By Yannis Seitanides and Georgia Channi
Escalating tensions in the Middle East, including attacks on energy infrastructure in Iran and Gulf countries, are driving a new wave of increases in global energy prices.
The strike on Iran’s South Pars gas field was followed by Iranian attacks on energy facilities across the region, including extensive damage to Qatar’s largest gas installation, a refinery targeted in Saudi Arabia, and the shutdown of gas facilities in the United Arab Emirates.
Iran has warned it will show no restraint if its energy infrastructure is targeted again, with Foreign Minister Abbas Araghchi reiterating earlier warnings by the Revolutionary Guards and the armed forces.
Markets have reacted sharply, with oil and gas prices rising and global stock markets declining amid concerns over growth and inflation.
Brent crude briefly exceeded $118 per barrel on Thursday morning, marking an increase of more than 56% since the end of February.
Fuel costs already rising across Europe
The surge is already feeding through to retail fuel prices in Europe.
According to the European Commission’s weekly bulletin, between March 2 and March 16, the average price of unleaded petrol in the EU rose by 10.4%, while diesel prices increased by 19.7% across the bloc.
Analysts note strong parallels with the energy shock following Russia’s invasion of Ukraine, though the current scale of impact appears greater.
Concerns over supply disruptions remain central, as the Gulf continues to play a critical role in global energy production, while European gas markets remain particularly vulnerable.
Cyprus faces rising electricity costs
In Cyprus, the effects are already being felt through higher fuel prices, with electricity costs expected to follow.
The President of the Electricity Authority of Cyprus (EAC), George Petrou, warned that electricity prices could rise by around 5% in May, based on oil prices of approximately $102 per barrel.
Due to recent increases and upcoming fuel shipments, the rise could reach between 5% and 7%.
He cautioned that if oil prices climb further to between $110 and $115 per barrel, electricity costs could increase by as much as 20%.
Limited room for government intervention
The government is closely monitoring developments and considering support measures, according to statements from the President and relevant ministers.
However, reporting by Politis suggests that room for intervention is limited. Cyprus already applies the lowest permitted excise duties on fuel and a reduced 9% VAT rate on electricity.
Experts warn of structural weaknesses
Economists argue that Cyprus’ heavy dependence on oil and delays in expanding renewable energy are leaving households exposed.
Economist Tasos Yasemidis said Cyprus is facing high imported energy costs, stressing the need to accelerate renewable energy deployment, invest in storage solutions, upgrade building efficiency and end the island’s energy isolation.
He suggested temporary measures such as targeted subsidies for vulnerable households and support for businesses, including possible reductions in consumption taxes and VAT.
“A deeply structural problem”
Economist Stelios Platis described the issue as structural, noting that Cyprus remains heavily reliant on petroleum products.
According to Eurostat data for 2024, 86% of available energy came from crude oil and petroleum products, while 96% of energy imports were oil-based, the highest share in the EU.
“Even if you temporarily reduce a tax rate, you are not addressing the root of the problem,” he said.
He added that while measures such as reduced VAT on electricity are important, they are quickly offset when global energy prices rise, placing pressure on middle- and low-income households as well as businesses.
Platis argued that any remaining policy space should focus on targeted social support and a long-term strategy to reduce dependence on oil, including wealth redistribution and public investment.
“The energy issue is not just a market issue. It is a matter of social justice and political choice,” he said.
Limited tools, warns economic council
The President of the Cyprus Economy and Competitiveness Council (SOAK), Dimitris Georgiades, said Cyprus failed to act in time to expand renewable energy or reduce costs, and did not implement natural gas infrastructure early enough.
“As a result, the room for reaction today is limited,” he said.
He added that taxation remains the main available tool, but warned that such measures are often of limited effectiveness and could create fiscal challenges if applied extensively.
Trump signals restraint on energy targets
In a potential effort to ease tensions, US President Donald Trump said on Thursday evening that he had asked Israeli Prime Minister Benjamin Netanyahu not to target Iranian energy facilities.
“I told him ‘don’t do it’, and he won’t,” Trump said, adding that the United States does not intend to deploy troops to Iran.
Households face growing pressure
As global energy markets remain volatile, economists warn that without timely and targeted intervention, Cypriot households will bear the brunt of rising costs, with electricity bills becoming a key pressure point in the broader cost-of-living crisis.