International oil prices surge, revealing the "butterfly effect"

As global energy markets grow more volatile, it’s long since no longer just skyrocketing oil prices in individual countries that have been affected—soaring transportation costs are rapidly spilling over into consumer markets. Faced with violent fluctuations in fuel prices, governments around the world are trying to introduce measures to ease the impact of soaring oil prices on ordinary people’s lives. However, the world is paying increasingly steep costs to protect the economy from what could be the most severe energy shock in decades. Subsidies for oil prices in each country impose enormous fiscal burdens on governments as the first target.

Cost pass-through to the consumer end

Driven by the Middle East situation, oil prices have remained volatile at high levels, and their ripple effects are gradually seeping into all aspects of everyday life. Amazon recently confirmed to the media that starting April 17, it will temporarily charge a 3.5% fuel and logistics surcharge for third-party sellers using its platform. It is understood that Amazon’s fuel and logistics surcharge will apply to U.S. and Canadian sellers that use its “Amazon Logistics” service. Starting May 2, the surcharge will also apply to sellers using “Prime Shopping” and “Multi-Channel Fulfillment.”

In an email statement, Amazon said: “Rising fuel and logistics costs have already pushed up operating costs across the entire industry.” Amazon said that so far it has been absorbing these costs on its own, but, similar to other large carriers, when costs remain high, the company will implement a temporary surcharge to partially offset the outlays. The company also noted that the charge is “clearly lower” than the surcharges imposed by other major carriers.

According to information, more than 60% of the items on the Amazon platform come from independent merchants. These merchants have to pay Amazon sales commissions and warehousing and fulfillment fees. Analysts point out that because sellers’ profit margins are limited, this incremental cost will very likely ultimately be converted into higher prices for goods, paid for by end consumers.

“Okay, the selling price hasn’t gone up yet, but the cost has gone up first.” A seller lamented. “The 3.5% surcharge really makes a lot of sellers uncomfortable. It says it’s collecting a temporary surcharge, but chances are once it goes up, it won’t come back down. For low average order value and low-margin products, an additional 3.5% cost could significantly squeeze profit margins.”

It’s not just Amazon. An increasing number of carriers are starting to levy surcharges to make up for rising energy costs. United Parcel Service (UPS) and FedEx have already raised their fuel surcharges. The U.S. Postal Service announced last week that it will charge an 8% fuel surcharge on packages mailed starting April 26, and said the measure will last until January 17, 2027.

In addition, United Airlines has also officially announced that, affected by persistently rising fuel prices, it will increase baggage fees for checked luggage on domestic and some international routes within the United States. Starting April 3, for passengers traveling with United Airlines to within the U.S., Mexico, Canada, and Latin America, fees for their first and second checked bags will increase by $10 each across the board.

Jiang Han, a senior research fellow at Pangu Think Tank, said that judging from the cost pass-through mechanism, this round of price increases has a direct link to the rise in oil prices. The road freight, air freight, and express delivery industries share fuel cost structures; as oil prices rise, transportation costs will be directly pushed up.

High oil prices: responses across multiple countries

Beyond transportation and household energy spending, the impact of high oil prices is spreading further into food and manufacturing. Higher natural gas prices will raise fertilizer costs, which in turn will drive up food prices; and in many Asian and African countries that are highly dependent on Gulf crude oil imports, these energy costs will ultimately be reflected in the prices of exported goods, logistics fees, and the prices of everyday consumer goods.

A BBC report and analysis pointed out that for every $10 increase in international oil prices, gasoline prices typically filter through to retail endpoints in about two weeks. Meanwhile, natural gas prices are also climbing, meaning household energy bills, food prices, and manufacturing costs may face further pressure.

In Asian countries that are highly dependent on Middle East energy supplies, efforts to save fuel and impose driving restrictions are being continuously upgraded. In the Philippines, recent diesel prices are already more than double compared with the end of February, followed by a synchronized rise in liquefied petroleum gas prices. Restaurants and street vendors that rely on liquefied petroleum gas say costs are constantly increasing and they are very worried that one day they will be unable to make ends meet.

In Japan and South Korea as well—also Asian countries and heavily dependent on Middle East crude oil—the impact of the “Middle East premium” has been felt clearly. One Japanese taxi driver said he is finding the oil price increases especially difficult. Recently, the South Korean government officially implemented an “oil price cap system,” the first time in nearly 30 years that the South Korean government has put such a system in place. The plan shows that the government sets a price cap on oil products supplied by refining companies to gas stations and distributors, and adjusts every two weeks according to movements in international oil prices.

In fact, countries in Europe and the U.S. have also not been spared, bearing shocks such as a sharp jump in travel costs caused by skyrocketing oil prices. In the UK, gasoline prices have risen to a level not seen in 18 months. The government said that if it finds gas stations taking advantage of the situation to reap excessive profits, it will be prepared to take intervention measures. To help low-income households that rely on fuel for home heating, the UK has opened a support program with a total amount of 53 million pounds to ease pressure on energy spending.

Rising fiscal burdens

However, the world is paying increasingly high costs to protect the economy from the most severe energy shock in decades. Subsidies for oil prices by governments impose enormous fiscal burdens as the first and foremost pressure. As of 2024, global public debt has risen from $97 trillion in 2023 to $102 trillion. The International Monetary Fund warned that delaying necessary domestic price adjustments may ease public pressure in the short term, but it could damage fiscal revenue and increase risks of inflation and currency exchange rates.

Dong Zhongyun, chief economist at AVIC Securities, analyzed that oil price intervention measures typically place pressure on fiscal budgets, but the form in which the pressure manifests and the transmission path differ clearly depending on the policy tools used: direct subsidies and tax cuts are fiscal interventions, which directly reduce fiscal revenue; while pure price controls are administrative interventions that do not directly produce fiscal spending on the surface, but they may trigger negative outcomes such as supply shortages, cross-border arbitrage, and distortions to market structures.

“Countries with high external energy dependence and already relatively high fiscal pressure, their deficit pressure is more prominent—especially countries like Japan, South Korea, and India.” Mingming, chief economist at CITIC Securities, said. “As an energy power, the U.S. is affected by the conflict between the U.S. and Iran to a relatively limited extent compared with countries in Asia and Europe, but rising crude oil prices will still raise price pressures in the U.S., such as gasoline. This would delay expectations for Federal Reserve rate cuts and push up U.S. Treasury yields, further increasing the pressure of the U.S. fiscal deficit.”

At present, developing countries’ debt is generally considered more fragile. Mingming explained that the U.S.-Iran conflict has a greater energy shock impact on Asian countries. Combined with increasing uncertainty in the global trade environment, developing countries that have high energy dependence and face high fiscal deficit pressure and high external debt repayment pressure are expected to suffer negative shocks earlier and more severely in this round of the U.S.-Iran conflict. At the same time, the escalation of geopolitical conflict reduces global risk appetite, drives the dollar to rebound, and fuels capital outflows from developing countries—also leading some developing countries to face debt risk problems caused by currency depreciation and imported inflation pressures.

（Source: Beijing Business Daily）