Maintenance and rehabilitation work at the Banias Refinery in Tartous province, as Syria works to expand domestic refining capacity and strengthen energy security. Photo/SANAOil-importing countries face a recurring dilemma: should fluctuations in global oil prices be allowed to pass directly through to domestic fuel prices, or should governments adopt mechanisms to cushion consumers and the economy from sudden price shocks?
Because sharp increases in fuel prices can carry significant economic, social, and political consequences, many governments have adopted measures designed to limit the immediate transmission of temporary international oil-price spikes to domestic markets.
These measures have included price controls, tax reductions, adjustments to the revenues of state-owned oil companies, and fuel-price stabilization funds. Almost all such mechanisms carry fiscal costs and can affect the allocation of resources within the energy sector.
Yet oil and petroleum-product prices are no longer driven solely by the traditional forces of supply and demand. Increasingly, they reflect wars, sanctions, attacks on refineries and pipelines, disruptions at ports, and threats to strategic maritime routes.
The events of 2026 illustrate this new reality. Energy infrastructure in Russia, Iran, and Gulf countries has repeatedly come under attack or been forced to suspend operations. Ukrainian drone strikes have disrupted Russian refining capacity, while the widening energy conflict in the Middle East has affected production, refining, export facilities, and liquefied natural gas infrastructure.
Facilities of strategic importance across the Gulf have also faced attacks, disruptions, or precautionary shutdowns, affecting not only refineries but also oil fields, offshore platforms, storage facilities, export terminals, and shipping networks.
According to Reuters estimates published in May 2026, the wars involving Iran and Ukraine had, at one point, knocked out nearly 9 percent of global refining capacity. This demonstrates that the challenge is no longer simply whether sufficient crude oil exists. It is also whether the global energy system has sufficient capacity to convert that crude into gasoline, diesel, jet fuel, and other products required by households, businesses, transportation networks, and industry.
The growing “war of the straits” has added another layer of risk.
Under normal conditions, roughly one-fifth of global oil supplies pass through the Strait of Hormuz, along with substantial volumes of liquefied natural gas. When navigation through the strait is threatened or tanker traffic declines, the consequences extend far beyond crude-oil prices. Shipping rates, insurance premiums, financing costs, and the financial burden of delivery delays all rise.
Oil in the ground, after all, has little economic value to consumers if it cannot be safely transported to market.
With risks extending to Bab al-Mandab and the Red Sea, global energy trade has effectively become exposed to disruption at two of the world’s most important maritime chokepoints. Brent crude has traded above $100 per barrel during September 2026, while analysts have warned that prices could reach $120 if attacks on vessels and disruptions to Middle Eastern energy flows intensify.
Syria’s Exposure to Global Energy Shocks
Syria is particularly vulnerable to these developments because it does not yet possess sufficient domestic production, fully restored refining capacity, or large strategic fuel reserves capable of insulating the economy from international disruptions.
The Banias refinery is currently undergoing extensive rehabilitation aimed at increasing its processing capacity from approximately 80,000 barrels per day to around 130,000 barrels per day. Meanwhile, the aging Homs refinery continues to operate as Syria plans a new refinery complex in the Furqlus area.
Until domestic production, refining capacity, storage, and supply networks are substantially strengthened, Syria will continue to rely on imported petroleum products to meet a significant share of its demand for diesel, gasoline, and household liquefied petroleum gas.
This dependence exposes Syrian households and businesses not only to fluctuations in international oil prices but also to shipping disruptions, insurance costs, exchange-rate pressures, and geopolitical risks over which Syria has little control.
The question, therefore, is whether Syria can develop a temporary mechanism capable of absorbing part of these shocks without recreating the fiscal burden of an open-ended subsidy system.
“Syria needs a mechanism that cushions energy shocks without recreating the fiscal burden of open-ended subsidies.”
Dr. Osama Kadi
Lessons from Peru
One useful case is Peru.
In 2004, Peru established a Fuel Price Stabilization Fund designed to reduce the impact of international fuel-price volatility on domestic consumers.
The Peruvian model established a price band for each petroleum product covered by the mechanism. Each band consisted of an upper and lower limit and was compared with a reference price reflecting market and import costs.
When the reference price exceeded the upper limit, the fund compensated suppliers for part of the difference, preventing the full international price shock from being passed immediately to consumers.
