The wider the gap between the global price and the cost borne by the consumer, the larger the share of the shock transferred to the public budget. This intervention may be justified when the shock is sudden and severe, especially to protect the least able to bear it, but the problem begins when the exceptional treatment turns into an open commitment, or when price stabilization becomes a permanent alternative to building more targeted social protection.
The United Nations Development Programme estimates the size of this equation at the global level. The report issued on June 29, 2026, estimates that global fossil fuel subsidies may reach about $1.1 trillion during the year, an increase of nearly $410 billion from 2025, if the average oil price stabilizes at $88.6 per barrel. In a more severe scenario, where the average price rises to $110, the bill could reach about $1.43 trillion. The program notes that these responses have mitigated the immediate impact of rising prices, but have come at a high financial cost, especially in developing economies already facing debt pressures and fiscal tightness.
The paradox here is that the government does not eliminate the cost of rising energy when it intervenes to stabilize prices; it redistributes it. If the treasury bears part of the increase, the source of funding will be public revenues, or a reallocation of spending priorities, or borrowing, depending on the nature and size of the policy. As the pressure continues, the bill for absorbing the shock can turn into pressure on the deficit, debt, and debt service, and thus to fewer resources available for investment and services later.
This does not mean that all energy support inevitably weakens public finances, as the impact is determined by the size of the intervention, its duration, its source of funding, and who receives it. But the risk increases when the support is comprehensive and not time-bound, as it consumes public resources to cover part of the energy cost for all consumers, including those who can afford the actual price, instead of focusing resources on those who really need them.
This is where the importance of what the International Monetary Fund describes as the principle of 'protecting people, not prices' becomes clear. The Fund has recorded 879 economic measures in 167 countries in response to the war and energy-related shock, including financial and pricing measures. The Fund notes that the current financial conditions are more difficult compared to the previous energy shock, due to rising debt service burdens, declining fiscal space, and increasing uncertainty.
The essence of the matter, therefore, is not whether the state should intervene, but how it intervenes. Leaving prices to reflect the global cost may quickly transfer the shock to transportation, food, and production, especially in energy-importing economies, but keeping prices low for everyone indefinitely transfers the cost to the public finances and weakens the price signal that helps rationalize consumption.
This is why the IMF pushes for temporary and targeted measures that allow, as much as possible, the global changes to be reflected in local prices, while protecting the most vulnerable households through direct support or targeted transfers, and supporting viable establishments facing temporary liquidity pressures. The economic idea here is not to cancel protection, but to change the entity that protection targets and the way it is provided.
This design becomes more important because the energy shock does not stop at fuel. Energy enters transportation, manufacturing, agriculture, and storage, and the cost of producing and pricing fertilizers is linked to energy, gas, and raw materials. When high energy prices coincide with supply disruptions, shipping costs, or agricultural production, the shock's transfer to food becomes more likely, turning the issue from a rise in the energy bill to a broader rise in the cost of living.
In developing economies, this cycle is more sensitive. Lower-income households allocate a larger share of their resources to food and energy, while budget margins are narrower and social protection networks are less extensive in some cases. Therefore, a sudden price increase may relieve the burden on the treasury, but it may increase the burden on households and productive sectors more quickly than they can absorb.
This is why the gradual design of the policy is more important than making a binary decision between'support' and 'cancellation of support'. According to its circumstances, the state can allow part of the price to move with the market, while directing direct support to the most affected groups, and setting a clear financial ceiling for the intervention and a time limit for reviewing it. In this way, the shock does not disappear, but it also does not turn into an open financial commitment.
On the other side of the equation, central banks face a different difficulty. The rise in oil, food, and shipping prices is essentially a supply shock, not just an increase in demand that can be curbed by raising interest rates. Tightening monetary policy can limit the shock's transfer to core inflation, expectations, and other prices, but it cannot increase oil production, reduce fertilizer costs, or reopen disrupted supply routes.
This explains the sensitivity of the current phase for policymakers. The International Monetary Fund, in its update to the Global Economic Outlook issued in July 2026, noted that the downward trend in global inflation that began in early 2024 has stopped, raising the global inflation forecast to 4.7% in 2026, with an expected decline to 3.9% in 2027. At the same time, the Fund kept its global growth forecast at 3% in 2026 and 3.4% in 2027, with ongoing risks associated with renewed conflict and financial asset repricing.
Thus, economic policy finds itself facing a complex equation: preserving purchasing power on the one hand, and not pushing inflation to more persistent levels on the other, while avoiding depleting the fiscal space needed by the state if a new shock comes.
This challenge will be more evident in 2027. The problem is not the rise in oil prices over a limited period, but the possibility that governments will enter next year after spending a large part of their fiscal margin on absorbing the shock of the current year. Then, their ability to intervene in a new crisis will be weaker, whether the crisis is related to energy, food, finance, or climate disasters.
Therefore, the importance of looking at energy support as a risk management tool, not as a permanent pricing policy, becomes clear. The more the intervention is time-bound, financially capped, and targeted, the more its impact on the budget can be contained. When coupled with improved energy efficiency, diversification of sources, strengthening strategic reserves, and developing social protection networks, the state becomes less exposed to the recurrence of the same shock.
This priority increases in light of what the United Nations Development Programme has indicated, that nearly half of the world's poorest countries are already in a debt distress situation or at high risk of reaching it, while governments are forced to divert resources from health, education, and infrastructure to deal with the impact of the shock.
Therefore, the most important economic question is no longer: How much can the government support? But: How much can it spend on protection without depleting its ability to protect citizens in the next crisis?
The difference is fundamental. Effective social protection does not necessarily mean keeping prices low for everyone, and financial sustainability does not mean leaving families to face the shock alone. The most sustainable policy is one that distributes the cost of the crisis according to the ability to bear it, protects the most vulnerable groups, and at the same time preserves the state's resources for services and investment.
In the end, the cost of support does not only appear in a direct financial item; it can also appear in what the state cannot spend later. When the resources allocated for investment are eroded, debt service rises, or the ability to respond to new shocks is reduced, the protection bill becomes deferred rather than a final solution.
Maintaining the citizen's ability to face the energy shock, therefore, requires parallel maintenance of the state's financial capacity to face what comes after it. This is the equation that makes energy support management today part of managing economic stability for years to come, not just a temporary response to oil price movements.
