WORLD - The economic consequences of the ongoing conflict in the Middle East are forcing developing countries to divert resources away from essential development needs like health and education, according to a report published by the United Nations Development Programme (UNDP).
The report, Military Escalation in the Middle East: Cushioning the Global Shock, warns that governments across low- and middle-income countries are spending heavily to offset rising energy costs, leaving fewer resources available for essential sectors such as education, healthcare, and infrastructure.
According to the report, many developing economies have relied on fossil fuel subsidies, price caps, tax rebates, and other measures to protect households and businesses from surging oil prices.
While these policies have helped ease the immediate impact of higher energy costs, the UNDP said they carry significant long-term economic and environmental consequences.
Global fossil fuel subsidies, which had been declining in recent years, are now projected to reach US$1.1 trillion in 2026. That figure represents an increase of US$410 billion compared with 2025, based on an assumed average oil price of US$88.6 per barrel.
In a more severe scenario, where oil prices average US$110 per barrel, subsidies could rise to as much as US$1.43 trillion.
The report cautions that continued reliance on such subsidies risks undermining climate goals while limiting governments’ ability to invest in sustainable development.
By directing public funds toward short-term energy relief, countries may become further dependent on carbon-intensive energy systems and delay investments in renewable alternatives.
“The global spillover of the Middle East conflict is profound and potentially long-lasting,” said UNDP Administrator Alexander De Croo. He noted that many developing countries, already burdened by high levels of debt, have managed to cushion their populations from the worst effects of the energy shock, but at a considerable cost.
“These countries are doing everything they can, but there is a hidden cost,” De Croo said. “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.”
The report highlights growing concerns over debt sustainability. Nearly half of the world’s poorest countries are either already in debt distress or face a high risk of reaching that stage.
Rising debt-servicing obligations are increasingly consuming government budgets, reducing fiscal space for development spending.
UNDP estimates that the median developing economy will spend 9.53 percent of total government revenue on interest payments in 2026, double the share recorded a decade ago and the highest level in 25 years.
Over the 2024-2026 period, 55 developing economies are expected to devote more than 10 percent of government revenue to interest payments, compared with 32 countries ten years earlier.
De Croo called for greater international support, including improved access to multilateral financing and accelerated investment in renewable energy. “No country should have to sacrifice its future development to manage a crisis it did not create,” he said.
The report was released ahead of the Hamburg Sustainability Conference, an annual gathering of policymakers, business leaders, academics, and civil society representatives focused on advancing global sustainable development initiatives.
