Spain Slashes Fuel Taxes to Counter Middle East Crisis, Threatening Andorra's Price Edge

Spain's government has reduced VAT on petrol and diesel from 21% to 10% and temporarily lowered the special hydrocarbons tax to the EU minimum, measures that could cut pump prices by up to 30 cents per litre and challenge Andorra's fuel price advantage.

Announced midday Friday by Prime Minister Pedro Sánchez as part of an €5 billion package with 80 actions to offset economic fallout from the Middle East conflict, the changes took effect Saturday after publication in Spain's Official State Gazette. Oil prices hovered around $110 per barrel following Israeli and US strikes on Iran. Sánchez described the relief as lasting "as long as necessary," noting the war's uncertain trajectory. The two decrees await Congress ratification next Thursday.

The package offers broader support, including a 60% cut in electricity taxes, aid for energy-intensive industries, incentives for renewables and self-consumption, enhanced electric social tariff discounts up to 57.5%, and bans on supply cuts for vulnerable households. Labour measures prohibit layoffs in firms receiving public aid, while rent freeze proposals seek parliamentary backing. Professional hauliers, farmers, fishers, and livestock operators receive an extra 20-cent-per-litre subsidy, potentially saving €20 per average tank.

Andorran distributors are wary. David Porqueres, president of the Fuel Importers Association (Assidca), urged caution: "We must see how it's applied to assess the scale of the problem," adding that unmatched Spanish tax cuts would narrow Andorra's price gap.

Friday's figures underscored the risk. Andorran stations listed premium diesel at €1.636-€1.659 per litre and 98-octane petrol at €1.555-€1.569, against Spanish averages of €2.033 for diesel and €1.972 for petrol. A 30-cent drop could erase most of that margin.

The move has amplified Andorra's draw for French drivers, where diesel exceeds €2 per litre and 95-octane petrol nears it, yielding savings up to 70 cents per litre from regions like Alt Urgell, Cerdanya, and Foix—€30-40 per tank after travel. Spain's lower excises (38 cents per litre versus France's 61) remain competitive, but Andorra's non-EU status sidesteps them.

Operators anticipate clearer impact data by Monday, differing from the blanket 20-cent subsidies during the Ukraine war.