- Global fuel subsidies could exceed $1 trillion this year as the Iran war drives higher energy prices and strains government budgets.
- UNDP warns that borrowing costs and a severe El Niño could intensify pressure on governments and vulnerable households through early 2027.
Governments worldwide could spend more than $1 trillion on fuel subsidies this year as the Iran war and other crises push energy costs higher, according to a United Nations Development Programme (UNDP) report released on October 2.
The report warns that governments face growing challenges in protecting consumers from higher energy prices. Rising borrowing costs could further limit their ability to sustain price caps, subsidies and tax rebates.
UNDP identified the next few months as critical for governments managing energy-price interventions. Oil prices approaching $100 per barrel could increase fiscal pressure, while higher interest costs could further strain government budgets.
“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, UNDP’s chief economist.
He identified the Iran war, higher borrowing costs and the weather phenomenon El Niño as the three major pressures facing governments and households.
The UNDP analysis drew on data from the World Bank, International Monetary Fund and International Energy Agency. It found that the number of countries introducing measures to cushion consumers from higher food and energy prices nearly doubled between April and September.
These measures include fuel subsidies, price controls and tax rebates. However, governments could struggle to maintain the interventions as energy costs remain elevated and fiscal conditions tighten.
The report estimated that relief measures prevented an additional 130 million people from falling below the $6.85-a-day poverty line this year. However, UNDP expects pressure on households to increase as the combined effects of energy, financial and climate shocks intensify.
The organisation expects the combined shocks to peak in early 2027. It also warned that this year’s El Niño could worsen food insecurity by increasing the risk of floods and droughts.
Meanwhile, higher energy prices have already contributed to social unrest. UNDP reported protests linked to energy costs in at least 10 countries in September, including Syria, Guatemala, the Philippines, France and Portugal.
The agency also surveyed 26 UNDP country offices. Twenty-five offices expect the Middle East crisis to remain or become a greater priority over the next six months.
The findings highlight the growing financial pressure on governments that rely on consumer support measures to manage energy-price shocks. They also underscore the need to balance short-term affordability measures with fiscal sustainability as energy and climate risks persist.