France rules out fuel subsidies as Middle East conflict drives prices higher

France's central bank governor on Wednesday warned against introducing new subsidies to offset soaring fuel prices, citing the country's fragile public finances as global oil market volatility linked to Middle East tensions pushes prices higher. "We have no more money," Francois Villeroy de Galhau told broadcaster RTL, noting that fuel prices recently surged past €2 ($2.3) per liter.

Fiscal constraints

Calls from opposition parties and labor unions for tax cuts, fuel vouchers or price caps could further strain the public deficit, currently around 5%, Villeroy de Galhau said. "The risk is further deepening the deficits and paying even more for our mortgages and business loans," he added, emphasizing that energy independence and investment in the energy transition are sustainable long-term solutions rather than short-term subsidies.

Economic impact

The governor noted that the Middle East conflict is likely to weigh on the French economy, contributing to slightly higher inflation and slower growth. The Bank of France projects first-quarter growth of 0.2%–0.3% and approximately 1% for 2026, reflecting the economic drag from regional instability and elevated energy costs.

Conflict context

Regional tensions have escalated since Israel and the US launched joint strikes on Iran on Feb. 28, killing more than 1,200 people including Supreme Leader Ayatollah Ali Khamenei. Tehran has retaliated with drone and missile strikes targeting Israel, Jordan, Iraq, and several Gulf countries hosting US military assets. Iran also effectively closed the Strait of Hormuz around March 1, with the strategic waterway that normally handles about 20 million barrels of oil shipments daily and roughly 20% of global LNG trade now largely impassable, driving energy prices upward.