{"id":2603,"date":"2026-06-12T10:21:20","date_gmt":"2026-06-12T08:21:20","guid":{"rendered":"https:\/\/www.developmentresearch.eu\/?p=2603"},"modified":"2026-06-26T11:08:21","modified_gmt":"2026-06-26T09:08:21","slug":"three-implications-of-the-oil-shock-for-the-turbulent-political-economy-of-development-cooperation","status":"publish","type":"post","link":"https:\/\/www.developmentresearch.eu\/?p=2603","title":{"rendered":"Three Implications of the Oil Shock for the Turbulent Political Economy of Development Cooperation"},"content":{"rendered":"\n

By Andy Sumner and Stephan Klingebiel<\/em><\/p>\n\n\n\n

The 2026 US\u2013Israel\u2013Iran war has produced what the International Energy Agency describes as the largest supply disruption in the history of the global oil market<\/a>. Brent crude rose from around $70 at the end of February to a peak of about $140 in early April before settling around $100 as of early June 2026. In a new Brief<\/a> we argue that the significance of the oil shock lies not only in the price increase itself but in its timing.<\/p>\n\n\n\n\n\n\n\n

The oil shock hits when the foundations of the post-Cold War global development architecture are already weakening. Official development assistance (ODA) had already recorded its largest annual contraction on record in 2025, a 23.1 per cent real-terms decline<\/a>. The oil shock did not cause that contraction but it has arrived in a political configuration that compounds a fiscal shock on to a structural reconfiguration of development cooperation. So far, the full extent of the shock has been delayed by the US and China drawing down reserves<\/a> but that cannot last indefinitely.<\/p>\n\n\n\n

The postulates of development cooperation<\/strong><\/h3>\n\n\n\n

We organise our analysis  around two postulates that support development cooperation. First that there are bounded states in the Global South with sufficient territorial authority, institutional capacity and elites with developmental aspirations to pursue broad-based development. Second  that there are donor (old and new) countries whose elites perceive a strategic, commercial or solidarity-based interest in supporting those aspirations, and that in democracies  domestic publics can be convinced that such support is worthwhile. We argue the oil shock weakens both postulates, but through different mechanisms.<\/p>\n\n\n\n

For oil-importing developing countries, the shock effects run through terms-of-trade losses, fiscal squeeze and food-price escalation. Pakistan’s weekly oil-import bill reportedly tripled from $300 million to $800 million<\/a> and fuel rationing and energy shortages have emerged across parts of South Asia and sub-Saharan Africa<\/a> already.<\/p>\n\n\n\n

Oil and food prices are linked. The FAO estimates that 41 countries, most in Africa, already require external food assistance<\/a>. For countries already heavily indebted, the shock compresses fiscal space that was already near zero .And it\u2019s around fifty per cent of IMF concessional finance eligible countries that are in or at high risk of debt distress<\/a>. Even net oil exporters face a paradox that windfalls may stabilise budgets but rarely convert into broad-based development gains; a pattern well documented in the resource-curse literature<\/a>.<\/p>\n\n\n\n

For donor countries, the oil shock compounds four reinforcing pressures on their willingness to sustain development cooperation spending. First, there is rising ideological hostility to multilateralism visible from the US. The dismantling of USAID drove more than three-quarters of the 2025 ODA decline. US ODA fell from roughly $60 billion to just under $30 billion in a single year and is pivoting towards a new US development doctrine of business deals<\/a>.<\/p>\n\n\n\n

Second, defence spending directly crowds out aid budgets. The NATO Hague Summit in 2025 agreed a 5 per cent of GDP target by 2035<\/a>, mechanically constraining discretionary spending across European donors for a decade. The UK has explicitly linked its reduction of ODA to a defence increase<\/a>. France’s 2026 finance bill imposes a further ODA cut while raising defence spending.<\/a><\/p>\n\n\n\n

Third, cost-of-living politics. Inflation may erode public tolerance for outward transfers. Polling evidence consistently shows that aid support weakens during periods of economic insecurity<\/a>, and the framing of development assistance as discretionary spending accelerates that decline. Fourth, herding dynamics among bilateral donors. As the US, UK and Germany cut, others have already followed across the OECD donors.<\/p>\n\n\n\n

