Energy investment to hit record highs in 2026 despite war impact: IEA

Global energy investment is on track to hit a record $3.4 trillion in 2026 despite growing pressure on Middle Eastern spending, shrinking financing for oil and the threat of higher borrowing costs, the International Energy Agency said May 28.

The conflict in the Middle East is likely to add impetus for countries to invest in their energy security, but new spending will continue to slant heavily to renewables, nuclear and electrification, the IEA said in its annual investment report. Advanced economies and China are expected to make up over 70% of investment, and power is expected to account for nearly half of global spending.

This year, the agency expects $2.2 trillion of funding to go to clean technologies, compared to $1.2 trillion for fossil fuels. Oil investment is expected to fall for a third consecutive year, while upstream natural gas spending is set to climb by 8% on 2025 levels, the report said.

The conflict in the Middle East is guaranteed to reshape investment plans, but new spending could take time to materialize. Around 75% of 2026 investments were locked in pre-war, the IEA said, leaving limited room for maneuver among companies bound by strict capital commitments.

Previous oil shocks have spurred decade-long waves of new upstream investment, particularly in North America, Eurasia and Europe. But uncertainty over future prices and long project cycles, coupled with field maturity in regions like the Caspian and North Sea, could limit the potential for a spending boom, the report said.

Price incentive

Of all the oil majors, only ConocoPhillips announced a 2% increase to its previous 2026 investment guidance to boost drilling activity, and spending in the price-sensitive US shale patch is still on track to drop by 7% this year, the IEA said.

"A higher-for-longer price could boost spending on some short-cycle assets, notably US shale," the report said, without providing a timeframe. In contrast to national oil companies and energy majors, smaller independents are likely to have the most flexibility to increase spending.

In the Middle East, which has recently attracted about half the upstream investment of North America, war damage could take a toll. The IEA expects spending in the region to shrink by 1% in 2026, considering strain on government revenues. With at least 30 energy facilities already damaged by the fighting, repair costs are additionally expected to run into tens of billions of dollars, it said.

It follows a period in which national oil companies have accounted for a growing share of upstream spending, albeit with government interests balanced by a rising ownership role for institutional investors. In contrast, spending from oil majors has more than halved since 2013-2014, according to IEA analysis. The agency sees supply-side oil investments amounting to $500 billion in 2026.

Falling spending has so far been accompanied by a steep decline in conventional hydrocarbon discoveries, which have dropped from more than 30 billion barrels of oil equivalent per year in the 2000s to under 10 billion boe this decade.

In refining, net capacity is set to grow by 700,000 b/d in 2026 amid a slowdown in closures, building on a 300,000 b/d build last year. The Middle East conflict may encourage governments to boost spending, but not before new project investments fall to decade lows of around $20 billion this year, it said.

Gas and coal gains

In contrast, natural gas investment is set to reach $330 billion, its highest in ten years, and 2025 was a record year for LNG project FIDs. Over 100 bcm of planned LNG capacity was sanctioned in 2025, of which 90% was in the US. In coal, huge Chinese investments have also propelled consistent growth, and spending is set to hit $180 billion in 2026, a fourteen-year high.

Fuel-importing regions that invested heavily in renewables, nuclear and electrification are already reaping the benefits of lower import bills for fossil fuels, and early data signals a spurt of EV and solar uptake due to rising costs of products like diesel and LPG. However, if borrowing costs stay higher for longer, it could curb spending appetite for low-emission technologies, which typically have higher upfront cost, particularly among emerging economies, the report said.

The IEA has already called the current oil shock the largest in world history, and warned conditions in a "severely undersupplied" market could rapidly deteriorate. The agency is currently projecting a 420,000 b/d annual drop in global oil use, but says the demand shock could deepen if disruption persists.