By R Anil Kumar
UNDP projects global fossil fuel subsidies will climb to $1.1 trillion in 2026, around $410 billion higher than in 2025 if oil prices average $88.60 a barrel. In a more severe scenario, with prices reaching $110 a barrel, subsidies could rise to $1.43 trillion.
“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.
New York/Bengaluru, June 29, 2026. With another weekend of strikes involving the United States and Iran, renewed diplomatic efforts on Monday, June 29, have eased immediate fears of escalation, but the economic shockwaves are already taking a heavy toll on some of the world’s poorest countries.
According to the UN Development Programme (UNDP), developing economies are being forced to spend hundreds of billions of dollars shielding households from soaring energy costs, leaving less money for schools, hospitals and climate action.
Their new report, Military Escalation in the Middle East: Cushioning the Global Shock, finds that governments have relied on fossil fuel subsidies, price caps and tax rebates to protect families from higher oil prices triggered by instability in the Middle East.
While these measures provide short-term relief, they come at a steep long-term cost, the agency reports.
UNDP projects global fossil fuel subsidies will climb to $1.1 trillion in 2026, around $410 billion higher than in 2025 if oil prices average $88.60 a barrel. In a more severe scenario, with prices reaching $110 a barrel, subsidies could rise to $1.43 trillion.
Development delayed
The report warns that mounting energy costs are squeezing already strained public finances across low and middle-income countries.
“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.
Many developing countries entered the latest crisis already burdened by rising debt. Nearly half of the world’s poorest countries are either in debt distress or at high risk of it, while interest payments continue to consume a growing share of government budgets.
This year, the median developing economy is expected to spend 9.5 per cent of government revenue servicing debt, double the share a decade ago and the highest level in 25 years.
UNDP warns that diverting scarce public funds toward fossil fuel subsidies risks slowing progress toward the 17 (Sustainable Development Goals (SDGs) while locking countries into more carbon-intensive energy systems.
Call for international support
Mr. De Croo said developing countries should not have to sacrifice long-term development to respond to a crisis beyond their control.
“No country should have to sacrifice its future development to manage a crisis it did not create,” he said.
He called for easier access to international financing and faster investment in renewable energy, arguing that expanding clean energy would both strengthen energy security and reduce vulnerability to future geopolitical shocks.
“The crisis has made one thing clear,” he said. “Energy security and the energy transition are no longer separate agendas. They are one and the same.”
