The Spanish government is putting the brakes on a general fuel subsidy due to the war in the Middle East.

MadridThe Spanish government wants to approve a package of measures "as soon as possible" to mitigate the economic impact of the war in the Middle East, which is already putting pressure on energy prices, particularly diesel and gasoline. Although the Second Vice President and Minister of Labor, Yolanda Díaz, stated this Thursday morning that some measures will be approved at next week's cabinet meeting, a more cautious approach prevails at the Moncloa Palace. "We are working to make it happen as soon as possible," government sources indicate. And the Minister of Economy himself, Carlos Cuerpo, publicly addressed the issue after a meeting with unions and employers' associations to discuss, precisely, the economic impact of the conflict: "The priority is to finalize the text, and I cannot give a date for its approval," Cuerpo said at a press conference.

The minister, therefore, avoided specifying a timeline, but instead hinted at the direction the text will take: he cooled the possibility of applying a universal fuel subsidy like the one approved in 2022, while confirming that there will be specific tax measures for the agricultural and fuel transport sectors.

Universal subsidy

It is true that Cuerpo did not rule out any fiscal measures to contain energy prices (from fuel to electricity bills), but he acknowledged that the 20-cent-per-liter fuel subsidy approved four years ago to curb the historic price increases received "numerous criticisms." "It is one of the measures that is least recommended to us," he added. The minister said that they are "internalizing" these criticisms and that they "will be taken into account" when approving the package of measures. He also pointed out that the main "challenge" is the price of diesel, and not so much that of gasoline. The CCOO union specifically referred to that measure: "Fiscal measures cannot be adopted without price controls because, otherwise, they only serve to improve corporate profit margins," warned the union's general secretary, Unai Sordo, at a press conference. For the CCOO and UGT unions, which have already requested details of the resources the Spanish government will allocate to the package of measures, it is "essential" to strengthen the monitoring and transparency of potential tax cuts and direct aid. They warn: "A generalized tax cut is disarming the State," said Sordo. Conversely, the business sector welcomes direct aid and tax incentives, a dichotomy already experienced during the war in Ukraine.

Aid to agriculture and transport

On the other hand, the Minister of Economy acknowledged that some sectors are more exposed to the economic impact of the war and are already feeling it. Specifically, he cited agriculture and road transport. "These are the most vulnerable sectors," he said. Cuerpo confirmed that there will be specific aid for them.

Among farmers, the concern is palpable. Unió de Pagesos, for example, has called a demonstration for this Friday in Barcelona to demand, precisely, measures. "25% of agricultural expenses are for diesel and hydrocarbons," points out Miquel Pinyol, head of Agricultural Economics at Unió de Pagesos, in a conversation with ARA, and he believes that if production costs don't stop rising—he also warns about fertilizers and their impact on crops—there will be losses. Among the measures they are proposing, they are asking for a reduction in the VAT on hydrocarbons.

But beyond the battery of tax proposals on energy goods, the document will incorporate other socioeconomic measures. In this sense, the Spanish government plans to revive some of the social safety net proposals that derailed the month of February in CongressThat package included a ban on cutting off basic utilities to vulnerable families, as well as social assistance through the electricity and heating social bonus on the bills of some consumers. In fact, the Minister of Labor has assured that mobility plans and a ban on dismissals for energy-related reasons will also be incorporated. Furthermore, she has opened the door to approving housing measures, such as freezing rents—a proposal long demanded by Sumar, the junior partner in the central government—or limiting evictions. "We are calibrating the measures day by day, and we will approve some next Tuesday," she reiterated. Also in the area of ​​housing, Podemos has broadened its demands and is calling on the Spanish government to limit variable-rate mortgages. Meanwhile, the Ministry of Economy is sending a message of caution regarding the economic impact on the labor market, housing prices, and even food prices.

However, the plan will also incorporate structural proposals to strengthen strategic autonomy and the energy transition with the aim of being "less exposed" to price volatility.

Time and consensus

In any case, the Spanish government is not only seeking more time to assess the situation due to the uncertainty surrounding the continuation of the war in the Middle East, but also aims to present a text that generates the broadest possible consensus among the most affected sectors, as well as among the political parties, which will have to endorse it in Congress. In recent days, meetings have taken place with various stakeholders, and this Thursday it was the turn of the major unions, CCOO and UGT, and the Spanish employers' association CEOE-Cepyme. The social partners met with the government's economic ministries—Finance, Labor, Social Security, Economy, and Energy—and although no concrete list of measures emerged from the meeting, the main outlines of the plan the government is finalizing were already revealed. A few days ago, Cuerpo acknowledged that the impact of the war was already being felt in families' finances, and this Wednesday he anticipated that in the next four to ten days the increase in the price of oil and gas would be passed "fully" on to citizens. He was referring to fuel prices, but also to the increase in electricity bills for some customers and, later, to the cost of the shopping basket. In any case, the Ministry of Economy maintains that the current scenario is very different from that of 2022, when the war broke out in Ukraine. "Gas prices are around 50 euros per MWh, whereas back then they exceeded 200 euros."