A global energy supply crunch is once again forcing difficult policy choices. Governments have moved quickly with support measures, but reliance on broad-based interventions highlights the need for targeted, temporary policies that limit fiscal costs while strengthening resilience to future shocks.
Cassie Castle, OECD Economics Department
The closure of the Strait of Hormuz, a narrow waterway carrying roughly a quarter of global oil flows and 20% of the world’s LNG trade, has become the pressure point of a new energy price shock. Prior to the conflict, the global economy had been showing signs of resilience — but that is now being put to the test.
The impact on energy markets has been immediate. Brent crude prices are sharply higher, but refined products — such as diesel and jet fuel — have been hit even harder. Gas markets have tightened as buyers compete for shrinking LNG supplies with effects already spreading: fertiliser costs rose around 25% in March alone. If prices stay elevated, crop yields could suffer and push food prices higher next year.
Exposure to the shock varies by country, households, and firms
Although many countries import energy directly from the Middle East, the shock is not landing equally. Many large net importers have significant short-term buffers — but for countries with limited reserves, high import dependence and constrained fiscal space, particularly in Southeast Asia, the exposure is far more acute. And indirect exposure matters just as much: economies reliant on refining hubs for processed fuels are also feeling the pressure.
The impact varies widely within countries too. Energy accounts for around 17% of household budgets in Latvia but just 5% in the United Kingdom – meaning the same price increase can have very different effects on living standards across and within economies. Lower-income households are particularly exposed, as are firms in transport, agriculture and energy-intensive manufacturing.
Energy support measures in response to the 2026 energy crisis
Since the onset of the crisis, the OECD is tracking government support to shield households and firms from the energy price shock in OECD and key non-OECD economies through its Energy Support Measures Tracker. According to the most recent update, the most common measures implemented by 20 April 2026 include fuel tax cuts, subsidies, and regulated price interventions aimed at limiting pass-through of higher energy prices to consumers and businesses.
Around 60% of announced measures by OECD countries are temporary, meaning they carry an explicit end date or are designed as one-off interventions. Around 30% are targeted, with a large share of support focused on sectors most exposed to fuel price increases such as agriculture and road freight transport. Less than 25% of measures are both temporary and targeted. This is a concern: well-designed support should ideally be both.
Lessons from the last crisis: high costs, limited targeting, reduced incentives to save energy
This shock echoes the 2022-23 energy crisis and so do the policy risks. The recent OECD Interim Economic Outlook highlights that discretionary support during the 2022-23 crisis was often poorly targeted and costly, with some measures persisting despite improving conditions.
That episode showed how quickly broad-based support can become costly: across 41 OECD and non-OECD countries, announced support measures reached roughly USD 400 billion in 2022 and USD 405 billion in 2023 (in gross terms). In the median OECD economy, this amounted to fiscal costs of about 0.7% of GDP in 2022 and 0.8% in 2023, with support exceeding 2.5% of GDP in some countries.
Across OECD and partner economies, around 80% of energy support across OECD and partner economies during 2022–23 was untargeted, contributing to significant fiscal costs at a time of already elevated public debt.
These experiences underline a central challenge: while governments must act quickly in the face of energy shocks, poorly designed interventions can create lasting economic distortions and fiscal burdens.
Three key principles for better policy design
The 2022/23 experience points to three clear lessons:
- Target support toward vulnerable households and viable, exposed firms;
- Embed clear sunset clauses or expiry dates;
- Preserve price signals to maintain incentives for energy savings – in particular during a supply crunch.
A more constrained policy environment
Today’s policy choices are further complicated by tighter macroeconomic conditions. Public debt ratios are elevated, and governments face multiple competing spending pressures—from higher interest rates, defence to ageing populations.
The OECD projects that higher energy prices and the unpredictable nature of the evolving conflict will add to inflation and weigh on demand.
This combination limits the scope for large-scale fiscal interventions and increases the importance of well-targeted, cost-effective measures.
Looking ahead: from crisis response to resilience
Repeated crises underscore that lasting resilience also hinges on preparedness and reducing the energy system’s structural exposure to price volatility and supply disruptions. This means:
- Diversifying energy supply across fuels, technologies and geographies
- Investing in low-emission energy and storage
- Improving energy efficiency across sectors and households
These reforms take time, but their absence is precisely what makes each new shock so costly.
References:
OECD (2026), “Energy prices are spiking again: New relief measures, old lessons”, OECD Publishing, Paris, https://doi.org/10.1787/a68e5c37-en.
Hemmerlé, Y. et al. (2023), “Aiming better: Government support for households and firms during the energy crisis”, OECD Economic Policy Papers, No. 32, OECD Publishing, Paris, https://doi.org/10.1787/839e3ae1-en.
OECD (2026), OECD Economic Outlook, Interim Report March 2026: Testing Resilience, OECD Publishing, Paris, https://doi.org/10.1787/d4623013-en.
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