Ethiopia Moves Swiftly with Fuel Subsidies to Cushion Economy from Global Oil Shock
Ethiopia has introduced sweeping emergency fuel subsidies in a decisive move to protect households and businesses from the sharp rise in global oil prices, as geopolitical tensions in the Middle East continue to disrupt energy markets.
The intervention comes amid escalating conflict linked to the Strait of Hormuz,a critical global shipping corridor responsible for transporting nearly 20% of the world’s oil supply. Recent disruptions in the area have sent shockwaves through international markets, triggering steep increases in fuel prices, particularly in import-dependent economies such as Ethiopia.
Announcing the policy, Finance Minister Ahmed Shide emphasized the government’s commitment to stabilizing domestic fuel prices despite mounting global pressures. He revealed that subsidy levels have been significantly increased to cushion consumers from the full impact of the surge.
Diesel is currently being sold at 139.84 birr (approximately $0.90) per litre, supported by a subsidy of 98 birr ($0.63), while petrol is priced at 132.18 birr (about $0.85) per litre with a subsidy of 73.56 birr ($0.47). These measures reflect a substantial fiscal effort by the government to maintain affordability and prevent economic disruption.
The urgency of the intervention is underscored by the dramatic rise in global fuel costs. According to Ethiopia’s finance ministry, the price of white diesel has surged from 53.68 birr ($0.34) per litre to 238.13 birr ($1.53) per litre in the wake of the crisis. Authorities have also moved to secure additional fuel imports to avert potential shortages.
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Ethiopia’s reliance on imported refined petroleum, particularly from the United Arab Emirates, has heightened its vulnerability to global supply shocks. The current disruption stems from intensified military conflict involving the United States and Israel against Iran, aimed at dismantling Tehran’s nuclear and missile capabilities. Iran’s retaliation has included strikes on U.S. military installations in the Gulf and the closure of the Strait of Hormuz, further constraining global oil flows.
Analysts warn that the unfolding crisis could have far-reaching consequences for emerging markets across Africa. Geopolitical advisory firm Alpine Macro, affiliated with Oxford Economics, has revised its outlook, suggesting the disruption could persist for up to two months, longer than earlier projections.
Commenting on the situation, Alpine Macro’s chief geopolitical strategist Dan Alamariu noted that while tensions remain high, both sides have incentives to avoid a prolonged conflict. “For both sides, a long war is a huge political gamble,” he said, pointing to the likelihood that strategic restraint could limit the duration of hostilities.
Despite global uncertainty, Ethiopia’s economic trajectory remains resilient. The country recorded strong growth of 7.2% in 2023 and 8.1% in 2024, with projections indicating continued expansion of around 7.2% in 2025.
Under the leadership of Prime Minister Abiy Ahmed, Ethiopia has pursued an ambitious economic liberalisation agenda since 2018, opening key sectors to foreign investment and strengthening its reform framework. This progress has been reinforced by international backing, including a $261 million financing package approved earlier this year by the International Monetary Fund, signaling strong global confidence in the country’s fiscal and monetary direction.
As global energy markets remain volatile, Ethiopia’s proactive subsidy strategy highlights its commitment to economic stability and social protection, positioning the country to navigate ongoing external shocks while sustaining its growth momentum.
