Iran war: Fuel subsidies could cost govts $1 trillion this year
The situation may worsen as oil prices near $100 a barrel and the world faces what could be the strongest El Niño on record.
- Oct 2, 2026,
- Updated Oct 2, 2026 4:20 PM IST
Fuel subsidies could cost governments worldwide more than $1 trillion this year as countries try to protect consumers from rising energy prices caused by the Iran war and other crises, according to a United Nations study.
The UN Development Programme (UNDP) said governments are running out of options to maintain measures like price caps, subsidies and tax rebates as higher borrowing costs add pressure to already stretched budgets.
The situation may worsen as oil prices near $100 a barrel and the world faces what could be the strongest El Niño on record. The UNDP said the coming months will be critical for governments that have introduced relief measures to ease the impact of rising food and energy prices.
"If countries continue to sustain subsidies, price caps and rationing at higher oil prices, they require additional fiscal resources; if they choose to allow prices to pass through and put in place temporary and targeted cash transfers to help protect vulnerable populations they also require additional fiscal resources. This exacerbates the debt-development trade-off, which in many - especially poorer - countries diminishes long-term development prospects. UNDP estimates suggest that with energy prices at current levels, global fossil fuel subsidies could easily surpass $1 trillion this year," the report stated.
According to data from the UNDP, 55 developing countries, representing 44 per cent of the sample, now spend more than 10 per cent of their total revenue on interest payments. This is an increase from 32 countries, or 26 per cent, a decade ago.
The main challenge is not only policy choice but also the capacity to implement these policies and access to financing. Gaps in data, targeting systems, coordination, and financing restrict countries' ability to adopt more targeted, evidence-based, and fiscally sustainable responses, it said.
"The horizon over the next few weeks and months is uncertain because we don’t see a very clear pathway out of the three-pronged crisis," said George Gray Molina, chief economist at the UNDP, referring to the Iran war, borrowing costs and El Niño.
The UNDP analysis, using data from the World Bank, International Monetary Fund and International Energy Agency, found that the number of countries offering relief measures nearly doubled between April and September as the war's impact continued.
Without these relief measures, an additional 130 million people could have fallen below the $6.85-a-day poverty line this year, the report said.
Pressure on governments is expected to rise further, with combined shocks projected to peak in early 2027. The expected effects of El Niño could increase the strain, as warm ocean conditions may cause floods, droughts and worsen food insecurity.
Higher energy prices have already led to protests and social unrest. In September, unrest was reported in at least 10 countries, including Syria, Guatemala, the Philippines, France and Portugal.
A separate survey of 26 UNDP offices found that 25 expect the Middle East crisis to remain or become a greater priority in the next six months. All offices predicted that "the worst is yet to come."
Fuel subsidies could cost governments worldwide more than $1 trillion this year as countries try to protect consumers from rising energy prices caused by the Iran war and other crises, according to a United Nations study.
The UN Development Programme (UNDP) said governments are running out of options to maintain measures like price caps, subsidies and tax rebates as higher borrowing costs add pressure to already stretched budgets.
The situation may worsen as oil prices near $100 a barrel and the world faces what could be the strongest El Niño on record. The UNDP said the coming months will be critical for governments that have introduced relief measures to ease the impact of rising food and energy prices.
"If countries continue to sustain subsidies, price caps and rationing at higher oil prices, they require additional fiscal resources; if they choose to allow prices to pass through and put in place temporary and targeted cash transfers to help protect vulnerable populations they also require additional fiscal resources. This exacerbates the debt-development trade-off, which in many - especially poorer - countries diminishes long-term development prospects. UNDP estimates suggest that with energy prices at current levels, global fossil fuel subsidies could easily surpass $1 trillion this year," the report stated.
According to data from the UNDP, 55 developing countries, representing 44 per cent of the sample, now spend more than 10 per cent of their total revenue on interest payments. This is an increase from 32 countries, or 26 per cent, a decade ago.
The main challenge is not only policy choice but also the capacity to implement these policies and access to financing. Gaps in data, targeting systems, coordination, and financing restrict countries' ability to adopt more targeted, evidence-based, and fiscally sustainable responses, it said.
"The horizon over the next few weeks and months is uncertain because we don’t see a very clear pathway out of the three-pronged crisis," said George Gray Molina, chief economist at the UNDP, referring to the Iran war, borrowing costs and El Niño.
The UNDP analysis, using data from the World Bank, International Monetary Fund and International Energy Agency, found that the number of countries offering relief measures nearly doubled between April and September as the war's impact continued.
Without these relief measures, an additional 130 million people could have fallen below the $6.85-a-day poverty line this year, the report said.
Pressure on governments is expected to rise further, with combined shocks projected to peak in early 2027. The expected effects of El Niño could increase the strain, as warm ocean conditions may cause floods, droughts and worsen food insecurity.
Higher energy prices have already led to protests and social unrest. In September, unrest was reported in at least 10 countries, including Syria, Guatemala, the Philippines, France and Portugal.
A separate survey of 26 UNDP offices found that 25 expect the Middle East crisis to remain or become a greater priority in the next six months. All offices predicted that "the worst is yet to come."