The Spanish government has approved a sweeping package of 80 measures aimed at tackling rising energy prices and mitigating the broader economic fallout from escalating tensions in the Middle East, particularly the ongoing war involving Iran.
Prime Minister Pedro Sánchez announced that his government would mobilize €5 billion to shield the Spanish economy from the impact of the conflict. “The war will cost Spaniards €5 billion,” Sánchez said, adding that additional resources could be deployed if the situation worsens.
The package is designed to support around 20 million households and 3 million companies. While officials acknowledge the measures will not fully offset the effects of the geopolitical crisis, the government hopes they will significantly soften the economic blow. Sánchez also noted that the plan would save up to €200 million for energy-intensive industries.
Among the core measures is a reduction in value-added tax (VAT) on fuel from 21% to 10%, alongside a cut in excise duties on hydrocarbons. The move is intended to ease the cost of petrol and diesel amid continued volatility in global energy markets. VAT on natural gas will also be lowered to 10%, while the retail price of butane and propane will be frozen. According to government estimates, the VAT cut on petrol is expected to translate into a reduction of around €0.30 per liter for some fuels.
The package also includes targeted measures to reduce household energy bills. VAT on electricity and gas will be reduced to 10%, and a separate indirect levy on electricity—a 5% tax commonly passed through to consumer bills, though paid by energy companies to the Treasury—will also be lowered.
In addition, the government will temporarily suspend the tax on the value of electricity production, a step aimed at reducing overall system costs and preventing them from being passed on to consumers.
Tax cuts and stronger social protections
Beyond tax relief, the government plans to revive a number of social measures that previously failed to pass through parliament. The current package includes strengthening subsidized electricity support for vulnerable households and reinstating a ban on cutting off water or energy services for the most at-risk households.
However, the decree does not, for now, include housing-related measures such as rent caps or mortgage support, despite pressure from Sumar, the left-wing coalition partner in Spain’s government.
The package, which must still be approved by Congress, is designed to cushion the energy shock and contain its impact on inflation, as Spain continues to navigate the economic pressures stemming from international conflict.