What Happened
The energy shock has entered a new phase: governments around the world are increasingly absorbing the cost themselves. The number of countries directly subsidizing fuel has more than doubled in four months, from 16 to 38, while 57 governments have reduced energy taxes and 94 countries now provide some form of consumer energy support. The expansion comes as oil and refined-fuel prices remain exceptionally high and governments face mounting pressure to protect households and businesses. This is occurring while global public debt is already unusually elevated; the International Monetary Fund estimates government debt reached 93.9% of global GDP in 2025 and could exceed 100% later this decade. Financial Times Financial Times: Fuel subsidies spread as the energy crisis strains government finances | Reuters: IMF warns governments against broad energy subsidies
How This Affects Ordinary People
Subsidies can provide important short-term relief by preventing the full increase in oil, diesel, electricity and natural-gas prices from immediately reaching household budgets. But someone ultimately has to pay the difference, and increasingly that payer is the government. The consequences can eventually appear as larger budget deficits, higher taxes, reduced spending elsewhere or increased government borrowing. Bangladesh illustrates the dilemma particularly clearly: after absorbing large losses through its state petroleum company, the government has now raised diesel prices 17.4%, from 115 to 135 taka per litre, while gasoline increased from 140 to 160 taka. Businesses warn that the higher transportation and production costs could produce layoffs and downsizing, particularly in the country’s enormous garment industry. Reuters Reuters: Bangladesh raises fuel prices as government losses mount | Financial Times: Governments struggle to shield consumers without damaging public finances
Why This Matters
This creates a potentially dangerous connection between the energy crisis, inflation crisis and sovereign-debt problem. Governments are borrowing more precisely when global interest rates are rising again, meaning each additional dollar of debt is becoming more expensive to service. The IMF has already cautioned governments to favor temporary, targeted assistance over broad fuel subsidies because generalized subsidies can weaken public finances while suppressing the price signals that encourage conservation. The political difficulty is that subsidies are much easier to introduce than remove: once households and businesses become dependent on artificially lower energy prices, eliminating the support can produce sudden inflation, falling living standards and social unrest. A prolonged energy crisis could therefore leave governments with significantly larger debts even after oil and gas markets eventually normalize. Reuters Reuters: IMF warns energy subsidies could worsen already-high global debt | Financial Times: Energy support is becoming an increasingly significant fiscal burden
What Changed
Previous alerts documented the progression from energy shortage → higher prices → industrial shutdowns → renewed inflation → higher interest rates. The new development adds another link: energy costs are increasingly migrating onto government balance sheets. The sharp increase from 16 to 38 countries subsidizing fuel—and from 56 to 94 governments providing some form of consumer support—shows that this is no longer a collection of isolated national interventions but a broad global fiscal response. That matters because central banks are simultaneously tightening monetary policy, raising the cost at which governments finance those interventions. The economic story has therefore moved from “households and businesses are absorbing an enormous energy shock” toward “governments are increasingly borrowing and spending to absorb part of that shock for them.” If the energy disruption persists, the next vulnerability may increasingly appear not only in inflation or industrial production, but in government budgets and sovereign-debt markets. Financial Times Financial Times: The energy crisis is increasingly becoming a fiscal crisis | Reuters: IMF cautions against shifting the energy shock onto already-stretched public finances
