Fiscal Council Warns: Higher Oil Costs Could Strain Bulgaria’s Economy and Trade

The Fiscal Council has assessed that a 25% surge in global oil prices would constitute a moderate external shock for Bulgaria, primarily impacting the economy through higher energy import costs, rising inflation, and a potential slowdown in external demand.

In its 2026 fiscal outlook simulation, the Council notes that Bulgaria’s integration within the European Union provides structural stability through diversified energy sources, strategic reserves, and macroeconomic coordination mechanisms. Despite these buffers, a 25% oil price increase would exert moderate pressure on the state budget, potentially pushing the deficit to between 3.3% and 3.6% of GDP. The most immediate fiscal effect would come from higher operating costs for government services, transport, and public administration. Under such a scenario, the deficit could rise by 0.15–0.35 percentage points of GDP from a baseline of roughly 3%, reaching a range of 3.25–3.6% without compensatory measures.

Inflation would also feel the impact. Rising oil prices increase transport and production costs, which in turn affect consumer prices. In Bulgaria, a 25% increase could translate into an additional 0.4-1.0 percentage points of inflation, depending on domestic market conditions and the pass-through of price changes from the euro area.

Trade effects are expected to be moderate. Bulgaria imports refined petroleum and energy raw materials, so higher oil prices would worsen the trade balance, widening the current account deficit by roughly 0.2-0.4% of GDP.

The Council emphasizes that Bulgaria benefits from protective mechanisms as an EU member. Ongoing diversification of the energy sector and investments in infrastructure help mitigate vulnerability to external shocks.

The recent sharp rise in oil prices in early March was driven by escalating military tensions between the United States, Israel, and Iran. U.S. and Israeli strikes on Iran, followed by Iranian counterattacks, led to a partial blockade of the Strait of Hormuz - a critical route carrying nearly 20% of the world’s oil. Currently, traffic through the strait is minimal, and the high military threat has fueled market anxiety. While the market reacted strongly, analysts cited in the Fiscal Council report suggest that if normal operations resume quickly, the price spike may be temporary.