Money meant for schools and hospitals is being used to keep economies afloat
As conflict reshapes the Middle East, its tremors are reaching the balance sheets of the world's most vulnerable nations, forcing governments to choose between protecting their people today and building the foundations they will need tomorrow. A new UNDP report reveals that low- and middle-income countries are on course to spend $1.1 trillion on fossil fuel subsidies in 2026 alone — a sum that crowds out schools, hospitals, and clean energy investments at precisely the moment those things matter most. The crisis lays bare a deeper truth: that energy security and climate transition are not competing priorities but a single, unresolved question about who bears the cost of a world still running on oil.
- Middle East military escalation is sending oil prices surging, and developing governments are spending at historic scale just to keep energy affordable for their populations.
- Fossil fuel subsidies in low- and middle-income countries are projected to reach $1.1 trillion in 2026 — a $410 billion leap in a single year — with a severe scenario pushing that figure to $1.43 trillion.
- Nearly half of the world's poorest nations are already in or near debt distress, with interest payments consuming a record 9.53% of government revenue, leaving almost no fiscal room to absorb the added energy burden.
- Every dollar redirected to subsidies is a school unbuilt, a clinic unequipped, a solar panel uninstalled — the human cost is real and compounding in silence.
- The UNDP is calling for faster multilateral liquidity access and accelerated renewable investment, arguing that clean energy is not an idealistic goal but the only durable shield against the next price shock.
A new UNDP report released this week puts a number on the impossible position facing the developing world: $1.1 trillion. That is how much low- and middle-income countries are projected to spend on fossil fuel subsidies in 2026, driven by oil price shocks stemming from the ongoing Middle East conflict. Compared to 2025, that represents a $410 billion increase — and in a severe scenario where oil averages $110 per barrel, the figure climbs to $1.43 trillion.
Governments have not been passive. They have deployed price caps, tax rebates, and demand-management schemes to shield their populations from the worst of the price surge. In the short term, it has worked. But the fiscal consequences are severe. UNDP Administrator Alexander De Croo described the trade-off with stark clarity: money intended for schools, hospitals, and clean energy is being consumed simply to keep economies from collapsing.
The debt dimension makes the picture darker still. Nearly half of the world's poorest countries are already in debt distress or at high risk of it. The median developing economy now spends 9.53 percent of total government revenue on interest payments alone — double the share from a decade ago and the highest level in 25 years. Between 2024 and 2026, 55 developing economies are expected to spend more than 10 percent of revenue on debt service, compared to just 32 a decade prior. Subsidies and debt together are squeezing out almost everything else.
The report warns that the subsidies, while necessary in the short term, are quietly locking countries into high-carbon pathways that will increase their vulnerability to future shocks. The UNDP argues that energy security and the clean energy transition are not separate problems to be solved in sequence — they are the same problem, and treating them otherwise is costing the developing world its future. De Croo called for two concrete responses: expanded multilateral liquidity with fewer bureaucratic barriers, and accelerated investment in renewables. Without both, developing nations will keep spending today's resources on yesterday's crises, while tomorrow's infrastructure remains unbuilt.
The Middle East conflict is forcing developing countries into a costly bind: spend enormous sums to keep energy prices from crushing their populations, or let people suffer. A new UN Development Programme report released this week shows the scale of that choice, and it is staggering.
Low- and middle-income nations have deployed every tool available to shield their citizens from soaring oil prices—fossil fuel subsidies, price caps, tax rebates, demand-management schemes. The strategy has worked in the short term. People can still afford to heat their homes and fill their tanks. But the bill is arriving, and it is reshaping the entire fiscal landscape of the developing world. Fossil fuel subsidies in these countries are on track to hit $1.1 trillion in 2026, a jump of $410 billion from 2025. If oil prices climb higher—to an average of $110 per barrel in what the report calls a "severe" scenario—that number swells to $1.43 trillion. These are not abstract figures. This is money that governments are spending to manage a crisis they did not create, money that is not available for anything else.
The human cost is embedded in that arithmetic. Schools are not being built. Hospitals are not being expanded. Clean energy systems are not being deployed. Instead, governments are using resources meant for development to keep their economies from collapsing under the weight of energy shocks. Alexander De Croo, the UNDP Administrator, put it plainly: "Money that should be building schools, hospitals, and clean energy systems is being used simply to keep economies afloat."
The problem is compounded by debt. Nearly half of the world's poorest countries are already either in debt distress or at high risk of it. This year, the median developing economy will spend 9.53 percent of its total government revenue just on interest payments—double the share from a decade ago and the highest level in 25 years. Over the three-year period from 2024 to 2026, 55 developing economies are projected to pay more than 10 percent of their revenue in interest alone, compared to 32 countries a decade ago. Debt is crowding out development spending at an accelerating rate. Add energy subsidies to that burden, and the fiscal space for anything else shrinks to almost nothing.
The UNDP report warns that while these subsidies provide temporary relief, they carry a hidden cost that will compound for years. By locking countries into high-carbon pathways, they undermine climate goals and limit future investment in the clean energy systems that would actually reduce exposure to future shocks. The report frames this as a false choice that should not exist: energy security and the energy transition are being treated as separate problems when they are, in fact, the same problem.
De Croo called for two urgent shifts. First, developing countries need easier access to multilateral liquidity—international financial support that does not require the same bureaucratic barriers that currently make borrowing difficult. Second, investment in renewable energy must accelerate. Every dollar spent on clean energy reduces a country's vulnerability to the next oil price spike, the next regional conflict, the next global shock. Without that support, developing nations will continue absorbing crises at the expense of their own future growth, spending today's resources on yesterday's problems while tomorrow's schools and hospitals remain unbuilt.
Notable Quotes
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.— Alexander De Croo, UNDP Administrator
Energy security and the energy transition are no longer separate agendas. They are one and the same.— Alexander De Croo, UNDP Administrator
The Hearth Conversation Another angle on the story
Why does a Middle East conflict thousands of miles away force a government in, say, Kenya or Indonesia to spend money on oil subsidies?
Because oil prices spike globally when supply is disrupted. If a government doesn't subsidize fuel, citizens face sudden, severe price increases. That destabilizes everything—transportation, food costs, electricity. So governments step in to absorb the shock, at least temporarily.
But couldn't they just let prices rise and let people adjust?
In theory, yes. In practice, rapid price spikes cause immediate hardship and political instability. A government that lets fuel prices double overnight risks unrest. So they choose to spend money instead. It's a rational short-term move that creates a long-term trap.
What's the trap?
The money has to come from somewhere. If you're spending $410 billion more on subsidies than you did last year, you're not spending it on schools, hospitals, or renewable energy. And if you're already drowning in debt—paying double what you paid a decade ago just in interest—there's almost no room left to invest in anything that builds the future.
So developing countries are essentially choosing between immediate pain and long-term decline?
Exactly. And they're not really choosing. They're responding to a crisis they didn't cause. The report's point is that without international support—easier access to financing, investment in clean energy—they'll keep absorbing these shocks alone, and each one will leave them weaker.
Is there a way out?
The report suggests two paths. One is unlocking international liquidity so countries can borrow more easily during crises. The other is accelerating renewable energy investment. Every dollar spent on clean energy reduces vulnerability to the next oil shock. It's not a quick fix, but it's the only way to break the cycle.