As disruptions to global energy markets continue amid the conflict in the Middle East, the effects of this new energy crisis are being felt across the world. Soaring oil and gas prices are rippling through economies, with tangible consequences for people’s everyday lives.
Not all countries are affected equally. Some – particularly lower-income countries that rely heavily on fossil fuel imports – are facing more severe impacts, including acute fuel shortages and rationing. Others are seeking to cushion the impact by tapping into oil reserves or turning back to coal-fired power.
In the face of yet another energy crisis, some countries appear better positioned to withstand shocks – particularly those that expanded renewable energy and electrification in the aftermath of the 2022 crisis triggered by Russia’s invasion of Ukraine. This once again underscores the need for longer-term structural changes to reduce vulnerability and strengthen energy security.
In this Q&A piece, our experts draw on cross-country insights to explore how the energy crisis is unfolding, how countries are affected and responding and what more effective government responses could look like.
Q. What are the effects of the energy crisis so far?
With restrictions on the passage of fossil fuels through the Strait of Hormuz, a chokepoint for around a fifth of global oil and natural gas trade, the crisis has triggered one of the most severe disruptions to global energy supply in recent decades.
As oil and gas prices have surged to near-record levels amid tightening supply, energy costs have risen rapidly across countries, affecting both fossil fuel-importing and producing economies. Even major producers such as the US are experiencing higher domestic prices due to globally interconnected oil markets. These increases are feeding into broader economic and inflationary pressures globally, raising the costs of transport, production and essential goods such as food.
In lower-income, import-dependent countries, the impacts are more immediate and visible. In the Philippines, the government has declared a national energy emergency, urging people to conserve energy and scaling back public sector operations. In India, tighter gas supply is affecting access to key household fuels such as liquefied petroleum gas (LPG) and liquefied natural gas (LNG). This has led to significant shortages of cooking fuel among households and threatens fertiliser production, with potential knock-on effects for food security.
At the same time, the crisis is generating large windfall profits for the fossil fuel industry, with oil majors like Chevron, Exxon and Shell standing to make billions from higher energy prices. This is renewing concerns that the crisis could drive new investments in fossil fuel infrastructure and heighten the risk of long-term lock-in and stranded assets as market conditions change.
Q. Which countries are most negatively affected and why?
Countries with energy systems that rely heavily on imported fossil fuels are among the most exposed to supply disruptions and price spikes, particularly several Asian countries whose imports pass through the Strait of Hormuz.
For example, India imports around 85–90% of its oil, with a large share sourced from the Middle East and transported through the Strait of Hormuz. Japan imports around 95% of its crude oil from the region, most of it passing through the waterway. The Philippines, which imports almost all of its oil, is similarly exposed, particularly given its limited domestic energy resources.
Beyond import dependence, countries’ ability to respond also plays a critical role. Those with more limited fiscal capacity or smaller strategic reserves are less able to absorb energy price increases or shield consumers, meaning the impacts are more directly felt by households and businesses. This is particularly the case in lower-income, import-dependent economies, where governments have less room to rein in surging energy costs.
Q. Which countries appear more resilient to the current energy crisis and what explains this?
Countries that have invested in renewable energy, electrification and energy supply diversification appear to be less affected by supply disruptions.
China is one example. Despite being the world’s largest importer of oil and gas, the impact of the current crisis has so far appeared more manageable. The country has long invested in electrification and renewable energy, which reduced structural exposure to oil and gas. Its diversified import sources, increased domestic energy production and large strategic reserves provide additional buffers. Domestic coal is also playing a key role in stabilising supply in the short term.
The EU appears better prepared this time than it was during the energy crisis following Russia’s invasion of Ukraine in 2022. The growing role of home-grown renewables and more diversified gas imports – particularly from the US and Norway – have helped ease pressure on the power sector, even though the region remains reliant on fossil fuels and highly exposed to price volatility.
Spain and Portugal, for example, have seen their electricity prices remain relatively lower compared to many other European countries. A strong build-out of wind and solar power has reduced the role of gas in power generation and limited exposure to fossil fuel price volatility. However, further progress in electrification across the economy is needed to fully realise these benefits of domestically produced renewable electricity.
Overall, these examples suggest that countries with more diversified energy supply, stronger domestic production, higher levels of electrification and a higher share of renewables in the energy mix are less exposed to supply shocks.
Q. How are governments around the world responding to the energy crisis?
A widespread response so far has been to provide short-term relief to soften immediate impacts on consumers and industry. Many governments are lowering the price of fossil fuels by subsidising energy bills, cutting taxes on petrol and diesel or providing support to energy-intensive industries. Some governments are seeking to stabilise markets by drawing on strategic reserves or using state budget to contain price increases.
