At first glance, Jordan's decision to freeze fuel prices for August may appear to be little more than an administrative pricing measure. In reality, however, it represents something far more significant: an economic policy designed to protect confidence, stabilize expectations, and shield the domestic economy from an external shock.

 

Economic performance is driven not only by measurable indicators such as inflation, interest rates, and growth, but also by expectations. Businesses invest based on what they anticipate will happen tomorrow, not simply on what exists today. Consumers make spending decisions according to their confidence in future prices and incomes. In many cases, the expectation of higher prices can inflict greater economic damage than the price increase itself.

 

When transport companies anticipate higher fuel costs, they often raise freight charges before those costs materialize. Manufacturers adjust their prices in anticipation of rising production expenses. Households postpone major purchases and reduce discretionary spending, fearing that their purchasing power will deteriorate. Left unchecked, these behavioural responses can amplify inflationary pressures and weaken economic activity long before higher global energy prices are fully transmitted to the domestic market.

 

Viewed through this lens, freezing fuel prices is not primarily about maintaining the price of gasoline or diesel. It is about stabilizing expectations. In modern macroeconomics, expectations are among the most closely watched variables because they influence inflation, investment, consumption, and ultimately economic growth.

 

Oil occupies a unique position in every economy. Unlike most commodities, it is embedded in virtually every stage of production and distribution. It powers transportation networks, agricultural machinery, industrial production, logistics, and a wide range of services. Consequently, an increase in fuel prices rarely affects a single product; instead, it cascades through supply chains and eventually reaches consumers across almost every sector of the economy.

 

For this reason, temporarily stabilizing fuel prices during a period of geopolitical uncertainty and elevated global oil prices acts as an economic shock absorber. Rather than allowing international price volatility to feed immediately into domestic inflation, it slows the transmission mechanism and provides businesses and households with valuable time to adjust.

 

The benefits extend well beyond consumers. Producers also gain from greater certainty. Manufacturers can prepare production schedules and pricing strategies with greater confidence. Transport companies can honour contracts without repeatedly recalculating operating costs. Farmers can estimate seasonal production expenses more accurately. In an uncertain economic environment, predictability is often as valuable as lower costs.

 

This stability is particularly important for productive sectors. Diesel remains a critical input for freight transportation, agriculture, construction, and many industrial activities. By reducing the likelihood of abrupt cost increases, temporary price stabilization enables firms to plan investments, manage cash flows, and maintain production without unnecessary disruption.

 

The government's decision to continue supporting liquefied petroleum gas (LPG) used by industry further reinforces this objective by helping productive sectors absorb part of the external energy shock while preserving competitiveness.

 

From a broader macroeconomic perspective, freezing fuel prices resembles a form of economic insurance. Just as households purchase insurance to avoid potentially devastating financial losses, governments may choose to absorb a limited short-term fiscal cost in order to prevent much larger economic losses arising from inflation, declining consumption, weakened business confidence, and slower economic growth.

 

Does this imply that fuel prices should remain frozen indefinitely? Certainly not.Sound economic policy distinguishes between temporary shocks and permanent structural changes. If higher oil prices result from short-lived geopolitical events, absorbing part of the shock can be economically justified. However, if elevated prices become permanent, maintaining artificially low domestic prices for an extended period would impose increasing fiscal costs, weaken market incentives, and eventually create economic distortions.

 

Jordan is by no means unique in adopting temporary interventions during periods of exceptional energy volatility. Australia introduced temporary fuel support measures for freight operators during the recent energy shock before allowing them to expire. France relied extensively on temporary fuel and energy subsidies during the European energy crisis, while Spain and Portugal intervened directly in electricity generation costs by capping the price of natural gas used for power production. Although these policies differed in design, they shared a common objective: preventing extraordinary external shocks from inflicting disproportionate damage on domestic economies.The key lesson from these international experiences is that emergency interventions should remain precisely that—temporary emergency measures rather than permanent policy frameworks.

 

Ultimately, long-term economic resilience cannot depend on price stabilization alone. It requires sustained investment in renewable energy, greater energy efficiency, expanded public transportation, and technological innovation that reduces dependence on imported fossil fuels. Temporary stabilization buys valuable time, but structural reform determines future resilience.

 

Perhaps the most important lesson is that successful governments are judged not by how frequently they intervene in markets, nor by how rigidly they avoid intervention, but by their ability to intervene at the right moment and in the right manner. Under normal conditions, markets allocate resources efficiently. During extraordinary external shocks, however, carefully designed and temporary government intervention can prevent economic losses that far exceed its immediate fiscal cost.

 

Jordan's decision to freeze fuel prices should therefore not be interpreted merely as an attempt to keep fuel artificially inexpensive. Rather, it should be understood as an effort to preserve economic confidence, stabilize expectations, and provide the economy with the time it needs to absorb an external shock. In an increasingly uncertain global environment, economic stability has itself become a strategic asset—and protecting that stability is often more valuable than protecting prices alone.

 

* The writer is a Former Jordanian Minister of State for Economic Affairs.