WASHINGTON, D.C.—The ongoing war in Iran is casting a long shadow over the climate finance commitments countries agreed to in 2024, experts warned, as surging oil prices and rising defense budgets put further pressure on the limited pot of money developing nations are counting on to stave off worsening impacts from a warming planet.

The World Bank and the International Monetary Fund’s annual spring meetings are underway in the capital this week, with a focus on a coordinated global response to a world economy under pressure from slower growth and rising debt, exacerbating global inequities. 

The U.S. war in Iran adds new supply-chain challenges. In a press briefing Tuesday, the IMF slashed its growth forecast to 3.1 percent for the year, down from 3.3 percent in January, with global inflation rising to 4.4 percent. 

“Our severe scenario assumes that energy supply disruptions extend into next year, with greater macro instability. Global growth falls to 2 percent this year and next, while inflation exceeds 6 percent,” said Pierre‑Olivier Gourinchas, the IMF’s director of research. 

The blunt assessment has caused a scramble to determine what financial support the institution can offer to member states. And it has raised fresh questions about climate-finance obligations, already under strain from donor-country budget cuts and the United States jettisoning global climate commitments under the second Trump administration. One of President Donald Trump’s first actions back in office last year was ordering the U.S. to withdraw from the Paris climate agreement.

Since the COVID-19 pandemic, wealthier countries that promised climate finance have experienced widening fiscal deficits and rising debt, the Organisation for Economic Co-operation and Development found in its latest assessment. As a result, aid from donor countries has already declined sharply—dropping almost 25 percent in 2025 compared to 2024. Even before the Iran conflict began, that was projected to drop further this year. 

COP29, the global climate conference held in late 2024 in Baku, Azerbaijan, set a commitment of $300 billion per year by 2035, with a broader goal of reaching $1.3 trillion annually from public and private sources. Called the New Collective Quantified Goal (NCQG), the arrangement replaced the previous $100 billion-a-year commitment that wealthy nations had met belatedly in 2022, two years after the deadline. 

Developing nations widely criticized the $300 billion figure as grossly inadequate, given the scale of the climate crisis. These countries are among the least responsible for the pollution driving that crisis and among the hardest hit by its effects. 

The Iran war has triggered a new set of worries as top economists and experts weigh potential impact and likely mitigation strategies. 

“Even before the Iran conflict, reaching the NCQG target would have been difficult, particularly with the U.S. withdrawing from the Paris Agreement. The war worsens the outlook,” said Gautam Jain, senior research scholar at the Center on Global Energy Policy at Columbia University.

He said sustained disruption of the Strait of Hormuz would exacerbate the problem and the effects would weigh on the global economy. As a result, aid budgets would decline and the political pushback to external spending would increase. 

The conflict is “pushing energy security to the forefront of government agendas,” Jain said. That will likely strengthen incentives to deploy more renewables and other forms of domestic clean energy, but the war’s economic convulsions could cut both ways for the energy transition.

“In low-income countries, the transition could be significantly delayed, given limited fiscal capacity to absorb sustained energy price shocks,” Jain said.

One of the main priorities for the World Bank during the meetings in Washington is to develop a new Climate Change Action Plan to replace the one expiring in June. “In the current geopolitical context, progress on this front looks quite unlikely,” Jain said.

Jon Sward, environment project manager at the Bretton Woods Project, which monitors World Bank and IMF policies, said countries that used to fund climate finance are now choosing to spend that money on other priorities.

The Gulf crisis exposed the fragility of a global economic system tethered to fossil fuel extraction and use, Sward noted. For countries dependent on fossil fuel imports, “this is yet another price shock, and quickly diversifying to renewables is certainly an option that many countries are looking at,” he said in an email.

He said that although multilateral institutions such as the World Bank and the IMF have begun to assess the conflict’s fallout, it is not yet clear what their response will be or how the World Bank’s climate finance would be affected.

“All of this points to the need for more serious discussions on pausing debt repayments for affected countries and the mobilisation of non-debt creating forms of finance, in order to address the multiple, overlapping shocks facing countries in the Global South, in particular,” he said in his email.

Experts said that rising security and defense expenditures were also cutting into an already limited pot of money badly needed by developing countries struggling to cope with climate challenges.   

“The system was already too fragile given that the U.S. leads all the major multilateral development banks … and has disavowed these targets,” said Kevin Gallagher, director of the Global Development Policy Center at Boston University. On top of that, he said, U.S. threats to abandon NATO’s European countries incentivizes them to prioritize  defense budgets over climate finance.

He said developing countries are already under pressure to cough up climate funding on their own. The current conflict could make that nearly impossible.  

“This year was supposed to be putting together a roadmap to take the $300 billion annual target to the agreed upon $1.3 trillion. This is likely to be abandoned unless new donors such as [the] UAE, China and others step in to fill the gap left from the West,” Gallagher said in an email. 

The crisis in the Persian Gulf makes the loudest case for renewables, he said. “The energy security argument from this conflict is to diversify from fossil fuels. The Dutch took that cue after the Middle East oil shock of the 1970s to build the world’s best wind turbines, and China did after Middle East conflicts in this century. Fossil fuels are now a bad bet on security, economic and climate grounds. The writing is on the wall.”

Gallagher said the World Bank should accelerate solar and wind technology programs across the world. “If the Fund and the Bank don’t rise to this occasion,” he said, “not only is the global economy and climate at stake, but so is the legitimacy of these institutions.” 

Gaia Larsen, a climate finance expert at the World Resources Institute, said it’s too early to know whether stronger interest in energy independence through renewables is translating into shifts in investment. But “if we’re trying to think about long-term peace and long-term access to energy, then renewables are really increasing in prominence,” she said.