Sweden proposes to cut fuel tax and reduce Iran war price impact

STOCKHOLM – Sweden’s government said it will temporarily cut the duty on vehicle fuels to reduce the inflationary impact of the Iran war on voters six months ahead of a general election. 

Sweden will lower the tax on petrol by one krona (S$0.13) per litre and on diesel by 0.4 krona per litre between May 1 and Sept 30 at a cost of 1.64 billion kronor, Prime Minister Ulf Kristersson said at a news conference in Stockholm on March 23. 

The government said it would also compensate households for higher electricity and gas prices in January and February at a total cost of 3.4 billion kronor to allow households to “better meet higher energy prices”.

“In difficult times, we will always prioritise the budgets of hard-working families,” Mr Kristersson said. 

Sweden’s economy is bouncing back from three years of near stagnation helped by lower interest rates and a more expansive fiscal budget for 2026. But an Iran-war-related spike in energy prices risks derailing the recovery just as the government prepares to launch its reelection campaign ahead of the September vote.  

The government is currently trailing the opposition bloc by around six points, according to opinion polls. 

Sweden’s central bank Governor Erik Thedeen said last week that the economic outlook is extremely uncertain as the Riksbank raised its 2026 inflation forecast to 1.5 per cent from 0.9 per cent seen in December. Policymakers still expect to keep rates on hold until 2027 but investors are now increasingly pricing in higher borrowing costs in 2026. 

The government has cut the tax on vehicle fuels before, reducing duties by 5.64 billion kronor in 2024 also with the stated aim of dampening inflation. The move was criticised on the grounds that it would lead to higher emissions.

Political opponents are now saying that the government should focus on reducing dependence on fossil fuels rather than temporarily pushing down their prices. BLOOMBERG