Oil-Shock Tools Focus on Helping Consumers, Not Curbing Demand

David Stubbs, Chief Investment Strategist at AlphaCore Wealth Advisory, discusses the inflationary impact of the energy price shock.

As conflict in the Middle East sends oil prices soaring, governments are reacting to the crisis with a focus on offsetting the cost to consumers rather than curbing fuel consumption, according to data from the International Energy Agency.

The price of vital products like jet fuel, gasoline and diesel has surged — especially in Asia — as the war in Iran shutters almost all oil shipments from the Persian Gulf.

Governments have responded to the threat of a renewed wave of cost inflation with an array of measures intended to ease prices, including a record release of emergency oil stockpiles by members of the IEA including the US, Japan and Germany. They’re are also enacting measures focused on fuel use, though these have skewed more toward cushioning the price impact than reducing demand.

“Policies aimed at reducing demand and exposing consumers to high prices tend to be politically unpopular options,” said Hamad Hussain, a climate and commodities economist at Capital Economics. “So it is not surprising that many policymakers leaned more on cutting fuel-excise duties or using subsidies to limit the pass-through of high global oil prices to consumers.”

Thirty-eight nations have taken emergency steps to reducing the cost of fuel consumption — such as increasing fuel subsidies or lowering taxes — since the start of the conflict a month ago, according to a newly-launched policy tracker from the Paris-based IEA.

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