Fuel prices in Cyprus are expected to see a sharp, but temporary, rise due to the conflict between Israel and Iran in the Middle East, Energy Minister George Papanastasiou said on Friday, adding that much of the pressure is driven by market psychology.

“We would not be realistic if we weren’t concerned,” he said, pointing to psychological factors often driving speculative price hikes.

The minister reassured the public that Cyprus holds sufficient state fuel reserves and is closely monitoring the situation alongside industry players. He also left open the possibility of intervening in the market should he detect “suspicious price movements”.

Papanastasiou emphasised that not all price increases reflect real shortages. In many cases, traders raise prices to protect profit margins in uncertain conditions.

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“When the risk is higher, so is the drive for greater returns,” he explained.

Despite concerns over regional instability, the minister pointed out that the influence of Middle East tensions on global fuel prices is now weaker than in past decades. This is largely due to the diversification of oil sources.

“Crude oil production is no longer concentrated in the Gulf,” he said. 

Countries such as the United States now account for about 15 to 16 per cent of global oil output. As a result, only around 10 per cent of the world’s crude passes through the Strait of Hormuz today, a significant drop from the 25-30 per cent share in previous years.

While a spike in prices is expected due to the Israel-Iran conflict, Papanastasiou believes the increase will be brief.

“There will be a sharp rise, what we call a ‘spike’,” he said. 

“But this will fade once markets realise that energy supplies remain largely unaffected.”

Prices are likely to settle slightly above pre-crisis levels, he added, noting that the current upward trend is starting from a relatively low base, with oil prices having been subdued in recent weeks.

The ongoing energy transition is also playing a role. Increased use of renewables in Europe and elsewhere, along with diversified oil production, is reducing dependence on fossil fuels, which helps cushion price shocks.

This forecast assumes that the conflict does not escalate or draw in additional countries, the minister clarified. The projection is in line with views from international energy and geopolitical analysts.

Cyprus, which still relies heavily on fossil fuels for transport and aviation, is not facing any immediate risk, according to Papanastasiou. The country holds emergency fuel stocks of all types and has mechanisms in place to manage supply in crisis conditions.

He revealed that the ministry recently authorised the release of jet fuel reserves due to the loss of supply from Haifa and increased demand at Cyprus airports, which are now serving as transit points for both civilians and military personnel.

However, the minister stressed that these state reserves are only to be used sparingly and only when commercial suppliers cannot meet demand in time.

“We are not yet in such a crisis,” he said.

By EU regulation, Cyprus is required to maintain fuel reserves covering 90 days of the previous year’s sales. The island currently exceeds this threshold, although not all stocks are stored on the island, some are kept in other EU countries.

While recent price increases of 1.5 to 2 cents per litre are in line with current import costs, Papanastasiou said he is prepared to step in if unjustified surges appear.

On the matter of the green fuel tax, the minister acknowledged calls for its delay given the geopolitical situation but said the tax stems from binding obligations to the European Commission. Its implementation, already postponed once or twice, must now proceed to meet Cyprus’ commitments to EU funding programmes.

Still, he expressed understanding for public concern and said the government is studying the broader impact on the market.