markets, especially in the Middle East and Asia, while in advanced economies government involvement in markets tends to take the form of taxation rather than subsidies. These fuel taxes, whether quantity-based excise duties or ad valorem taxes such as value-added tax (VAT), keep the link between international and consumer fuel prices largely intact. However, significant disparities exist in how advanced economies approach fuel taxes.

Very soon after that start of the war, governments around the world launched sweeping emergency support measures to shield consumers and businesses from the impact of skyrocketing oil prices, as detailed in the IEA’s Energy Crisis Policy Response Tracker. In addition to actions aimed at conserving energy, governments also enacted market intervention policies, ranging from direct subsidies and lowering fuel taxes to outright price caps. The United States, Japan and Europe each illustrate a different approach.

At one end of the spectrum is the United States, where international price changes feed through to motorists much more quickly and completely than in any other major economy. This is largely because US excise taxes are much lower than those in other countries in the Organisation for Economic Cooperation and Development (OECD). The average correlation1 of weekly wholesale and pump prices in the United States between January 2015 and February 2026 was 97% for both gasoline and diesel. Moreover, this correlation has held up since the war began, with emergency measures taken by other advanced economies absent in the United States. Accordingly, increases in US retail prices were comparatively higher, with pump prices for both gasoline and diesel up by around 50% from their pre-war levels by mid-May.

Meanwhile, in Japan, the link between domestic fuel prices and international markets is less direct due to the country’s system of price controls. Between 2015 and 2026, the weekly correlation of pump prices in Japan to international market prices averaged 83% for gasoline and 80% for diesel. However, this link has diminished since the Japanese government approved a fresh JPY 800 billion (USD 5 billion) state support package for wholesale oil suppliers in March.

As a result, gasoline prices in Japan have been stable at JPY 169.5 per litre throughout May, in line with Prime Minister Sanae Takaichi’s pledge that they would not rise above JPY 170. Although global gasoline prices in US dollars were around the same level in May as they were following Russia’s invasion of Ukraine in 2022, recent yen-denominated prices have been around 30% higher because of the depreciation of the currency. Nonetheless, Japanese motorists actually pay around the same as they did in 2022, underscoring the impact of the country’s fuel subsidies.

Europe sits between these two ends of the spectrum, with an average demand-weighted weekly correlation to global oil prices of around 90% for both gasoline and diesel between 2015 and 2026. While average European fuel taxes are around three times US levels, the way these taxes are structured helps to preserve the relationship with underlying wholesale prices. As with Japan, currency moves against the US dollar have impacted prices, but in this case in the opposite direction, since the euro has appreciated. Since Russia’s invasion of Ukraine, a stronger euro has helped to keep euro‑dominated international diesel prices around 20% below their 2022 levels.

Despite Europe’s emergency measures, domestic retail prices remain roughly in line with wholesale fuel values in almost all countries. Although many countries have lowered taxes, these measures have been far from universal. Among large European oil consumers, the picture is diverse. Germany, Italy and Spain have reduced fuel taxes, while France and the United Kingdom have left fuel levies unchanged. In France, TotalEnergies provided a rare example of a private company taking action to help to limit the pass-through of higher wholesale fuel prices to motorists, which it did by capping fuel prices at its 3,300 petrol stations. Where governments did reduce fuel taxes, the changes were largely confined to excise taxes, with value-based taxes such as VAT generally left unchanged: Poland and Spain are the only countries that have cut fuel VAT rates. As a share of total consumption, 55% of European gasoline and 63% of diesel use has seen a reduction in excise taxes, each by around 10% on average.

As such, these tax reductions offset only a small share of the increase in fuel prices: the average fuel excise tax cut across Europe amounted to around 3% of pre-war retail prices. As a result, most of these measures are likely to have had only a limited effect on fuel affordability and fuel consumption during the crisis. Such measures have also been criticised for being untargeted and subverting market signals, as well as for weighing on already stretched public finances. The slide in international oil prices up until this week has made their efficacy even more uncertain. Still, as they benefit consumers, these price support measures may be difficult to withdraw and may stay in place for some time.