UNDP: Mideast conflict pushing fossil fuel subsidies toward $1 trillion

The United Nations Development Programme warned on Sunday that the economic fallout from military escalation in the Middle East is forcing developing countries to divert hundreds of billions of dollars toward fossil fuel subsidies, money that would otherwise fund schools, hospitals, and climate programs.

Subsidies on Track to Reach $1.1 Trillion

In a report titled "Military Escalation in the Middle East: Cushioning the Global Shock," UNDP projects that global fossil fuel subsidies will climb to $1.1 trillion in 2026 — roughly $410 billion more than in 2025 — if oil prices average $88.60 per barrel. In a more severe scenario where oil reaches $110 per barrel, subsidies could rise as high as $1.43 trillion.news.un+1

The report finds that low- and middle-income countries have relied on subsidies, price caps, and tax rebates to shield households from soaring energy costs triggered by the conflict. While these measures provide short-term relief, they come at steep long-term cost, crowding out public investment and locking countries into carbon-intensive energy systems.developmentaid+2

Debt Pressures Compound the Crisis

UNDP notes that many developing countries entered this crisis already burdened by rising debt. The median developing economy is expected to spend 9.5 percent of government revenue servicing debt this year — double the share from a decade ago and the highest level in 25 years.news.un

"Money that should be building schools, hospitals, and clean energy systems is being used simply to keep economies afloat," said UNDP Administrator Alexander De Croo.news.un

Nearly half of the world's poorest countries are either in debt distress or at high risk of it, leaving minimal fiscal space to absorb additional energy costs without sacrificing development priorities.news.un

Calls for Financing and Renewable Investment

De Croo called for expanded access to international financing and faster investment in renewable energy, framing the crisis as proof that energy security and the energy transition can no longer be treated as separate agendas. "No country should have to sacrifice its future development to manage a crisis it did not create," he said.news.un