Crude oil crisis limits governments’ and central banks’ ability to respond — FT

The current crude oil crisis differs significantly from previous ones, as governments and central banks have largely run out of tools to cushion its economic impact, according to Financial Times columnist Ruchir Sharma. The situation is compounded by historically high budget deficits and public debt levels worldwide.

Global debt has reached a record $348 trillion—more than three times global GDP—severely limiting governments’ ability to introduce new economic support measures amid rising energy prices. This heavy debt burden leaves little fiscal space for additional stimulus.

Despite these constraints, many countries—from the United Kingdom and France to Brazil and India—are attempting to respond with familiar measures such as price controls, fuel subsidies, and rationing schemes. However, bond markets are signaling strong concerns about further increases in government spending.

Central banks are facing similar challenges. In previous decades, they worked closely with governments to extend stimulus measures at the first signs of trouble, but their room for maneuver is now far more limited.

The core issue is that the oil shock is likely to both slow economic growth and push inflation higher. In such conditions, central banks may be unable to ease monetary policy, making the current crisis one of the most difficult for the global economy in recent decades.

Tags: subsidies, prices