Global fossil-fuel subsidies may top $1 trillion in 2026 – UNDP

The United Nations Development Programme (UNDP) predicts that global fossil-fuel subsidies could reach over $1 trillion by 2026, driven by rising energy costs stemming from the crisis in the Middle East. This projection is outlined in the UNDP's September 2026 policy brief, "From Shock to Resilience," which provides guidance on protecting development gains amid multiple crises.

The report notes that disruptions in energy markets and shipping routes have caused crude oil and commodity prices to rise, intensifying the fiscal burden on governments seeking to protect consumers through subsidies, price caps, and tax reductions.

The potential $1 trillion figure is based on UNDP estimates if energy prices remain stable. This surge in subsidies comes as many developing nations grapple with mounting debt-service expenses and limited fiscal space. A concerning 55 developing countries, comprising 44% of the sample, currently allocate more than 10% of their government revenue to interest payments, a significant rise from 32 countries or 26% a decade ago.

Brent crude oil averaged around $101 per barrel in September, marking a 22% increase since the ceasefire in July was broken and hostilities resumed.

UNDP highlights that challenges such as limited access to finance, weak data systems, and difficulties in identifying vulnerable households make it difficult for governments to transition from broad subsidies to more targeted measures. Consequently, governments face a dilemma: either suppress energy prices via subsidies and price controls or allow higher costs to reach consumers while subsidizing cash transfers for the most vulnerable.

Both options demand additional fiscal resources, exacerbating the financial pressures on countries already contending with high borrowing costs, debt burdens, and competing development priorities.

In response, several African governments have taken temporary measures to mitigate the impact of higher international fuel prices on consumers. These interventions span fuel-levy reductions and direct government absorption of part of the pump-price increases. In April, Ghana announced plans to lower certain taxes and levies along the fuel supply chain to lessen the impact of global energy price hikes on pump prices.

Similarly, Nigeria, which ceased nationwide petrol subsidies in 2023, has opted to reduce direct subsidy exposure for the government but has exposed consumers more to fluctuations in international petroleum prices and foreign-exchange costs. The Nigeria Revenue Service's Executive Chairman, Zacch Adedeji, stated in April that retaining the previous subsidy regime amid higher crude prices could have cost the government approximately N52 trillion in 2026, equivalent to nearly 76% of the N68 trillion federal budget.