Facing higher energy prices linked to tensions in the Middle East, many governments have adopted tax cuts, price caps, supplier assistance or household transfers. These measures limit the immediate shock for consumers, but shift part of the bill to public finances and state-owned companies in the sector.
The United Nations Development Programme estimates that fossil fuel subsidies could reach $1.1 trillion in 2026, around $410 billion more than in 2025, under a scenario with an average oil price of $88.60 per barrel. Its adverse scenario puts the estimate at $1.43 trillion if oil averages $110. These are projections sensitive to prices and government measures, rather than expenditure already recorded in budgets.
Protecting consumers while transferring costs
An explicit subsidy notably occurs when retail prices are held below supply costs or the state directly pays part of the bill. Tax reductions, distributor assistance and compensation to a state-owned company can also lower pump prices while weighing on public revenue or expenditure.
This distinction matters because subsidy estimates vary according to definitions. The International Monetary Fund (IMF) separates explicit subsidies, notably budget support or prices below supply costs, from implicit subsidies linked to social and environmental costs not incorporated into prices. The UNDP’s estimated $1.1 trillion for 2026 describes a budget response to the energy shock; it must not be confused with the full implicit costs estimated by the IMF.
For importing states, keeping prices artificially low can offer households and transport businesses a respite. However, if global prices remain high, the gap between product purchase costs and domestic sales prices accumulates. The burden can appear in the budget, state company accounts, supplier arrears or borrowing requirements.
The IMF has recorded nearly 900 energy-shock-related economic policy measures across around 170 countries. Its monitoring shows diverse responses: support for producers and distributors, excise cuts, tariff caps, pricing formula adjustments and rationing. OECD monitoring, covering a subset of 49 economies, counted more than 240 measures in September. These databases have different scopes, but describe a shared trend: governments seek to limit the transmission of international prices to domestic markets.
African importing countries are particularly exposed
In many sub-Saharan African countries, imported fuels are essential for transporting people and goods. The World Bank estimates that road transport accounts for around 80% of imported fuel consumption in Africa and median gasoline and diesel import expenditure reaches 3.6% of gross domestic product, a higher proportion than in other regions.
Sustained oil price increases therefore affect both external accounts and budgets. Importers must find more foreign currency to purchase refined products. If the state freezes prices, it must compensate the gap or accept accumulating losses at the national company. If prices adjust quickly, costs pass more directly to households and businesses, potentially accelerating inflation and reducing purchasing power.
Effects extend beyond motorists. Transport costs influence food prices, agricultural inputs, construction materials and many services. Small businesses, self-employed drivers and public transport operators often have little room to absorb a sudden increase.
The risk of broad support without an end date
Universal assistance is quick to deploy and politically visible. It also benefits households and businesses consuming more fuel, despite limited budget resources. Price caps without clear end dates can become difficult to withdraw even after international prices fall.
Abrupt withdrawal nevertheless entails significant social and economic risks. Rapid increases in transport and essential product prices can disproportionately affect low-income households. Previous reforms have shown that lasting subsidy reductions need credible protection measures communicated before price increases.
Target assistance without abandoning households
International organizations recommend protecting people rather than uniformly subsidizing fuel prices. In practice, this can involve temporary transfers to vulnerable households, affordable public transport fares, limited assistance to the hardest-hit sectors or targeted allowances for essential uses.
The choice of tools depends on each country’s administrative capacity. Targeted transfers are easier to manage where social registers, payment systems and beneficiary identification are reliable. Where these systems are less developed, a simple temporary scheme may be more realistic, provided costs and duration are published.
Governments can also improve resilience by diversifying supply sources, strengthening stocks, reducing logistics losses and improving transport efficiency. These investments require short-term resources but can limit the cost of future crises. For countries with domestic energy resources, local refining and distribution can reduce some exposure to external markets, without insulating domestic prices from global costs or independently resolving financing constraints.
A trade-off that will shape markets
Indicators to monitor include the gap between domestic prices and import costs, budget support expenditure, state company debts, refined product stocks and tariff revision schedules. Global price trends remain decisive: falling oil prices ease pressure, while persistently high prices make extended schemes more expensive.
The subsidy crisis therefore does not pit social protection against budget discipline. It requires governments to choose who receives assistance, for how long and through which mechanism. In African economies heavily dependent on imports, the quality of this trade-off will influence purchasing power, state company stability and governments’ capacity to invest in less vulnerable energy security.