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The ongoing U.S.-Israeli conflict with Iran has sent oil prices soaring, rattling global financial markets and prompting governments to implement urgent measures to protect their economies and citizens from energy shortages and rising costs. As the war disrupts critical supply routes through the Strait of Hormuz, countries heavily reliant on oil imports are scrambling to stabilize domestic fuel supplies and mitigate inflationary pressures.

South Korea Caps Fuel Prices

In a historic move, South Korean President Lee Jae Myung announced that the government would cap domestic fuel prices for the first time in nearly 30 years. Authorities are also seeking alternative energy sources beyond shipments through the Strait of Hormuz. To support the measure, a 100 trillion won ($67 billion) market-stabilization program may be expanded if necessary, reflecting the severity of the supply shock.

Japan Prepares Strategic Oil Reserves

Japan has instructed a national oil reserve storage facility to prepare for a possible release of crude oil, according to opposition party lawmaker Akira Nagatsuma. While precise details and timing remain unclear, this measure underscores Japan’s reliance on strategic reserves to manage sudden spikes in global energy prices.

Vietnam Removes Fuel Import Tariffs

Vietnam is temporarily eliminating import tariffs on fuels to ensure continued domestic supply amidst global disruptions. The government expects this measure to remain in effect until the end of April, aiming to reduce cost pressures on both businesses and consumers.

Indonesia Boosts Fuel Subsidies and Biodiesel Plans

Indonesia is increasing budget allocations for fuel subsidies, currently totaling 381.3 trillion rupiah ($22.5 billion), to offset rising energy costs and maintain affordable electricity and fuel prices. The government may also revive plans to expand the B50 biodiesel program, blending 50% palm oil-based biodiesel with conventional diesel, as a longer-term strategy to reduce dependency on imported oil.

China Halts Fuel Exports

China has directed refiners to suspend new fuel export contracts and attempt to cancel previously committed shipments. This policy excludes jet fuel for international flights, bonded bunkering, and supplies to Hong Kong or Macau. The move is designed to secure domestic fuel availability amid soaring global prices.

Bangladesh Closes Universities and Rations Fuel

Bangladesh, which depends on imports for 95% of its energy, has implemented emergency measures including university closures and rationing fuel sales to conserve electricity and fuel. Daily fuel sale limits were imposed after panic buying and stockpiling, highlighting the country’s vulnerability to regional energy disruptions.

Analysis: A Coordinated Global Response

These measures illustrate the unprecedented economic ripple effects of the Middle East conflict. Countries with high import dependency are balancing immediate crisis management such as subsidies, price caps, and rationing with longer-term energy strategies, including strategic reserve releases and alternative fuel initiatives.

The rapid policy responses also underscore the fragility of global energy markets in the face of geopolitical conflicts. Central banks and governments must navigate a complex trade-off: containing inflation while ensuring sufficient energy supply to prevent industrial slowdowns and social unrest.

As the conflict persists, global energy markets remain highly volatile, and governments may need to continue adjusting policy tools to stabilize domestic economies, with potential implications for trade, inflation, and energy security worldwide.

With information from Reuters.

Economists are cautiously optimistic that advances in artificial intelligence could boost productivity across major economies, potentially helping governments manage soaring debt. Debt levels in most rich nations already exceed 100% of GDP and are projected to rise further due to ageing populations, higher defence spending, climate commitments, and rising interest payments.

U.S. policymakers, in particular, see AI as a potential driver to lift post-2008 productivity and free workers for higher-value tasks. Yet experts warn that even a strong AI-driven growth surge would not fully offset the structural pressures on public finances.

AI’s Potential Impact on Public Debt

The OECD and economists working with Reuters estimate that a productivity boost from AI could lower projected debt in OECD countries by up to 10 percentage points by 2036. That would reduce the expected rise from roughly 150% of GDP to around 140%, still sharply higher than current levels of approximately 110%.

In the U.S., best-case scenarios suggest debt could rise to 120% of GDP over the next decade instead of 100%, with one economist projecting little change. The key variables include whether AI creates more jobs than it displaces, whether firms pass productivity gains to workers via wages, and how governments manage spending.

Demographics and Limits

Demographics remain a central constraint. Ageing populations and entitlements tied to them are the root causes of long-term debt growth. Economists note that even with a productivity surge, labour shortages and slower immigration could offset AI gains. Countries like Italy and Japan may see smaller benefits from AI due to lower adoption rates and smaller sectors that can leverage the technology.

Fiscal Uncertainty

AI could raise government revenues through higher productivity and wages, but the effect is uncertain. If automation primarily benefits profits and capital rather than labour, fiscal gains could be limited. Additionally, public spending may rise alongside growth, dampening potential debt relief. Social security and other entitlement programs, indexed to wages, will continue to pressure budgets regardless of AI-driven efficiency.

Interest rates and debt servicing costs add another layer of uncertainty. Economists warn that recessions or financial shocks could prevent AI-driven productivity gains from providing timely relief.

Analysis

AI offers a potential “breathing room” for overstretched economies, buying time for governments to tackle structural deficits. Even if growth rises to 3% in the U.S. through 2040 above Federal Reserve expectations it will not solve fundamental fiscal challenges.

Economists stress that AI is a supplement, not a replacement, for fiscal reform. Rising productivity may help governments manage debt growth more sustainably, but without structural policy adjustments addressing demographics, entitlement programs, and spending priorities, the debt trajectory remains precarious.

Ultimately, while AI could improve efficiency and output, it is unlikely to carry the heavy lifting required to stabilize public finances on its own.

With information from Reuters.