Malta has €250 million cushion amid Gulf conflict, excessive deficit procedure – Finance Minister

Finance Minister Clyde Caruana told Parliament on Wednesday that Malta can afford to spend an additional €250 million, at minimum, and still retain a budget deficit of no more than 3% – in line with excessive budget deficit procedure requirements.

Minister Caruana stated that at present, Malta is spending €150 million on energy subsidies per year. He declared that with these calculations, the Maltese government is ready to increase this investment to at least €400 million if the war that has erupted in Iran and the Persian Gulf results in a large spike of local energy prices.

“If prices had to explode upwards, which I don’t foresee, the country has the equivalent of €250 million that it can use as a cushion against exogenous shocks from abroad,” Finance Minister Caruana stated.

Earlier this January, Minister Caruana announced that the Maltese government has already managed to lower its budget deficit to below the EU’s stipulated 3% threshold. He reaffirmed this on Wednesday, noting that on 22 April 2026, when the official statistics are published by Eurostat and the NSO Malta, we will see that Malta has managed to lower its budget deficit to “well below 3%.”

He said that this financial flexibility is possible thanks to the government’s sound leadership and fiscal management. The Government of Malta had initially aimed to lower its budget deficit to below 3% by the end of 2026. During the last budget in October, Minister Caruana advised the Maltese public that the budget deficit should lower to 3.3% by the end of 2025, before updating this just a quarter later that Malta is abiding by EU fiscal rules a year earlier than targeted.

While adjourning Parliament’s Wednesday plenary, Caruana remarked on how the international situation could affect the Maltese islands, financially and economically, as war in the Persian Gulf has recently flared up. He opened by stating that times have changed and that this emergence of war presents very different circumstances to when Russia invaded Ukraine just four years ago, in 2022.

The Minister for Finance commented that while most people are worrying on how this new conflict will impact energy prices, he is more worried on how this situation could impact Europe’s financial power, as different currencies appreciate and depreciate.

“I am more concerned about the conflict’s impacts on the Euro, rather than on its impact to natural resources,” Finance Minister Caruana said.

Citing academia, Caruana noted that in times of war, historically, the US dollar ($) strengthens while the euro (€) weakens. He said that as a result of this, “when we go buy something in dollars, from euros, we will need to pay more.”

Focusing on the US dollar, he mentioned that during these times, the US currency goes up in value similarly to how gold appreciates in value in times of uncertainty. He factored this to the USA having the world’s strongest economy, “militarily and all.” Hence, before this conflict broke out, the exchange rate between euros and dollars produced $1.19 from €1; this has already gone down to $1.16 for every €1 spent.

He noted that while the euro has already depreciated slightly, it has not weakened in value to near the same extent it did when Russia invaded Ukraine. However, “if this conflict sustains itself, the risk that the Euro depreciates will go up.”

On energy, Minister Caruana told the House that Europe’s landscape has changed drastically since Russia’s invasion of Ukraine in 2022 caused European energy prices to shoot upwards.

The Finance Minister discussed how back then, a large chunk of European energy infrastructure was responsible for importing Russian gas to generate electricity around the continent. At the time, natural gas was Europe’s most abundant natural resource for energy generation, he said.

Minister Caruana observed that despite the price of natural gas increasing because of the most recent developments in the Middle East, natural gas is still seven times cheaper to peak prices experienced in 2022. Natural gas now costs around $50/MWh, in contrast to the circa $350/MWh in 2022.

He stated that while natural gas prices were most affected by the Russian invasion of Ukraine, the present war in the Persian Gulf is most affecting the price of oil.

“This shows that there is a totally different impact on energy between these two conflicts,” he said.

The Minister for Finance shared that in 2022, the price of a single barrel of Brent crude oil nearly reached $120. Despite a scare this past weekend where weekend trading saw prices shoot up to $117 per barrel, the price of Brent crude oil today sits at around $90 per barrel.

“The difference between oil prices is not as significant as the difference between gas prices,” Minister Caruana assured.

Additionally, he noted that the price of diesel – which is a derivative of oil – now sits at around $2.80 per gallon. In 2022, diesel prices reached $4 per gallon. At the start of this year, diesel cost around $1 per gallon and has since nearly tripled in price.

“Diesel has gone up significantly, but it looks like even the price of diesel is far from what we observed four years ago, when it had even gone up to $3, $4, and remained that way for some six months,” he said.

Minister Caruana attributed these lesser felt energy price hikes partly to the European Union’s mission to reduce its exposed dependence on Russian gas. He said that since 2022, the EU has reduced its proportion of fossil fuels in its energy mix from 40% of its electricity generation down to 30%.

Caruana added that nowadays, half of all energy generated in Europe is generated from clean, renewable sources; he said that wind and solar energy combined contribute for more energy generation across the European continent than natural gas does.

“In just four years, the EU has reduced its dependence on fossil fuels so that what we experienced in 2022 is not felt to the same extent – not now, nor in the future. From these facts, one can see that there is a difference between realities now and four years ago” the Finance Minister said.