Developing countries are diverting scarce fiscal resources to offset the global energy shock triggered by the ongoing conflict in the Middle East, leaving little room for investments in education, health, and climate priorities, according to a press release by the UN Development Programme (UNDP) issued on June 29, 2026. The new report, Military Escalation in the Middle East: Cushioning the Global Shock, was launched from New York City and Hamburg. It finds that low- and middle-income countries have partially shielded their populations from soaring oil prices through fossil fuel subsidies, price caps, tax rebates, and demand-management measures. UNDP cautions that these temporary measures are eroding development gains. The report frames the spillover effects as both immediate and potentially long-lasting.
Fossil fuel subsidies, which had been on a downward trend globally, are now on track to reach US$1.1 trillion in 2026. That figure represents US$410 billion more than in 2025, assuming the current average oil price settles at US$88.6 per barrel. In a severe scenario where oil prices average US$110 per barrel, the projection climbs to as much as US$1.43 trillion. UNDP warns that subsidies, while providing temporary relief, undermine climate and development goals. They also lock countries into high-carbon pathways and limit future investment.
The report highlights that close to half of the world’s poorest countries are already either in or at high risk of debt distress. Debt servicing continues to crowd out development spending at an increasing rate. This year, the median developing economy is estimated to spend 9.53 percent of total government revenue on interest payments alone. That share is double what it was a decade ago and the highest level recorded in 25 years. Averaged over 2024 to 2026, 55 developing economies are estimated to pay more than 10 percent of revenue in interest payments, compared with 32 countries a decade earlier.
“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.
He added that governments are postponing tomorrow’s investments to deal with today’s crisis, with money meant for schools, hospitals, and clean energy systems being used to keep economies afloat. De Croo stressed that without international support, affected countries will absorb the shock at the expense of future growth. He called for unlocking multilateral liquidity in ways accessible to low- and middle-income countries. He also urged accelerated investment in renewable energy, arguing that energy security and the energy transition are now one and the same.
