Fuel prices surge amid rising Middle East tensions

With electricity prices back at March levels and fuel costs climbing, Portuguese families now face a new period of uncertainty.

Photo by engin akyurt on Unsplash

Rising geopolitical tensions in the Middle East are driving a fresh surge in fuel and energy prices across Portugal, threatening to deepen the financial strain on households already burdened by years of inflation and high living costs.

At the start of the week, both diesel and gasoline prices jumped sharply in line with forecasts.

Diesel posted the steepest increase, rising by 6.7 cents to €1.602 per litre between Friday and Monday, while gasoline climbed by 2.4 cents to €1.715 per litre, according to data from the Directorate-General for Energy and Geology (DGEG).

The hike follows predictions from the Automóvel Club de Portugal (ACP), which warned of an eight-cent increase in diesel and a three-cent rise in petrol due to escalating conflict in the Middle East.

Since June 13, Brent crude oil has surged by 14%, briefly retreating by 7% early this week.

Calls for government action

Economists now warn that prices at the pump could reach €2 per litre if tensions worsen.

“The government cannot remain inactive,” said economist João Santos, calling for immediate intervention to shield consumers during what he described as a “complex period of economic stagnation.”

Government officials have acknowledged the rising threat.

Finance Minister Joaquim Miranda Sarmento said the government is monitoring the oil market and will introduce relief measures “if necessary.”

On Monday, the Minister of the Presidency also signaled readiness to act, though emphasized that current impacts are still “largely potential.”

Energy prices climb across the board

The fuel spike is only part of the story.

The average wholesale electricity price in Portugal between June 13 and 18 reached €82.78/MWh, up 95% compared to the same period last year.

Prices in the Iberian electricity market (OMIE) have remained consistently above €50/MWh since mid-June, with several peaks surpassing €100 and even €150/MWh, levels last seen during the winter energy crunch.

This sustained volatility poses particular challenges for families on indexed energy tariffs, which track real-time market prices.

But even fixed-rate contracts may soon rise if wholesale prices remain high.

Inflation threatens broader economy

The ripple effects of rising energy costs are likely to spread quickly across the economy.

Higher fuel and electricity prices drive up transport and logistics costs, which in turn inflate prices for food, household goods, and other essentials, a pattern already witnessed during the Ukraine war.

Economists are also watching for signs that energy-driven inflation could derail the European Central Bank’s recent cycle of interest rate cuts.

The ECB, which lowered rates for the seventh consecutive time earlier this year, has already raised its inflation forecast for 2025 to 2.3%, above its 2% target.

UBS now projects eurozone inflation will hit 2.1% in June, up from 1.9% in May.

For Portuguese households, that could mean an end to falling mortgage rates.

The average rate on new home loans dropped to 3.06% in April, the lowest since December 2022, but a rebound in inflation may force the ECB to pause or even reverse course.

Situation could still worsen

The stakes could rise even higher.

With energy instability on the rise and inflationary pressures returning, Portuguese households may once again face the kinds of price shocks that defined earlier crises, only this time, against a backdrop of economic stagnation and fragile recovery.

Iran’s Parliament recently approved the potential closure of the Strait of Hormuz, a narrow maritime chokepoint through which roughly 30% of the world’s oil and one-third of global liquefied natural gas flows.

Any disruption to this route would send energy prices spiraling.

Analysts warn Brent could hit $90 per barrel in the short term, or climb to $120–$130 in a protracted crisis.

Insurance premiums for ships navigating the region have already jumped 60% since mid-June, with costs likely to cascade across global supply chains, making imported goods, from electronics to food, more expensive.

Asian-sourced products, which rely heavily on this route, are particularly vulnerable.

For Portuguese families, the economic pinch could stretch from the fuel pump to the supermarket aisle and beyond.

Source: ECO