The Iran war is driving fuel prices higher worldwide, creating economic strain for nations uninvolved in the conflict and prompting angry protests. While the U.S. sees soaring prices, the impact is often more severe in developing countries with limited fiscal capacity, raising questions about how governments manage the resulting budget shocks.
Axios research based on World Bank data indicates an upward global trend in fuel costs. The surge squeezes consumers and worsens government finances, particularly in poorer and developing nations that have little room to absorb the shock. Many of these countries are also facing higher prices for natural gas, diesel, and other fuels.
Price increases vary significantly by country. Nations heavily reliant on fuel imports, such as Pakistan and Myanmar, have experienced steep hikes. The United States, despite being the world's largest oil and gasoline producer, also faces soaring prices because crude oil costs are set on global markets. Unlike some other nations, the U.S. federal government has not imposed caps or subsidies on retail prices.
Ukrainian drone strikes on Russian refineries are also contributing to higher motor fuel prices, particularly for diesel. With no resolution to the conflict in sight, governments face difficult choices: strain their budgets with fuel support or risk political consequences from higher consumer costs.
According to the International Energy Agency, dozens of nations have taken steps to cap, subsidize, or lower taxes on various fuels. Other governments are attempting to reduce demand through measures such as increasing remote work and limiting government travel. The International Monetary Fund has expressed concern about the fiscal impact of these price supports, especially if they outlast the initial energy shock. Senior IMF officials noted in a summer statement that a large share of measures described as temporary lack clear expiration dates or fiscal cost estimates.
Joseph Webster, an energy scholar with the Atlantic Council, criticized current strategies via email. He stated that many places have failed to reduce demand and are instead artificially constraining prices. Webster argued that this approach is misguided, suggesting that gradual, managed demand reduction is far less politically damaging than sudden, sharp, and chaotic rationing. He advised that countries should taper the withdrawal of subsidies to avoid unrest caused by overnight price spikes.
In Kenya, rising fuel costs are compounding existing inflation, public debt, and youth unemployment problems, according to scholars at the Carnegie Endowment for International Peace writing in late August. Kenya, which relies heavily on Middle East fuel imports and has faced major protests since May, is also dealing with higher fertilizer costs resulting from the war. The scholars described Kenya's situation as a signal for other regional nations caught downstream of the war's economic blow. They argued for greater resilience measures to make nations less vulnerable to external shocks.