Globally, governments are taking measures to mitigate the impact of Iran's war on energy prices for consumers

Fuel subsidies, price caps and emergency commodity releases are just some of the measures that governments from Asia to Europe have taken to protect consumers from rising fuel and food prices - a result of the U.S. and Israeli war against Iran.

The conflict in the Middle East has caused a halt to a fifth of world oil and gas supplies. It has also forced the top energy producers Saudi Arabia, the United Arab Emirates Kuwait, Iraq, and Qatar to reduce their output. This is what the International Energy Agency has called the biggest disruption to global energy supply ever. Brent crude, the benchmark international contract, settled at $102,90 per barrel on Friday. This is a 42% rise since the start of the U.S. and Israeli strikes against Iran at the beginning of February. As a temporary solution to the shortage, the IEA has coordinated the largest ever release of oil from its emergency stockpiles. The United States also eased sanctions against Russian oil exports. The countries that are most dependent on imported energy face soaring fuel prices and shortages as a result of the disruption of shipping through the Strait of Hormuz. Iran has attacked several ships in the narrow strait, aiming to undermine U.S. military strength.

The government is taking several steps to help businesses and consumers cope with the impact of rising transportation and energy bills. Some governments are using subsidies to keep fuel prices from affecting other areas of the economy such as food and supply chains.

In a research note published on Friday, Natasha Kaneva of J.P. Morgan's global commodities research said, "The central question is for how long can importers sustain fuel supplies before shortages worsen." South Korean officials have said that they may consider providing extra energy vouchers to vulnerable households in the event of rising fuel prices pushing up electricity bills.

If LNG supplies to the Middle East are disrupted, the government will also prepare contingency plans for boosting nuclear and coal-fired energy generation.

FOOD PRICE PRESSURES

To prevent food inflation from being fueled by rising energy prices, governments are taking steps to limit the impact. In Egypt, the government has capped the prices of unsubsidised bakery bread due to rising transport and fuel costs.

Price increases are politically sensitive in a country that is one of the largest importers of wheat. Bread is an essential food for millions, and therefore, price increases can be politically controversial. China has also taken action due to concerns about rising farm costs. Fertilizers from the national reserve will be released ahead of spring planting season in order to stabilize prices and provide farmers with adequate supplies.

The POWER and GAS Markets

In Asia and Europe too, governments are stepping in directly to the energy market to protect households from rising costs. The Philippines has said that it could regulate electricity rates as soon as next Monday, while increasing coal-fired power generation to offset soaring LNG prices. The benchmark LNG prices in Northeast Asia dropped this week, from three-year-highs. However, they remain well above the levels before the start of war. Authorities in India urged consumers not to rush to buy liquefied gas cylinders, and instead encouraged them to switch to piped natural gas to relieve the pressure on supply.

India imported about 60% of the cooking gas it consumed last year. Around 90% of these imports came from the Middle East.

Europe also wants to protect gas supplies, as the Dutch benchmark gas prices are now around 50% higher than they were before World War II. The European Commission has been preparing guidelines that will allow for more flexibility in the enforcement of certain import rules. This is to avoid delaying shipments necessary to stabilise supply during crisis.

The move, according to diplomats, could be beneficial for imports of Azerbaijani pipeline gas that reaches Europe via the Southern Gas Corridor.

SUBVENTIONS AND TAX RELIEF

Many governments also use fiscal tools and subsidies to control rising prices. Malaysia's government announced that it would increase its spending on petrol subsides to $510 million in order to maintain the price of the widely used mid-range RON95 fuel. Authorities in Ethiopia also increased their fuel subsidies sharply to "cushion" consumers. European governments are also considering tax measures. Giorgia Mello, the Italian Prime Minister said that her government was considering reducing fuel excise duty while warning of higher taxes for companies who are seen to be profiting too much from the crisis. Australia announced that it would release petrol, diesel and fuel quality standards temporarily to increase the available supply. This is especially important in rural areas where there are shortages. Brazil has reduced diesel taxes and imposed an export levy to stabilize domestic fuel prices.

(source: Reuters)