Iran war causes global pain at the pump
· Axios
The Iran war is driving fuel prices higher worldwide, leading to angry protests around the globe and straining the economies of countries that have nothing to do with the war.
Why it matters: It's not just driving up prices in the U.S. The war is causing problems around the world — in some cases far worse than anything Americans are experiencing.
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- The surge in prices squeezes consumers, and worsens the finances of governments trying to contain the shock — especially poorer and developing countries with little fiscal running room.
- It affects many nations that are also facing higher prices for natural gas, diesel and other fuels.
Zoom out: The map above, based on World Bank data, shows the upward global trend.
Yes, but: Price increases vary greatly from country to country.
- A number of countries that are heavily reliant on fuel imports, like Pakistan and Myanmar, have seen steep price hikes.
- But the U.S., the world's largest oil and gasoline producer, also has soaring prices.
- Crude oil prices, the biggest input into gasoline costs, are set on global markets. The U.S. federal government, unlike some nations, has not set caps or subsidies on retail prices.
Context: Ukrainian drone strikes on Russian refineries are also helping to boost motor fuel prices, especially diesel.
The big picture: With no resolution to the conflict in sight, many governments face hard choices — strain their budgets with fuel support or face the political consequences of higher fuel costs.
State of play: Dozens of nations have taken steps to cap, subsidize or lower taxes on various fuels, per the International Energy Agency. Governments are also taking steps to reduce demand, such as more remote work and limiting government travel.
- The International Monetary Fund is worried about the fiscal hit from price supports, especially if they outlast the energy shock.
- "[A] large share of measures described as temporary lack clear expiration dates or fiscal cost estimates," senior IMF officials wrote over the summer.
What they're saying: "Many places have failed to reduce demand and are instead artificially constraining prices," said Joseph Webster, an energy scholar with the Atlantic Council.
- "This approach is misguided: gradual, managed demand reduction is far less politically damaging than sudden, sharp, and chaotic rationing," he said via email.
- He also said countries should taper withdrawal of subsidies, because allowing prices to soar overnight can bring unrest.
Zoom in: Rising fuel costs are compounding existing inflation, public debt and youth unemployment problems in Kenya, Carnegie Endowment for International Peace scholars wrote in late August.
- It's also among the nations slammed with higher fertilizer costs as a result of the war.
- The country, which relies heavily on Middle East fuel imports, had major protests in May, and its problems are not unique.
"Kenya's case serves as a signal for others in the region caught downstream of the war's economic blow," they write, arguing for greater "resilience" measures that make nations less vulnerable to external shocks.