Some governments are loosening climate and energy efficiency policies. This includes extending the use of coal-fired power, exploring or expanding domestic fossil fuel production. Germany, for example, has seen renewed debate around expanding domestic gas supply, while Asian countries are increasing reliance on coal to meet energy demand.
Relatively few governments are using the crisis to reinforce efforts to drive structural changes in energy systems. Spain, for example, has rolled out measures to advance electrification and scale up renewable energy deployment, although it has also introduced tax cuts for fossil fuels as well. France has doubled state support to ramp up electrification of its economy and phase out reliance on fossil fuels.
Q. How do you assess governments’ responses in the context of the energy transition and what would a more durable response look like?
So far, many governments appear at risk of repeating patterns seen during the last crisis, with responses focused on easing immediate price pressures through short-term measures such as subsidies and tax cuts for fossil fuels. While such measures can cushion impacts in the short term, they are often untargeted, costly, difficult to sustain and lock in fossil fuel dependence. Broad-based support weakens incentives to reduce energy consumption.
Therefore, immediate relief measures should focus on policies that do not lower fossil fuel prices in order to preserve price signals. Support can instead be provided through direct transfers to households and firms, allowing high prices to continue incentivising reduced consumption. A good example is a mobility premium, where the government provides a fixed payment to all citizens, which is then taxed according to income to ensure more progressive support. Well-targeted support is more effective in protecting vulnerable households in a fiscally more sustainable way while ensuring that basic needs are met.
A more long-term response would address the underlying structural drivers of vulnerability – dependence on fossil fuels – to transform energy systems in the long term while also tackling the disproportionate exposure of lower-income households to rising energy costs. This requires a just transition away from fossil fuels towards more diversified, electrified and renewable-based energy systems.
On the supply side, this includes accelerating the deployment of renewable energy and expanding renewable energy capacity. On the demand side, it involves advancing the electrification of energy-consuming processes and key sectors, such as transport, industry and buildings, alongside improving energy efficiency. This means expanding the uptake of zero-emission technologies and scaling up solutions such as heat pumps and district heating while phasing out fossil fuel-based heating systems such as gas boilers. Strengthening efficiency standards and supporting innovation and industrial transformation – including through investments in emerging technologies such as green hydrogen – are also important.
Q. How can governments react to large profits of the fossil fuel companies?
As higher oil and gas prices translate into significant profits for fossil fuel companies, this prompts questions about the distribution of these gains and the functioning of energy markets, where a handful of major players exert outsized influence over prices and supply dynamics. This highlights broad concerns about market concentration and competition at a time when governments and households are facing skyrocketing energy costs.
The European Commission is considering taxing windfall profits, following calls from several member states, including Austria, Germany, Italy, Portugal and Spain. Such measures could be adopted more widely, with the revenues used to support vulnerable households and invest in longer-term solutions such as scaling up renewable energy, improving energy efficiency and advancing structural change.
Q. What does this all mean for the energy transition?
The current crisis is yet another stark reminder of the need to move away from fossil fuels. In the aftermath of the 2022 energy crisis, analysis by the Climate Action Tracker highlighted the importance of using such crises to accelerate long-term transformations. However, progress has been limited and insufficient.
At the same time, government responses across the globe reveal a clear tension between shielding households and economies from immediate impacts and advancing longer-term efforts to support the energy transition. The CAT analysis showed that these opposing dynamics largely offset each other: both renewable energy deployment and investment in new fossil fuel infrastructure expanded, allowing global emissions to continue rising.
Whether the ongoing energy crisis accelerates or slows the energy transition will depend largely on how governments respond. There are concerns that many governments are reacting by sticking to existing policy agendas, rather than using the crisis as an opportunity to reorient energy systems in a more sustainable direction. The choices made now will shape how exposed countries remain to future energy shocks. This time, governments should avoid repeating past mistakes and use the crisis to more decisively towards more diversified, electrified and renewable-based energy systems. Such a shift would reduce vulnerability to external shocks while strengthening long-term energy security.
Beyond national responses, international cooperation will also play an important role. In this context, the first international conference on transitioning away from fossil fuels, to be held in Colombia in late April, could help build momentum by bringing together countries willing to take the lead.
Written by Hyunju (Laeticia) Ock, writer and editor at NewClimate Institute. The author thanks Niklas Höhne, Hanna Fekete, Pablo Blasco Ladrero, Chetna Hareesh Kumar and Norah Zhang for their valuable input and review.
