What's behind rising gas prices in Germany?

Renowned for its sleek cars, Germany has been stunned in recent weeks by skyrocketing fuel prices — motorists have to shell out €2.13 for a liter of gasoline ($8.92 per US gallon) at the pump. The news is even direr for diesel, which at €2.25 per liter ($9.43 per US gallon) is more expensive than gasoline for the first time in history despite government subsidies.

In Germany, record-high fuel prices are currently the most visible fallout of Russia's invasion of Ukraine.

"There is, of course, considerable uncertainty about the amount of oil that might be available in the next few days or weeks," Jens Boysen-Hogrefe of the Kiel Institute for the World Economy told DW. "That is causing suppliers to stock up at high prices."

As a result, fuel prices are also rising. But something seems to be amiss.

Shortly before the war began, the price of Brent crude oil was €85 per barrel; after more than a week, it reached a high of €115. As of March 17, a barrel cost just under €96. Converted to the liter, the price difference to the pre-war period amounted to €0.03.

Meanwhile, the price of fuel continues to send shockwaves at the gas pump with €2.25 euros for a liter of diesel, which is €0.55 more than three weeks ago. How does this calculation work? And who pockets the large difference between crude oil and fuel prices?

Decoding the price of gas

The money that motorists pay for refueling is distributed among several parties — oil companies, suppliers, refineries, gas pumps and the state.

The actual cost of the product makes up more than half of the price. That involves the procurement price for crude oil as well as the costs for transport, further processing, storage, administration and distribution. Add to this the CO2 taxes paid by the oil companies and their profits.

The government tax office also takes a big bite out of refueling — taxes account for around 39% of the fuel bill for diesel, and 48% for gasoline. But it is unlikely that the state also profits from high fuel prices.

This is because the energy tax rate is fixed and doesn't fluctuate with the fuel price. For diesel, it is 47.04 cents, for gasoline 65.45 cents per liter.

The value-added tax is calculated as a percentage, but it is very likely that the higher amounts shelled out by motorists at the gas pump will be missed elsewhere, Boysen-Hogrefe says.

"Maybe one or two people will deny themselves a visit to a restaurant, which in the end means the restaurant owner won't pay income tax and value-added taxes on it."

Gas pump owners also don't seem to be benefiting from high fuel prices.

"Margins are relatively tight there," Boysen-Hogrefe says, adding that they likely sell less because higher fuel prices could mean fewer customers willing the purchase an extra candy bar. "In that respect, high fuel prices are actually not good news for gas pumps." 

Geopolitical uncertainty drives up prices

Germany imports almost all the crude oil it needs and 41% of ready-to-use diesel. Does Russia stand to gain as a result?

"We have Mr. Putin to thank for the high prices, of course," says energy economist Manuel Frondel of the RWI Leibniz Institute for Economic Research, adding that Russia, however, is less likely to benefit from Germany's high fuel imports.

"There are long-term contracts with Russia, according to which all deliveries are paid for at the prices set in these contracts," Frondel says.

That leaves the refineries when it comes to the search for who pockets the discrepancy between crude oil and fuel prices. German economist Justus Haucap thinks they could be the reason for the surging gasoline and diesel prices.

"Whether one can already assume an abuse of market power by the refineries, I am not yet able to say so ad hoc," he wrote in a tweet in German. He said it could not be ruled out, but there were other possible reasons. It is possible that the refineries are expecting an import ban on oil and diesel from Russia in the near future, he added.

Alexander von Gersdorff, the spokesman for the Fuels and Energy Business Association, says the scarcity of petroleum products explains the decoupling of fuel prices from oil prices.

"The petroleum companies (...) are successively reducing their imports of oil and also diesel from Russia — on their own initiative, without sanctions," he wrote in response to a question from DW. A third of diesel imports in Germany comes from Russia.

"It is because of the geopolitical uncertainty that product prices have risen and remained so high, although the price of Brent North Sea oil has already fallen again," von Gersdorff said.

Justus Haucap further speculates: "Refineries may already be tightening supply today if necessary (by raising prices) and filling up barrels in case of an embargo."

Are refineries abusing their power? The Federal Cartel Office is currently investigating that question, on the orders of the German economy minister.

This article was translated from German.