The Lee Jae-myung administration has formalized a "war supplementary budget." It comes about two weeks after the United States and Israel struck Iran. The Korean government believes a preemptive response is needed because Korea's economy, which relies heavily on Middle Eastern energy, is facing both a slowdown and a slump in local economies.
Other countries chose differently. Japan and the United Kingdom are first using existing funds, Indonesia is restructuring expenditure, and the Philippines is reviewing the tax cut option. The same Middle East crisis prompted different responses because fiscal space, institutions, and policy judgments differ.
◇ Japan taps its existing "fuel price subsidy system"
Japan's government is paying subsidies at the refining and distribution stages to cap the consumer price of gasoline at about 170 yen per liter (ℓ). This policy was not newly introduced because of the current Middle East crisis. Since 2022, when import prices surged due to high oil prices and a weak yen, Japan has been operating the related system. It later sought to scale it back considering the fiscal burden, but with high inflation and tensions in the Middle East overlapping, it shifted back to expansion.
The funding source is the "Fuel Oil Price Stabilization Fund (燃料油価格激変緩和対策基金)." It is operated with budget funds and reserves. Japan is also releasing oil from its reserves. Sanae Takaichi, the minister, said, "For the time being, we can respond with the fund and reserves, so a supplementary budget is not necessary at this point."
◇ U.K., with heavy national debt, offers "pinpoint support" for heating oil
The United Kingdom decided to 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. While most regions of the U.K. rely heavily on city gas for heating, some areas, including Northern Ireland, have less dense gas networks and thus higher dependence on heating oil. In fact, more than two-thirds of households in Northern Ireland are said to use heating oil.
Given its limited fiscal space, the U.K. chose targeted support for vulnerable regions over a large-scale budget revision. It is using resources such as the Crisis and Resilience Fund (CRF). Finance minister Rachel Reeves also said, "Universal support is hard to afford," citing high national debt as a burden.
◇ Indonesia adjusts expenditure, Philippines turns to the tax option
Indonesia is an oil producer but a net crude oil importer that brings in more crude from overseas. When oil prices rise, both import burdens and currency pressures increase. In this situation, the Indonesian government chose expenditure restructuring over additional fiscal expenditure.
Strict fiscal rules lie in the background. After the Asian currency and financial crisis of the 1990s, Indonesia codified a principle limiting the fiscal deficit to within 3% of GDP and has enforced it relatively strictly. However, it plans to review emergency measures that would allow exceeding the statutory ceiling if the war continues for more than five months.
The Philippines is leaning on tax measures. A bill is being pushed that would allow the president to temporarily cut or suspend fuel taxes during periods of high oil prices. The Philippines has rarely implemented such steps in practice, so there is anticipation that it could directly lower consumer-facing prices.
◇ Korea, U.S., and Israel are among the few increasing budgets
So far, the countries that have revised their main budgets or moved to draft supplementary budgets citing the Middle East crisis appear to be Korea, the United States, and Israel. The Ministry of National Defense of the United States, a party to the war, recently asked the White House for more than $200 billion (about 300 trillion won) in additional funding. 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 adjust its pace. Yang Jun-seok, an economics professor at Catholic University, said, "If the war drags on, a truly large-scale supplementary budget comparable to the pandemic period may be necessary," and added, "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 reserves, budget readjustments, or demand-suppression measures."