Israeli drivers woke on Monday morning to a slight reprieve at the gas pump after a hike at the start of the month. But the run-up to it says a lot about how the country’s fuel prices are exposed to forces beyond its own borders, and the political tightrope the government must walk to do anything about it ahead of next month’s election.
On Sept. 1, the regulated price of 95-octane gasoline rose to a record 8.25 shekels per liter (roughly $10.49 per gallon), matching the all-time high set in the same month in 2012. The spike was part of a worldwide surge in prices tied to the ongoing U.S. war with Iran and Iranian efforts to obstruct the Strait of Hormuz.
It is a reminder that a country with no meaningful domestic crude production is at the mercy of regional conflict.
Israeli Energy Ministry officials also pointed to a roughly 6% rise in international gasoline prices, partly offset by a shekel rise against the dollar.
Finance Minister Bezalel Smotrich moved quickly to reverse the increase, and the Finance Ministry published a draft order on Sept. 3 to cut the excise tax by 0.5 shekels per liter, bringing the price down to 7.75 shekels ($9.70 per gallon). Following a public-comment period that closed this weekend, the new price took effect at midnight between Sunday and Monday.
Israel is governed by a so-called “caretaker administration” ahead of the Oct. 27 election, meaning the current government is subject to certain temporary restrictions on what it may do. Therefore, the move required special legal clearance since a transition government may only act on urgent or essential matters.
Attorney General Gali Baharav-Miara approved the cut late on Wednesday, with the Finance Ministry’s legal opinion leaning on a 2022 precedent when a similar fuel-tax reduction was permitted close to an election under then-Finance Minister Avigdor Liberman.
Finance Ministry experts reportedly warned the state cannot easily absorb the loss in tax revenue: Israel’s Channel 12 estimated the cut at roughly 300 million shekels ($100 million) a month, while a report on the Ynet website put the figure closer to 155 million ($51.4 million). Either way, the criticism arrived on cue with Israeli media describing the move as “election economics,” a familiar label for government relief that lands suspiciously close to a vote.
This is not the first time Israel has hit the 8.25-shekel mark and reversed course through an emergency tax cut. Prices reached similar territory in 2022, when Liberman ordered a series of excise cuts to curb public anger. It was Smotrich himself who abolished that standing fuel-tax subsidy in early 2024, citing the widening wartime budget deficit.
This month’s cut is, in effect, a reversal of his own earlier policy. Regular-grade gasoline had already climbed from 6.88 shekels per liter ($8.65 per gallon) in February 2026 to the September record, an increase of nearly 20% in seven months.
Why is Israeli gasoline so expensive, anyway?
The immediate news cycle aside, Israel’s gasoline prices reflect policy choices as much as geopolitics.
The price at the pump is a government-regulated maximum calculated by the Ministry of Energy and Infrastructure toward the end of each month, based on the average fuel prices in the Mediterranean basin and the exchange rate to the dollar. Layered onto that is one of the developed world’s heaviest fuel-tax burdens. The Globes financial daily reported that taxes and fees have consistently made up roughly 55%-60% of what Israeli drivers pay per liter, with the excise tax alone often exceeding a third of the total.
Because that is levied as a fixed shekel amount per liter rather than as a percentage of the oil price, the tax burden swings dramatically with global crude. For example, a 2020 analysis found that when oil prices collapsed early in the COVID-19 pandemic, the tax share of Israel’s pump price spiked to a historic 78%.
As of Aug. 31, the GlobalPetrolPrices website lists Israeli gasoline at roughly $2.81 per liter against a global average of $1.54, making it the sixth-most-expensive gasoline worldwide.
What comes next
The excise cut is set to expire on Oct. 31, four days after the election, meaning the government has effectively bought motorists a temporary half-shekel reduction through Election Day, while leaving the harder question for the government that emerges from it. That decision will hinge on Israel’s finances after a costly two-front reality showing a war-strained budget at home, and a fuel market destabilized by Iran abroad.
For now, Israeli drivers get a half-shekel discount. But the structural exposure of a heavily taxed, tightly regulated market sitting downstream of a foreign conflict with Iran that produced the record price has not gone anywhere.
