Oil Price Shock Sends Subsidy Wave Sweeping the Globe

High oil prices are spreading rapidly across the globe, causing government finances to be squeezed. The number of countries implementing fuel subsidies has more than doubled in the past four months, from 16 to 38. When all forms of consumer support measures, including energy tax reductions and cash transfers, are counted, the total reaches 94 countries.

According to data analysis from the International Energy Agency (IEA), beyond the 38 countries with direct fuel subsidies, the number of countries reducing energy taxes has also increased from 40 to 57. The timing of this subsidy expansion is particularly challenging as global sovereign financing conditions are tightening simultaneously, with U.S. government borrowing costs climbing to their highest level since 2007.

In Europe, natural gas inventories are at record lows heading into winter, making wholesale gas prices and potential fiscal subsidies even more dependent on supply and demand dynamics in the coming months. The Group of Seven (G7) will discuss further releases of strategic oil and fuel reserves in the coming weeks, which could push down energy prices and indirectly ease government subsidy pressures.

African countries are also struggling with rising fuel prices driving up inflation, forcing governments to take intervention measures. In the United States, diesel prices have broken historical records, reaching nearly $6.45 per gallon last Friday, up 70% since the outbreak of the war. The U.S. government has yet to introduce nationwide tax relief or subsidy measures.