- The current energy shock is fundamentally a supply disruption, not just a price event, with Asia most at risk. The blockage of the Strait of Hormuz has disrupted around 20mb/d of oil flows (roughly 1/5th of global supply), leaving a net shortfall of ~10mb/d despite rerouting, additional supply and strategic reserve releases. The resulting supply-demand gap has been closed through higher oil prices (Brent +30% since the war began), which have lowered consumption. Physical scarcity is already visible: jet fuel is tightening, diesel is being rationed and industrial users in price-controlled markets face outright shortages. Asia is most exposed (85% of Hormuz oil flows vs. less than 6% to Europe and 4% to the US), driving a persistent 6–7% price premium above Brent. A first policy response, mainly by Asian countries, has been demand rationing (shortened working weeks, energy usage and fuel restrictions) cutting global demand by ~1mb/d.
- Fiscal support followed swiftly, primarily through fuel-tax relief and subsidies (~0.15% of GDP in developed markets and ~0.20% in emerging markets on average). On price support Asia leads again, with large EMs (South Korea, India, Indonesia) deploying fiscal packages >1% of GDP vs. a global average of ~0.2%. Similarly, in developed markets, large EU energy importers average ~0.4% of GDP vs. ~0.15% overall. However, deeper pockets buy more: Germany’s small 0.04% of GDP package translates into USD22 per capita while India’s package of 1.5% of GDP, despite being 37 times larger in relative terms, only translates to a mere USD40 per capita. Should the conflict prove more prolonged (beyond May), a “second salvo” of fiscal support would raise spending to 0.6-0.8% of GDP, as governments would respond to higher energy price pass through with a 2-6 months lag. Nonetheless, no fiscal transfer can resolve the supply-demand mismatch, which will need to be cleared via demand destruction.
- Compared to 2022, the shock differs in two key ways: fiscal support is materially smaller, but proportionally similar (around 50% in Europe as the size of the energy price shock is also lower) and price transmission has weakened due to structural shifts in the energy mix. This reflects policy learning , the perception of a temporary shock and fiscal limits, with governments allowing greater pass-through rather than repeating large-scale shielding (e.g. France announcing later and more targeted measures, Belgium taking no measures). Meanwhile, in the European power market, higher wind and solar penetration has reduced the gas-to-electricity pass-through seen in 2022, but gas remains indispensable for grid balancing Spain stands out with electricity prices around 70% lower than in Italy, reflecting a higher renewables share and better storage capabilities.
- For now, fiscal costs for most countries are negligible but EMs with high energy import dependence and a deteriorating current account are vulnerable (Türkiye, Egypt, Morocco, and Hungary). Debt‑servicing costs will rise by around 0.05% of GDP annually in advanced and emerging economies on average. entirely from a higher debt stock. Interest rates have risen only modestly (US/DE: +30bps, EM hard currency: +20bps, local currency: +30bps), with an even lower change in real rates. A gradual pass-through given slow debt rollover raises debt-servicing costs only marginally through this channel. On the flip side, higher inflation could even dampen the debt burden (inflation tax) and thus debt-service costs but the currently expected increase in inflation is far below 2022, thereby limiting this effect. Some EMs nevertheless stand out: fiscal fragility and elevated debt service are most acute in Egypt, Hungary and Poland. Currency depreciation amplifies the damage in nations with a high share of hard currency debt: Türkiye, Argentina and Egypt. Nevertheless, not all emerging markets are on the losing side of the energy shock: Higher prices are a windfall for energy producers such as Nigeria, Brazil, Colombia and Ecuador.