A new UN Development Programme report warns that the fallout from conflict in the Middle East could push fossil fuel subsidies toward US$1 trillion, placing heavy pressure on developing countries already struggling with debt and limited fiscal space. The report says governments are using subsidies, price caps, tax rebates and demand-management measures to protect people from rising oil prices, but this short-term relief is reducing funds available for health, education, climate action and long-term development.
According to the report, global fossil fuel subsidies are on track to reach US$1.1 trillion in 2026, which is US$410 billion more than in 2025, if the average oil price settles at US$88.6 per barrel. In a severe scenario where oil prices rise to an average of US$110 per barrel, subsidies could climb as high as US$1.43 trillion.
UNDP warns that while fossil fuel subsidies can cushion households and economies during energy shocks, they also risk locking countries into high-carbon development pathways. This limits investment in clean energy systems and makes countries more vulnerable to future price shocks.
The report highlights that many low- and middle-income countries are already facing severe financial pressures. Close to half of the world’s poorest countries are either in debt distress or at high risk of debt distress, while interest payments continue to consume a growing share of public revenue. In 2026, the median developing economy is expected to spend 9.53 percent of total government revenue on interest payments alone, double the share recorded a decade earlier.
UNDP Administrator Alexander De Croo said developing countries are trying to protect people from the worst impacts of the energy shock, but the hidden cost is the postponement of future investments. Money that could support schools, hospitals and clean energy infrastructure is instead being used to keep economies stable during the crisis.
The report calls for urgent international support to help low- and middle-income countries manage the shock without sacrificing long-term development. UNDP says multilateral liquidity must become easier to access and renewable energy investment must be accelerated. Every clean energy investment, the report argues, reduces exposure to future energy shocks.
The findings were released during the Hamburg Sustainability Conference, a high-level event focused on global partnerships and collective action for sustainable development. The report reinforces the message that energy security and the energy transition are now deeply connected, and that investing in renewable energy is essential for both economic resilience and climate progress.
