What is causing fuel prices to rise?
The primary cause of rising fuel prices is the fluctuation in global oil markets combined with the structure of fuel taxes.
The primary cause of rising fuel prices is the fluctuation in global oil markets combined with the structure of fuel taxes.
Fuel prices are rising primarily due to global oil market fluctuations and high fuel taxes. This happens because geopolitical tensions increase crude oil prices, affecting local costs despite Ireland's sourcing. The heavy tax structure compounds these price hikes, leading to significant burdens on consumers during economic crises.
Oil is a globally traded commodity, and its price is influenced by international events, supply disruptions, and shifts in demand. Recent geopolitical tensions, notably the Iran war, have led to higher crude oil prices, which in turn have pushed up the wholesale cost of petrol and diesel. Even though Ireland sources oil from the North Sea, USA, and Azerbaijan, the global nature of oil pricing means that local supply routes do not shield consumers from international price shocks.
Increased demand from other regions and uncertainty in supply chains further amplify these effects. When supply is threatened or disrupted, prices rise worldwide, regardless of the original source of the oil. This dynamic was evident as pump prices jumped significantly following the escalation of conflict in the Middle East.
Taxes are a major component of the price paid at the pump. In Ireland, excise duty (Mineral Oil Tax) typically accounts for around 45% of the price of petrol and 43% of diesel. VAT is then applied at 23% on top of the combined cost of fuel and excise duty. The carbon tax, which increased to €71 per tonne of CO₂ emissions in 2026, adds approximately 9% to petrol and nearly 10% to diesel prices. Additional levies, such as the NORA levy, contribute a small but notable amount per litre.
When the underlying price of oil rises, the absolute amount of VAT collected also increases, since VAT is a percentage of the total price. This means that tax receipts for the government can rise sharply during periods of high fuel prices, as seen in the significant jump in VAT collected during recent months. The combination of fixed excise duties and percentage-based VAT means that any increase in the base price is magnified by the tax structure.
"Due to the rise in petrol prices, the Government is taking record VAT, despite the fact we are in a cost-of-living crisis. They're benefiting while the customer takes the hit."
Despite perceptions of profiteering, most fuel retailers operate on very slim margins for fuel sales, often breaking even or selling at a loss. Their profits typically come from shop sales rather than fuel itself. However, differences in contract timing and local competition can lead to variations in pump prices between stations, even within the same area.
| Component | Approximate Share of €1.80/L |
|---|---|
| Oil companies, refiners, transporters, retailer | 74c |
| Excise duty | 54c |
| Carbon tax | 16c |
| VAT | 33c |
| NORA levy | 2c |
| Better Energy levy | 0.08c |
As this breakdown shows, taxes and levies together make up more than half of the total price paid by consumers, and their impact grows as the underlying price of fuel rises.
Fuel prices are rising primarily due to global oil market fluctuations and high fuel taxes.
Oil prices are affected by international events, supply disruptions, and demand shifts, which lead to increased wholesale costs regardless of local sourcing.
In Ireland, excise duty accounts for about 45% of petrol prices and 43% of diesel prices.
The carbon tax increased to €71 per tonne of CO₂ emissions in 2026, adding around 9% to petrol prices and nearly 10% to diesel prices.
VAT, applied at 23%, is a percentage of the total price, meaning it rises when fuel prices increase, thereby increasing government tax receipts.
Most fuel retailers operate on slim margins for fuel sales and often break even, with profits primarily coming from shop sales.
The temporary reduction of excise duty is set to phase out, which could lead to further increases in pump prices.
Taxes and levies together make up more than half of the total price paid by consumers, intensifying their impact as the underlying price of fuel rises.
