The Energy Shock Is Testing Government Budgets

IMF Blog, June 18, 2026

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Publication date: June 18, 2026
Authors: Era Dabla-Norris, Christian Mumssen, Rodrigo Valdés, Daria Zakharova
Central message: Governments are responding to the energy shock caused by the war in the Middle East with many untargeted and potentially expensive policies, reducing fiscal room to address future shocks. The recommended principle: protect people, not prices.

The tracker has recorded nearly 900 policy measures introduced across about 170 countries since the beginning of the war.
Fiscal measures dominate the response, with governments cushioning higher energy prices by limiting pass-through to consumers and firms.
Composition and sequencing of current policies broadly resemble those used during the 2022 energy shock, but with different fiscal and economic circumstances (higher debt service burdens, limited fiscal space, heightened uncertainty, recurrent shocks).

Advanced economies:
- Almost half of measures are subsidies to energy producers and distributors.
- Another third are cuts to fuel excise taxes aimed at containing retail price increases.
- European countries have leaned heavily on fiscal and pricing measures to cushion households.
Emerging economies:
- Fiscal measures account for around half of recorded policies.
- Many have used price controls (fuel price caps, adjustments to pricing formulas) and other administrative interventions.
Regional patterns:
- Middle East and Central Asia: monetary and financial tools play a larger role, alongside fiscal expansion in oil-exporting economies.
- Africa: greater reliance on pricing and supply-side measures.
- Parts of Asia: use of demand management, including conservation and rationing.
- Western Hemisphere: mixed approach.
Countries with higher debt and heightened fiscal risks (including emerging market economies) have relied more on pricing measures and demand suppression (fuel rationing, mandated remote work, travel restrictions).
A subset of countries have allowed administered prices to rise, scaled back subsidies, or suspended price-smoothing mechanisms—choices that preserve price signals and contain fiscal costs but require strong safety nets or compensatory interventions.

Temporary measures often lack clear expiration dates or fiscal cost estimates, risking permanence through incremental extension.
Fiscal costs can escalate quickly:
- Broad-based subsidies and tax cuts are expensive, particularly when extended beyond the initial phase of a shock.
- Price caps by oil importing countries risk becoming impossible to finance if global fuel prices escalate further.
Hidden costs:
- Pricing measures that compress margins—especially in state-owned energy companies—can generate losses that later surface as contingent liabilities on the public balance sheet.
Global spillovers:
- Widespread suppression of price pass-through can weaken global adjustment; when many countries shield consumers, demand responds less, contributing to tighter markets and potentially higher global prices.
Trade-off over time:
- The more fiscal space is used today on broad price support, the less remains available tomorrow to respond to escalations of the conflict, further energy disruptions, or other shocks.

Principle: protect people, not prices.
Recommended strategy:
- Allow administered prices to adjust where feasible.
- Ensure fiscal interventions are temporary and targeted to protect vulnerable households and firms.
- Strengthen safety nets or implement compensatory measures (for example, containing public transportation tariffs) if prices are allowed to rise.
- Preserve fiscal space to retain capacity to respond to future shocks in an uncertain, shock-prone world.
Note: Some countries are already shifting toward allowing prices to adjust and targeting support; others are advised to follow suit to achieve more sustainable fiscal outcomes.

Source: The Energy Shock Is Testing Government Budgets — IMF blog, June 18, 2026