In recent months, a notion has gained traction that, at first glance, appears politically irresistible: taxing sectors such as banking or energy more heavily to face the effects of extraordinary shocks like wars, inflation, or rising interest rates. Some economists argue that these sectors are enjoying windfall profits and that, therefore, it is reasonable to demand an additional contribution in the name of equity and social stability.
The current war in Iran has strongly revived this debate. The rise in the price of oil, gas, and fuels has again placed the large energy companies in the political spotlight, while higher rates have boosted banking margins. The context seems to support those who defend these levies. But economic policy cannot be guided by simplified moral intuition; it must be based on real effects. And it is precisely there that this approach begins to show serious weaknesses. Because what is presented as an emergency solution can end up worsening the problems it intends to solve.
The current context: a first-order energy shock
To understand the magnitude of the problem, it is helpful to start with the data. The war in Iran has caused the greatest global energy disruption since the 1970s. The partial closure of the Strait of Hormuz, through which around 20% of world oil passes, has immediately strained markets.
“Natural gas in Europe has risen by as much as 85%; and energy import costs in the EU have increased by more than €22 billion”
The result has been a sharp rise in prices: crude has spiked to episodes of $120–$150 per barrel in physical markets; natural gas in Europe has surged by up to 85%, and energy import costs in the EU have increased by more than €22 billion. Moreover, the IMF warns that this shock is lifting inflation, tightening financial conditions and curbing global growth. In adverse scenarios, inflation could exceed 5% and global growth could fall below 2.5%. In other words, we are facing a classic supply shock, not a domestic market failure.
The mirage of “extraordinary profits”
In this context, some economists argue that the energy sector is enjoying extraordinary benefits derived from the conflict (talk of tens of millions of dollars per hour across the sector even), and that, therefore, they should be taxed. The argument is simple and deeply problematic.
First, because it confuses price with structural profit. The price increase reflects a global supply constraint, not necessarily a permanent rise in profitability. In fact, the market’s own volatility, with divergences between spot prices and futures, is creating uncertainty even for the companies themselves.
Second, because it ignores risk. The energy sector operates in highly volatile, capital-intensive environments with investment horizons spanning decades. Penalizing profits in good times without compensating losses in bad times introduces an asymmetry that distorts investment decisions.
Third, because these profits are not homogeneous. Export interruptions, damage to infrastructures, or squeezed refining margins are already adversely affecting portions of the sector.
The risk of meeting the urgency with improvisation
Recent experience shows that not all extraordinary policies are equivalent. During the pandemic, public measures (temporary layoff schemes, guarantees, subsidies, deferrals…) aimed to safeguard the production fabric; they may have made sense, though in the long run they helped push up prices due to low interest rates and the monetary expansion by the ECB and the Federal Reserve. By contrast, extraordinary taxes introduce uncertainty about the rules of the game, an uncertainty that ultimately falls on consumers and firms in the form of higher prices. And this is not a theoretical matter.
“In a high-uncertainty environment, the credibility of economic policy is a critical asset”
The IMF itself warns that, in the current context, governments should avoid fiscal measures that erode market confidence, since the fiscal space is increasingly tight and global debt could reach 100% of GDP in the coming years. In other words: in a high-uncertainty environment, the credibility of economic policy is a critical asset.
Legal uncertainty and the cost of capital
One of the most relevant (and less visible) effects of these taxes is their impact on the cost of capital. Empirical evidence shows that regulatory shocks raise the risk premium demanded by investors. In sectors like energy, where investments are capital-intensive and long-term, this can translate into a significant drop in investment. And this is especially problematic at present.
The International Energy Agency (IEA) has described the situation stemming from the war in Iran as “the greatest energy security challenge in history”. Europe needs to accelerate structural investments in grids, interconnections and infrastructure to reduce its dependence. Taxing those profits in the short term could jeopardize that transition in the medium term.
Energy and banking: less investment at the worst moment
The paradox is evident. Europe faces simultaneously an external energy shock, an ambitious decarbonization goal and an urgent investment need. And yet, the policy response tends to penalize the sectors expected to lead that transformation.
The consequence is predictable: delays in projects, higher financing costs and possible relocation of investments to regions with greater regulatory stability.
In the financial sphere, the effects are equally meaningful. Monetary tightening is already straining households and businesses. The rising cost of mortgage credit is largely a consequence of the European Central Bank’s policy, not of a supposed rent extraction by the banks.
“Higher regulatory or tax costs generate lower profitability and, as a result, tighter or more expensive credit”
Taxing the sector further in this context can amplify that effect. Because the transmission is direct: higher regulatory or tax costs lead to lower profitability and, consequently, tighter or more expensive credit. And this occurs at a moment when the very shock is affecting consumption, investment and overall economic activity.
The false dilemma between market and State
From some quarters, it is argued that in a context of war, you cannot allow the market to determine key prices, and that therefore the State must also intervene in profits. But this approach runs into a contradiction.
If the problem is market functioning, the solution lies in reforming it. If the market is reflecting a real scarcity (as is currently the case), intervening on profits does not fix the problem but introduces new distortions.
“There are more solid alternatives, such as various structural reforms aimed at reducing risk and lowering prices”
Alongside this approach, there are more solid alternatives, such as various structural reforms aimed at reducing risk and prices: energy interconnections with other countries, storage capacity or diversification of supply. In fact, the European Commission itself is proposing measures along these lines to mitigate the impact of the shock without distorting investment.
Conclusion: the lure of the immediate
The war in Iran has intensified a debate that was already latent. The rise in prices and profits in certain sectors creates understandable political pressure. But the economy cannot respond to that pressure with simplistic solutions.
Data show that we are facing a global supply shock, with profound effects on inflation, growth and financial stability. In this context, introducing extraordinary taxes on key sectors could worsen the problems: less investment, greater uncertainty, even higher prices and slower growth.
Because in economic policy, responding to urgency without evaluating the consequences tends to aggravate the problem it aimed to resolve. And in this case, the important thing is not to tax more, but to ensure that the economy has the right incentives to adapt to an increasingly uncertain environment.
