War-induced spikes in oil prices and the arrival of artificial intelligence are widening the economic gap between rich and poor countries, according to the International Monetary Fund’s October report on the world economy. Poorer countries that import most of their fossil fuels have suffered the worst consequences of the United States’ and Israel’s war on Iran, while wealthier countries have better withstood war-related shocks thanks to AI-related economic growth and diversified energy systems, the report said.
Renewable and clean energy could help poorer countries strengthen their economies against future economic turbulence, but a well-planned energy transition requires resources these countries don’t have. Instead, families and companies in developing countries are pursuing their own ad hoc energy transitions with cheap electric motorbikes and rooftop solar panels. Demand for an energy transition in poor economies is here, experts say, but no one is providing the planning and money to make it orderly or equitable.
“Getting off oil is the only solution to this long-standing, but currently very acute, economic vulnerability,” said Rebecca Ray, an economist studying global sustainable development at Boston University. “The question is, who’s going to pay for it?”
Oil and gas prices, which have soared as wars in the Middle East and Ukraine have destroyed refineries and closed shipping routes, have made all kinds of products more expensive, including fertilizer and goods that must be shipped with fossil fuel-burning engines. Those high prices hit hardest in poor countries, where people and governments already struggle to afford necessities.
High fossil fuel prices can also have unwelcome knock-on effects in poor countries, like making it harder for the governments to borrow money. Rising fuel prices slow down an economy, meaning governments take in less tax money. Investors then get skittish about lending to those governments because of their weakened incomes. Governments must then take on riskier loans with steeper interest rates to stay afloat, adding to already high costs of borrowing. That can lock them into financial trouble and make it harder for them to spend on their people.
“The world’s poorest countries are likely to see their productivity and growth momentum decelerate and the gap in their per capita incomes relative to those in advanced economies widen” through the early 2030s, the IMF report states. The report echoes repeated warnings about the global impacts of the war in Iran from international organizations since early in the year.
Still, residents of low-income countries are responding to the crisis by seeking opportunities for resilience. Even before fuel prices spiked from war in the Middle East, private citizens and companies in poor countries were investing in their own renewable energy. The war seems to have accelerated those trends or demonstrated their value.
For instance, electric mopeds and motorcycles now zip through crowded intersections in Vietnam, where their sales nearly doubled after the outbreak of the war, now representing 28 percent of new two-wheel vehicles sold. In Pakistani cities, rooftop solar had effectively doubled the country’s electricity capacity in two years leading up to the war. After the war began, all those solar panels kept the country’s electricity prices fairly stable, shielding the country from the same economic shocks it experienced following Russia’s invasion of Ukraine in 2022.
An energy transition is happening, but it’s not a systematic change. And it’s not equally distributed among the people of poor countries. Installing so much unplanned rooftop solar takes wealthier households off power grids, leaving poorer households to pay for the grids’ improvements. EV growth can strain grids without the appropriate planning and infrastructure improvements. And the organization and expense required for a wholesale energy transition just aren’t feasible for many governments.
Ethiopia, for instance, has rocketed ahead of other African countries to become a global leader in electric vehicle adoption, but the country still only has 13 public charging stations and suffers regular blackouts, making its EV rollout potentially precarious. The country has doubled its national electricity generation with the Grand Ethiopian Renaissance Dam hydropower project, which came online last year, but it still needs a reliable grid to make that power boost meaningful. Nepal, which is also leveraging hydropower to support massive EV adoption — over 70 percent of new vehicles sold — is similarly watching its electric vehicle stock grow faster than the chargers and grid technology needed to support it.
Building out essential infrastructure like power grids is exactly the kind of project that international development institutions like the IMF are supposed to invest in. The IMF and World Bank, both headquartered in Washington, D.C., were founded by over 40 allied nations in 1944. Both organizations, along with a series of regional development institutions like the Asian Development Bank, constitute a system whose public goal is to provide loans, research capabilities, and financial advice to developing countries so they can build projects needed to grow their economies. However, throughout their history, both organizations have received criticism for prioritizing debt repayment over well-being within borrower countries, potentially worsening inequality and corporate profiteering.
Today, the largest of these organizations aren’t stepping up to overhaul energy systems in developing countries — in fact, the World Bank abandoned its ambitious climate-related lending goal in June, following the Trump administration’s calls for it and the IMF to refocus away from climate issues. And the large countries that help fund those organizations, like the United States, European nations, and China, have recently reduced their funding for infrastructure development in poor countries.
“Developing countries have been caught in a downward spiral of decelerating growth and increased vulnerability,” said Shekhar Aiyar, director of the Indian Council for Research on International Economic Relations, at an event hosted by the Center for Global Development this month. “At the same time, there has been a vast scaling back of bilateral aid” — that is, aid from rich countries to poorer ones.
Wealthy countries have promised over a trillion dollars to help fund climate-related projects in developing nations by 2035, but annual payments are meant to ramp up and aren’t fully available yet. Plus, wealthy countries have historically failed to meet similar promises.
If there’s a silver lining, it’s that the economic fallout from the Iran war has made the economic importance of transitioning poor countries away from fossil fuels undeniable.
“It’s now more widely understood that decarbonization is a critical goal for macroeconomic stability, and just that recognition is a really encouraging step,” Ray said.
This story was originally published by Grist with the headline Soaring oil prices underscore the need to help poor countries adopt renewables on Oct 22, 2026.