Governments globally roll out measures to blunt effect of Iran war energy shock on consumers

Governments from Asia to Europe are scrambling to shield consumers from surging fuel and food costs triggered by the US-Israeli war on Iran, rolling out measures ranging from fuel subsidies and price caps to emergency commodity releases.

The conflict has halted a fifth of the world’s oil and liquefied natural gas supply from the Middle East and forced top regional energy producers Saudi Arabia, the United Arab Emirates, Kuwait, Iraq and Qatar to cut output in what the International Energy Agency termed the largest disruption to energy supplies the world has ever endured.

The benchmark international Brent crude contract settled on Friday at $102.90 a barrel, a 42 per cent increase since the outset of US-Israeli strikes on Iran at the end of February. The IEA is coordinating the largest-ever release of oil from emergency stockpiles and the United States has eased sanctions on Russian oil exports as a temporary salve for the supply shortage.

But countries most heavily dependent on energy imports are facing soaring prices and fuel shortages due to the disruption of shipping from the key Strait of Hormuz, where several vessels have been attacked as Iran uses its position at the narrow strait to blunt US military power.

Governments are taking numerous steps to deal with the magnitude of the shock to cushion businesses and households as transportation and power bills rise. Some are leaning on subsidizes to try to prevent rising fuel costs from trickling into other parts of the economy, such as food prices and supply chains.

“A central question is how long importers can sustain fuel supply before shortages deepen,” said Natasha Kaneva, head of global commodities research at J.P. Morgan, in a Friday research note.

South Korean officials said they are considering providing additional energy vouchers to subsidise vulnerable households if rising fuel prices push up electricity bills.

The government is also preparing contingency plans to boost nuclear and coal-fired power generation if LNG supplies from the Middle East remain disrupted.

FOOD PRICE PRESSURES

Governments are also moving to prevent higher energy costs from quickly feeding into food inflation.

In Egypt, authorities capped prices for unsubsidised bread sold in private bakeries as rising fuel and transport costs threaten to drive up food prices.

Bread is a staple for millions in the country, one of the world’s largest wheat importers, making price increases politically sensitive.

Concerns about rising farming costs have also prompted action in China, which will release fertilizers from national reserves ahead of the spring planting season to stabilise prices and ensure farmers have adequate supplies.

POWER AND GAS MARKETS

Across Asia and Europe, governments are also stepping directly into energy markets to cushion households from rising fuel and power costs.

The Philippines said it may regulate electricity prices as soon as next week while ramping up coal-fired generation to counter soaring LNG costs. Benchmark LNG prices in northeast Asia fell this week from three-year highs, but remain far above levels from before the war started.

In India, authorities urged households not to panic-buy liquefied petroleum gas cylinders and encouraged consumers to switch to piped natural gas where possible to ease pressure on supplies.

India consumed 33.15 million metric tonnes of cooking gas last year, with imports accounting for about 60 per cent of demand. About 90 per cent of those imports came from the Middle East.

Europe is also looking to safeguard gas flows, with benchmark Dutch gas prices now about 50 per cent higher than their pre-war level.

The European Commission is preparing guidance that would allow more flexible enforcement of certain gas import rules to avoid delaying shipments needed to stabilise supplies during the crisis.

Diplomats said the move could benefit imports from Azerbaijan, whose pipeline gas reaches Europe through the Southern Gas Corridor.

SUBSIDIES AND TAX RELIEF

Many governments are also turning to subsidies and fiscal tools to contain rising prices.

In Malaysia, the government said it will increase spending on petrol subsidies to about $510 million to keep the price of its widely used midrange RON95 fuel fixed, and authorities in Ethiopia sharply increased fuel subsidies to cushion consumers.

European governments are also weighing tax measures. Italy’s Prime Minister Giorgia Meloni said the government is considering cutting fuel excise duties while warning it could impose higher taxes on companies seen as profiting excessively from the crisis.

Australia said it would release petrol and diesel from domestic reserves and temporarily loosen fuel quality standards to boost available supply, particularly in rural areas facing shortages.

Brazil has cut diesel taxes and imposed a levy on crude exports to help stabilise domestic fuel costs.