Could an Oil Shock Trigger a Water Crisis?

So how does a conflict in the Middle East end up affecting whether people have reliable access to water in parts of Africa and South Asia? It’s not an obvious link, but it becomes clearer when you think about oil. If prices climbed to around $120–$150 a barrel and stayed there, those in the developed world would notice it through higher petrol prices, lingering inflation, and potentially some slowdown in economies like the UK and US. But the more significant impact could play out in more vulnerable developing economies, where higher energy costs feed directly into government finances and the day-to-day cost of running essential services like water.

That’s where things start to become more fragile. Countries like Egypt could be particularly exposed, given how much of its debt sits in international bond markets. Pakistan could face pressure from multiple directions at once, including bond repayments, bank funding, and its reliance on IMF and other external support. And it’s not just those two, countries such as Jordan, Kenya and Ethiopia are also highly exposed to rising energy import costs and are already operating with relatively tight external balances. Sri Lanka has bought itself some time following debt restructuring, and Bangladesh has more of its borrowing tied up with official lenders, which provides a degree of additional flexibility. So the early warning signs here are unlikely to be sudden defaults, but rather more gradual pressures building in currencies, declining reserves, and stress in bond markets.

From there, it largely comes down to access to financing. If countries can continue to rely on IMF programmes and maintain access to markets, this may remain a difficult but manageable adjustment. However, if that support begins to weaken, the risk of defaults increases materially. Even in that scenario, this is unlikely to resemble a global financial crisis, it would more likely manifest as tighter financial conditions, reduced capital flows to emerging markets, and a drag on global growth. The key question is whether such a shock remains contained, or whether it triggers a broader reassessment of risk across developing economies.

This is where the implications for water infrastructure become particularly important. In the short term, higher oil prices make it significantly more challenging to finance new projects. Governments facing rising energy import bills and debt servicing costs are likely to prioritise immediate fiscal pressures over long-term infrastructure investment. At the same time, borrowing costs could increase and private investors may become more risk-averse, resulting in fewer new treatment plants, pipelines, and distribution systems being developed, even in areas with rapidly growing demand.

At the same time, existing systems may also come under strain. Water services are often energy-intensive, particularly where pumping, treatment, or desalination is involved. As energy costs rise, so do operating costs. If utilities are unable to fully pass these costs on to consumers, often due to political and affordability constraints, they can quickly face financial pressure. This may lead to deferred maintenance, declining service quality, or, in more severe cases, system disruptions. As a result, even without widespread sovereign defaults, an oil shock of this nature could gradually undermine both the expansion and reliability of water services in precisely the regions where resilience is most needed.

So perhaps the real question isn’t just whether this kind of shock triggers a global economic crisis, but how far its effects ripple into essential services, and whether those impacts remain contained or become something much more systemic. For those of us working in the water sector, it also underlines the need to keep a close eye on these risks, and to build in contingency plans that allow us to adapt to an increasingly uncertain and fast-changing economic and financing landscape.