From energy shock to development resilience

Energy shocks are not temporary disruptions—they reveal that fossil fuel dependence is a structural development risk.

Recent geopolitical tensions in the Middle East, including disruptions through the Strait of Hormuz have renewed volatility in oil and gas supplies, with impacts felt well beyond the region.  
For energy importing countries across the Global South, this quickly translates into higher prices, fiscal pressure and uncertainty for firms and households—making energy insecurity not only a climate or supply chain concern, but a threat to sustainable development. 

Many oil-producing countries remain heavily dependent on fossil fuel revenues, despite growing evidence from IDRC-supported research that national progress should be assessed using measures that extend beyond GDP. While high oil and gas prices may generate short-term gains, these benefits are often accompanied by longer-term risks, including stranded assets, economic volatility, and delayed diversification. These pressures deepen existing inequalities, particularly for women and youth‑led enterprises.   

This underscores the importance of investing in more resilient, inclusive, and sustainable development pathways.  

Together, these dynamics mark an inflection point—accelerating the shift to renewables for importers and the need for economic diversification among exporters. In both cases, fossil‑fuel dependence weakens the foundations of inclusive and sustainable growth. 

Crisis as an opportunity for structural change

Today’s energy shock presents a chance to accelerate structural change.  
History shows that disruption can open space for political, societal and economic transformation. The oil shocks of the 1970s triggered by geopolitical tensions and supply disruption prompted some countries like Brazil, to pursue deliberate energy diversification strategies that reshaped their development trajectories.  

Inclusive, sustainable design—not an add-on

Climate finance can support just and inclusive transitions, including transition to clean energy. Evidence emerging from the Clean Energy for Development: A Call for Action (CEDCA) initiative shows that solutions to energy poverty exist but struggle to scale because emerging markets’ financial systems are not designed to serve small and medium-sized enterprises (SMEs), first‑time borrowers or future high-growth firms. 

When financing is not tailored to local contexts and sector realities, transitions risk becoming unstable and inequitable. CEDCA underscores the need to embed inclusion and sustainability principles in the design and delivery of evidence‑based reforms. Women and youth‑led enterprises—often marginalised in conventional credit markets—appear to be well positioned to drive and diffuse grassroots clean energy solutions. Realizing this potential requires aligning financial products with context‑specific constraints —such as collateral, repayment schedules, and social norms —while addressing biased risk perceptions. Evidence from CEDCA and Desjardins International Development shows that financial systems still overlook underrepresented entrepreneurs, limiting their ability to scale clean energy solutions.  

Clean Energy Finance Aligned with Development Outcomes

There is a clear need to align clean energy finance with broader development goals. When funding focuses only on large-scale power or short-term emission targets, it can miss opportunities to strengthen local businesses, create jobs and diversify economies.  

Investing in how energy is used—particularly in agriculture, manufacturing, and services—can instead drive income generation and build economic resilience. 

For development funders and policymakers, three priorities stand out: 

• Financing must extend beyond large‑scale infrastructure to better reach SMEs and local energy providers that underpin economic activity.  
• Inclusion—especially for women and youth—must be embedded at the core of financial design. CEDCA research suggests that integrating inclusion can improve returns, including through gender‑responsive investment approaches.  
• Clean energy finance should be explicitly connected to trade competitiveness, firm productivity and long‑term economic stability. Evidence from UNU‑INRA found that the main barrier to scaling green agri‑tech is not a lack of innovation, but limited recognition of these models as creditworthy— highlighting the need for practical frameworks to help financial institutions better assess and support such investments.  

From Shock to Resilient Development Pathways

The current crisis has strengthened the case for renewable energy, but seizing this moment requires positioning clean energy finance within a broader development strategy—one that reduces exposure to external shocks while supporting inclusive growth. 

Periods of instability can either reinforce dependencies or drive lasting transformation.  
Today’s turbulence in global energy markets signals that development pathways built around fossil fuels are becoming increasingly untenable. Evidence from CEDCA shows that alternatives exist. The choice now is whether to turn this disruption into a foundation for more secure, inclusive and sustainable development.