Conversely, when the reference price fell below the lower limit, the difference was collected and transferred into the fund, helping rebuild its financial resources. When prices remained within the established band, no compensation or contribution was required.
The mechanism succeeded in slowing the transmission of international price volatility into domestic prices.
But Peru’s experience also offers an important warning.
What began as a temporary price-smoothing mechanism gradually became increasingly dependent on government financing. By the end of 2011, budgetary transfers to Peru’s stabilization fund had totaled approximately $2.5 billion, as international prices remained elevated for extended periods while domestic price-band adjustments lagged behind.
The mechanism therefore risked shifting from a temporary instrument designed to distribute the impact of price shocks over time into an open-ended price subsidy.
That is precisely the danger Syria must avoid.
A Syrian Energy Price Stabilization Shield
I therefore propose the establishment of a Syrian Energy Price Stabilization Shield (SEPSS) under a temporary law that would automatically expire on December 31, 2030.
The law should not be extendable by executive or ministerial decision. Any continuation beyond that date should require new legislation supported by an independent assessment of the mechanism’s fiscal, economic, and social results.
Syrian Energy Price Stabilization Shield, SEPSS
Under the proposed mechanism, the Permanent Committee for Pricing Petroleum Products and Mineral Resources would establish a monthly price band for diesel, gasoline, and household LPG, based on the average import cost during the preceding 30 days.
When import costs rise above the upper limit, the Shield would absorb part, but not all, of the increase, preventing an abrupt price shock from being passed immediately to consumers.
If elevated international prices persist for more than three months, domestic prices would be adjusted gradually to prevent the mechanism’s financial resources from being depleted.
Priority should be given to diesel used in public transportation, bakeries, agriculture, heating, industry, and electricity generation.
Gasoline support should be considerably narrower. Broad gasoline subsidies disproportionately benefit vehicle owners and high-consumption users and are therefore less effective at protecting low-income households.
How Should the Shield Be Financed?
The mechanism could draw its resources from several clearly defined sources: a share of excess oil revenues above the benchmark price assumed in the state budget; a portion of returns generated by a future sovereign wealth fund; limited contributions from surpluses generated by public institutions and municipalities; and investment returns on the Shield’s own reserves.
Its capacity could also be strengthened through long-term fuel-supply contracts, strategic fuel reserves, and carefully structured, multi-layered financial hedging mechanisms.
Hedging instruments, including call options, can help limit exposure to sudden price increases during defined periods. Such instruments should not be treated as speculative investments, but rather as risk-management tools designed to increase predictability in the cost of essential energy supplies.
Avoiding the Peru Trap
To avoid repeating the weaknesses revealed by Peru’s experience, the Syrian law should establish strict safeguards from the outset.
It should impose a clear annual ceiling on intervention, prohibit borrowing to finance fuel subsidies, prevent the accumulation of unpaid obligations to suppliers, and require the publication of a monthly public report detailing reference prices, quantities covered by the mechanism, compensation per liter, total expenditures, and the Shield’s remaining financial balance.
“A stabilization mechanism that conceals its liabilities eventually becomes a fiscal burden rather than an instrument of economic stability.”
Dr. Osama Kadi
Transparency is essential. A stabilization mechanism that conceals its liabilities eventually becomes a fiscal burden rather than an instrument of economic stability.
The Shield must also remain temporary.
Its purpose should not be to guarantee permanently cheap fuel or to sell energy indefinitely below its true economic cost. Its purpose should be to prevent sudden external shocks from being transferred immediately and entirely to Syrian households and productive sectors at a particularly fragile stage of economic recovery.
This distinction is fundamental.
Syria continues to face widespread poverty and severe economic pressures. The World Bank has estimated that two-thirds of Syrians live below the lower-middle-income poverty line. Sudden increases in fuel prices can therefore spread rapidly throughout the economy, raising transportation costs, food prices, heating expenses, electricity-generation costs, and the cost of domestic production.
A temporary stabilization mechanism could give Syria time to rebuild domestic oil production and refining capacity, establish strategic fuel reserves, diversify and secure supply routes, and gradually replace broad price subsidies with more targeted forms of assistance.
By the end of 2030, Syria should aim to have moved away from generalized price subsidies toward targeted support for household incomes, public transportation, and productive sectors.
More importantly, it should have moved from responding to energy crises after they occur to managing energy risks before their costs reach Syrian citizens.
