The economic ripple effects of the ongoing conflict in the Middle East are forcing developing nations to divert billions of dollars toward fossil fuel subsidies, threatening investments in education, healthcare, and clean energy, according to a new report released by the United Nations Development Programme (UNDP).
Published on Monday, the report, Military Escalation in the Middle East: Cushioning the Global Shock, highlights how low- and middle-income countries have relied on fuel subsidies, price caps, tax relief, and demand-management measures to shield households and businesses from surging energy costs triggered by geopolitical instability.
The UNDP estimates that global fossil fuel subsidies, which had been declining in recent years, are expected to climb to US$1.1 trillion in 2026 if average oil prices remain at US$88.6 per barrel. That represents an increase of US$410 billion compared to 2025.
Under a more severe scenario, where oil prices average US$110 per barrel, subsidies could soar to US$1.43 trillion, placing additional strain on already fragile public finances.
While such measures provide short-term relief, the report cautions that they come with significant long-term consequences. Increased fossil fuel subsidies risk delaying the transition to cleaner energy systems, entrenching carbon-intensive economies, and reducing governments’ ability to invest in sustainable development.
“The global spillover of the Middle East conflict is profound and potentially long-lasting. Developing countries, many already struggling with debt, have temporarily managed to protect people from the worst of the energy shock,” said UNDP Administrator Alexander De Croo.
“These countries are doing everything they can, but there is a hidden cost. To deal with today’s crisis, governments are postponing tomorrow’s investments. Money that should be building schools, hospitals, and clean energy systems is being used simply to keep economies afloat. Without international support, these countries won’t escape the shock. They are absorbing it at the expense of future growth,” he added.
The report also underscores the growing debt burden facing developing economies. Nearly half of the world’s poorest countries are either already in debt distress or face a high risk of reaching that point.
According to the UNDP, the median developing economy is expected to spend 9.53% of total government revenue on interest payments in 2026—double the proportion recorded a decade ago and the highest level in 25 years.
Between 2024 and 2026, an estimated 55 developing countries are projected to allocate more than 10% of government revenue to servicing debt, compared with 32 countries over the same period a decade earlier.
De Croo called for stronger international action to help vulnerable economies manage the crisis without sacrificing long-term development goals.
“No country should have to sacrifice its future development to manage a crisis it did not create,” he said. “First, we must unlock multilateral liquidity in ways that are easy to access for low and middle-income countries. Second, we must accelerate investment in renewable energy. Every clean energy investment reduces exposure to future shocks. The crisis has made one thing clear: energy security and the energy transition are no longer separate agendas. They are one and the same.”
The report was launched during this week’s Hamburg Sustainability Conference, an annual global forum that brings together policymakers, business leaders, academics, and civil society representatives to advance international partnerships and sustainable development initiatives.
