The Lee Jae-myung administration has formalized a "war supplementary budget." It comes about two weeks after U.S. and Israeli strikes on Iran. The Korean government says a preemptive response is needed, given Korea's economic structure with high dependence on Middle Eastern energy and the added pressures of a slowdown and weakening local economies.
Other countries chose differently. Japan and the United Kingdom are tapping existing funds first, Indonesia is restructuring expenditure, and the Philippines is considering the tax option. The same Middle East crisis drew different responses because fiscal space, systems, and policy judgment differ.
◇ Japan taps its existing "fuel price subsidy system"
Japan's government is paying subsidies at the refining and distribution stages to hold the retail gasoline price to about 170 yen per liter (ℓ). This policy was not newly introduced due to the current Middle East situation. Since 2022, as import prices jumped on high oil prices and a weak yen, Japan has been operating related programs. It tried to scale them back out of concern for the fiscal burden, but with high inflation and Middle East tensions overlapping, it pivoted back to expansion.
Funding comes from the "Fuel Oil Prices Sudden Change Mitigation Fund (燃料油価格激変緩和対策基金)." It is financed with the budget and contingency funds. Japan is also releasing reserves. Sanae Takaichi, the prime minister, said, "For the time being, we can respond with the fund and contingency funds, so a supplementary budget is not necessary at this point."
◇ U.K., with high national debt, offers pinpoint heating oil aid
The United Kingdom will implement a targeted support package worth 53 million pounds (about 106 billion won). It will provide cash to households burdened by a surge in heating oil prices. Most regions of the U.K. rely heavily on city gas for heating, but in some areas such as Northern Ireland, the gas network is less dense and dependence on heating oil is high. In fact, in Northern Ireland, more than two-thirds of all households are known to use heating oil.
With limited fiscal space, the U.K. opted for targeted support in vulnerable regions rather than a large-scale budget revision. It is drawing on the Crisis and Resilience Fund (CRF) and other sources. Finance Minister Rachel Reeves also noted that "universal support is hard to afford," citing high national debt as a burden.
◇ Indonesia adjusts expenditure, Philippines weighs the tax option
Indonesia is an oil producer but a net crude importer that brings in more crude from overseas. When oil prices rise, import costs and currency pressures increase together. In this situation, the Indonesian government chose expenditure restructuring over additional fiscal outlays.
The backdrop is a strict fiscal rule. After the Asian foreign exchange and financial crisis of the 1990s, Indonesia wrote into law a principle capping the fiscal deficit at within 3% of GDP and has enforced it relatively strictly. However, it plans to consider emergency measures that would allow the statutory ceiling to be exceeded if the war lasts more than five months.
The Philippines is focusing on tax policy. A bill is underway to allow the president to temporarily cut or suspend fuel taxes during periods of high oil prices. The Philippines has rarely implemented such measures in practice, so there is anticipation that they could immediately lower consumer-facing prices.
◇ Only a few, including Korea, the U.S., and Israel, are expanding budgets
So far, the countries that have revised their main budgets or moved to compile supplementary budgets due to the Middle East crisis appear limited to Korea, the United States, and Israel. The U.S. Department of Defense, a party to the war, recently asked the White House for more than $200 billion (about 300 trillion won) in additional funds. Israel moved to revise this year's budget to increase defense spending by 32 billion shekels (about 15 trillion won).
Some say Korea also needs to moderate its pace. Catholic University economics professor Yang Jun-seok said, "If the war drags on, there may come a time when a truly large supplementary budget on par with the COVID era is needed," adding, "Given that this year's expenditure has already been set extremely high, it is concerning to go straight to a supplementary budget without first using tools such as contingency funds, budget reallocations, or demand suppression measures."