Fuel prices hit record highs in Spain during peak holiday season due to the oil crisis

Geopolitical instability in the Middle East has interrupted the first holiday trading of the summer. The price of oil has experienced a 180-degree turn in the last week, after soaring above 80 dollars due to fears of a closure of the Strait of Hormuz - the route through which 20% of oil world trade passes - to fall back to around 67 dollars a barrel.

"The high level of global inventories, the 120 million barrels of floating Iranian crude and the capacity of China and Saudi Arabia to react have become the main factors holding back Brent prices," said Antonio Aceituno (CEO of Tempos Energía), adding that the price of a barrel could fall to between 60 and 65 dollars in the face of a de-escalation of the conflict.

Filling up the tank has risen to the levels of this past April. The average price of a litre of diesel registered its second consecutive increase this week after rising by 2.63%, to 1.4 euros and a litre of petrol rose by 1.7%, to 1.488 euros, according to data from the European Union's weekly oil bulletin. However, these prices are respectively 9% and 6% lower than at the end of June 2024.

The price of fuel does not depend only on the price of oil, but is also linked to its specific price on international markets (which is independent of the price of 'black gold'), taxes, the cost of raw materials and the logistics and gross margins of service stations. In addition, there is usually a certain time lag until oil movements are transferred to the pump.

The Spanish economy is not immune to these international conflicts. The lower exposure of Spanish exports to the US than other European countries is cushioning the first impact of Donald Trump's tariffs, but the economic weakness caused by this wave of levies - and the uncertainty over which ones will begin to be applied on 9 July - will inevitably affect Spain as well.

It is not only the trade war that has an impact on the economy and inflation. The war in the Middle East has caused tensions in international energy markets that clashes head-on with the moderation in prices that has been taking place in the first half of the year. The inflationary effects of the uncertainty of war in the Middle East are not affecting Spain as much as in the late 1990s, when 70% of the primary energy consumed in the country came from oil. Today that figure has fallen below 50%, according to Professor of Economics and Finance at Esade Omar Rachedi, who says that "the engine is no longer oil". "Even so, we are still more vulnerable than other euro countries such as France or Germany, where dependence on crude oil is already below 40%," he said.

But the real risk is not so much in the price of a barrel as in the tectonic plates of global trade. According to Rachedi, the war is "accelerating an epochal change": relocation of supply chains, tensions in the Red Sea and a possible wave of protectionism if Trump comes back with new tariffs. In this sense, the world's industrial map will be rearranged, generating more persistent inflationary pressures. Rachedi attributes these pressures not so much to the "one-off energy shock, but to a global economy that is fragmenting and becoming more expensive".

We will have to wait and see how the geopolitical conflict develops in terms of its impact on energy prices, whether it is a one-off or a prolonged one. All eyes are on the Strait of Hormuz, which is key for oil exports, as a quarter of the crude oil sold worldwide passes through it. If Iran ends up closing the passage, trade flows would be paralysed, which would have a major impact on the markets.

Inflation rebounded in Spain to 2.2% in June, after moderating in May and four months of decreases, mainly due to international tensions and uncertainty in the energy markets. The Ministry of Economy stated that "the war between Israel and Iran has generated high uncertainty in international energy markets".

While inflation managed to reach the target set by the European Central Bank (ECB) of 2% in May, with the upturn in June Spain is once again above the limit. The eurozone's price index has so far failed to reach it either, with a level of 2.2% in May and the June figure will be updated in a few days in a context of so much volatility that a new upturn is expected. Although the ECB's tendency is to lower rates, some experts point to a possible change of course if these instabilities go further. Although the central bank is prepared to cut interest rates further in September, it is keeping an eye on the daily news on inflation and energy prices.