Introduction
The cascading effects of the US and Israel's attacks on Iran are forcing developing countries to exhaust their fiscal margin with fossil fuel subsidies. Although the move is avoiding a price surge for consumers in the short term, it hinders investments in health, education, and climate.
The UNDP Report
This is highlighted in the report “Military Escalation in the Middle East: Cushioning the Global Shock”, by the United Nations Development Programme (UNDP). Launched on Monday (29/6), the document shows that low- and middle-income countries have partially protected their populations from the oil shock caused by the war through fossil fuel subsidies, price ceilings, tax exemptions, and demand management measures.
Fossil Fuel Subsidies
As a result, fossil fuel subsidies, which were declining, are expected to reach $1.1 trillion this year, $410 billion more than in 2025. The value considers the average price of a barrel of oil at $88.60. However, if the conflict persists and continues to drive up prices, fossil fuel subsidies could reach $1.43 trillion, based on an average barrel price of $110.
Consequences for Development
“Developing countries are doing everything they can, but there is a hidden cost. To deal with the current crisis, governments are delaying future investments. The money that should be used to build schools, hospitals, and clean energy systems is being used simply to keep economies afloat. Without international support, these countries will not escape the shock. They are absorbing it at the expense of future growth”, said Alexander De Croo, UNDP Administrator.
Debt and Development
Almost half of the world's poorest countries are already in excessive debt or at high risk of entering this situation, the report highlights, and debt continues to compromise development spending at an increasing rate. It is estimated that the median developing economy will spend 9.5% of total government revenue on interest payments this year, double the rate of a decade ago and the highest level recorded in 25 years.
Conclusion
“No country should have to sacrifice its future development to manage a crisis it did not create”, De Croo emphasized. “First, we need to unlock multilateral liquidity to facilitate access for low- and middle-income countries. Then, we need to accelerate investment in renewable energy, which reduces exposure to future shocks. The crisis has made one thing clear: energy security and energy transition are no longer separate agendas. They are one and the same”.
Source / Reference
Source: ClimaInfo