So what?<\/strong><\/h3>\n\n\n\n

One question is whether Gulf finance, South\u2013South cooperation or climate finance can compensate. Our assessment is that they cannot at the required scale. The Arab Coordination Group provided $19.6 billion in 2024<\/a> and the OPEC Fund disbursed a record $2.3 billion, but sovereign wealth funds will absorb the oil shock windfalls that previously flowed outward in the 1970s oil shock<\/a>. Chinese overseas development finance has settled at roughly $6 billion per year<\/a> and is pivoting toward strategic supply-chain investment. The BRICS Delhi meeting of April 2026 failed to reach consensus on the Iran war, confirming the limits of BRICS+ as a coordinated financing bloc.<\/p>\n\n\n\n

We see three policy implications that follow:<\/p>\n\n\n\n

First, the multilateral financing architecture requires emergency reinforcement, with the IMF\u2019s resources and the World Bank\u2019s IDA lending envelopes both calibrated to a baseline that no longer holds.<\/p>\n\n\n\n

Second, the increasing concentration of concessional finance toward strategically prioritised states should not be treated as inevitable: fragile states without geopolitical salience risk falling through every safety net.<\/p>\n\n\n\n

Finally, OECD donors need to recommit to the development aspirations of developing nations. In the current OECD-DAC review process<\/a> and more broadly, OECD countries face a strategic choice over whether development cooperation remains anchored in poverty reduction and multilateralism or becomes subordinated to defence, migration and geopolitical objectives. In particular OECD donors need to decide whose mutual interests they wish to follow<\/a>.<\/p>\n\n\n\n

In sum, the likely outcome of oil shock is a more fragmented, transactional and geographically selective development cooperation system, where sustained support increasingly flows not to the countries with the greatest needs, but to those deemed geopolitically strategic.<\/p>\n\n\n\n

Andy Sumner<\/strong>\u00a0is Professor of International Development at King\u2019s College, London, and President of European Association of Development Research and Training Institutes. He is also a Senior Non-Resident Research Fellow at the\u00a0United Nations University World Institute for Development Economics Research\u00a0and the Center for Global Development; and a Fellow of the Academy of Social Sciences.<\/p>\n\n\n\n

Stephan Klingebiel<\/strong>\u00a0heads the research program \u201cInter- and Transnational Cooperation\u201d at the German Institute of Development and Sustainability (IDOS). He previously led the UNDP Global Policy Centre in Seoul (2019\u20132021) and the KfW Development Bank\u2019s office in Kigali, Rwanda (2007\u20132011). He is also a guest professor at the University of Turin, Italy, a senior lecturer at the University of Bonn, and an Honorary Distinguished Fellow at Jindal University, India.<\/p>\n\n\n\n

Image<\/strong>: Az1975<\/a> on Pixabay<\/a><\/p>\n\n\n\n

Note:<\/strong> This article gives the views of the authors, not the position of the EADI Debating Development Blog or the European Association of Development Research and Training Institutes<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

By Andy Sumner and Stephan Klingebiel The 2026 US\u2013Israel\u2013Iran war has produced what the International Energy Agency describes as the largest supply disruption in the history of the global oil market. Brent crude rose from around $70 at the end of February to a peak of about $140 in early April before settling around $100 … <\/p>\n

Continue reading “Three Implications of the Oil Shock for the Turbulent Political Economy of Development Cooperation”<\/span><\/a><\/p>\n","protected":false},"author":4,"featured_media":2605,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[163,1],"tags":[95,72,98,162],"class_list":["post-2603","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-debate-on-the-future-of-development-cooperation","category-opinionpieces","tag-development-cooperation","tag-development-policy","tag-geopolitics","tag-oil-crisis"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/www.developmentresearch.eu\/wp-content\/uploads\/2026\/06\/Oil-barrels.png","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/papI3v-FZ","_links":{"self":[{"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=\/wp\/v2\/posts\/2603","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2603"}],"version-history":[{"count":2,"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=\/wp\/v2\/posts\/2603\/revisions"}],"predecessor-version":[{"id":2606,"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=\/wp\/v2\/posts\/2603\/revisions\/2606"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=\/wp\/v2\/media\/2605"}],"wp:attachment":[{"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2603"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2603"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.developmentresearch.eu\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2603"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}