Raad Mahmoud Al-Tal

The economic cost of an energy shock extends far beyond higher fuel prices. It lies in the resources diverted away from investment, production and consumption to cover rising energy bills. This is the central concern highlighted in the latest report by the United Nations Conference on Trade and Development (UNCTAD), which projects global economic growth to slow from 2.9% in 2025 to 2.6% in 2026. Growth in developing economies is expected to decline from 4.7% to 4%.

The recent war has pushed Brent crude oil prices from around $70 to more than $110 per barrel. Yet the real economic damage goes beyond the immediate increase in oil prices. Higher energy costs spread throughout the economy, raising production expenses for businesses, increasing import bills for energy-dependent countries and reducing household purchasing power. Resources that could otherwise support investment, consumption and savings are redirected towards covering higher costs, without generating additional economic output.

The consequences are reflected in UNCTAD’s projections for private consumption. Global private consumption growth is expected to fall from 2.9% in 2025 to 2.6% in 2026, before declining further to 2.4% in 2027. Oil prices are also expected to remain more than $30 per barrel above pre-conflict levels through the end of 2026. For households, the pressure can be substantial. An increase of $0.25 per litre in fuel prices could reduce real household income by more than 5% on average, further weakening purchasing power and domestic demand.

However, the energy crisis also highlights a significant economic opportunity. Since 2010, battery storage costs have fallen by 95%, solar panel costs by 89%, and wind energy costs by 71%. These reductions have fundamentally changed the economics of energy investment. Diversifying energy sources is no longer simply an environmental objective. It is increasingly a strategy for improving energy security, stabilising production costs and reducing exposure to international price volatility.

The challenge becomes more complex when higher energy prices coincide with tighter financing conditions. UNCTAD reports that capital flow volatility has doubled since the outbreak of the war, reflecting increased uncertainty in financial markets. Businesses facing rising operating costs and less predictable access to finance are more likely to postpone investment, scale back expansion plans and reconsider new projects. An external price shock can therefore develop into a broader slowdown in investment, production and productivity.

This creates a difficult policy dilemma for central banks. Higher interest rates may help contain inflationary pressures, but they cannot resolve disruptions in energy supply. Instead, they increase borrowing costs and may further discourage productive investment. Effective policy must therefore distinguish between inflation driven by excess demand and inflation caused by supply-side shocks, while avoiding measures that unnecessarily weaken the economy’s productive capacity.

Can the crisis become a catalyst for structural change? UNCTAD’s report indicates that, in 2024, renewable energy sources were less expensive than the cheapest new fossil-fuel-based alternative. For countries that depend heavily on imported energy, this strengthens the case for accelerating investment in renewable generation and storage. The economic benefits extend beyond lower energy costs to include greater supply security, reduced exposure to external shocks and improved long-term competitiveness.

For Jordan, the priority should be to move from managing the consequences of higher energy prices to reducing the economy’s underlying vulnerability to them. This requires accelerating renewable energy and storage projects, improving energy efficiency and linking industrial incentives to measurable reductions in energy consumption. Financing should also be directed towards productive sectors capable of generating domestic value added, expanding exports and creating sustainable employment.

Social protection must form part of this response. Rather than relying exclusively on broad-based subsidies, Jordan could explore more targeted support for households most affected by rising energy costs. The Sanad digital government application could potentially serve as an access channel for eligible beneficiaries, provided that the necessary systems are developed to verify eligibility, protect personal data and coordinate payments with the relevant institutions. The objective should be to direct assistance where it is most needed while improving the efficiency of public spending.

Strengthening domestic production is equally important. This does not mean replacing imports regardless of cost or efficiency. It means identifying products and inputs for which domestic alternatives are economically viable, particularly where excessive dependence on imported energy-intensive inputs exposes local industries to recurring external shocks.

The success of economic policy should not be measured solely by its ability to ease the immediate burden of an energy crisis. It should be measured by whether it strengthens the economy’s capacity to withstand future shocks without undermining investment, productivity and employment.

A resilient economy is not one that escapes external shocks, but one that can absorb them while preserving its capacity to produce, invest and grow.