Fossil Fuel Finance Is Outpacing Clean Energy Investment in the Developing World

Oil Importers Turn to Islamic Trade Finance as Energy Costs Bite

Cash-strapped developing nations are increasingly relying on the International Islamic Trade Finance Corporation (ITFC) to fund petroleum imports, as Brent crude prices above US$100 a barrel and diesel costs more than double that figure squeeze government budgets across the Global South. The arrangement benefits OPEC shareholders while locking recipient economies into a cycle of fossil fuel dependency that development economists warn is structurally counterproductive.

The scale of the trend came into sharp focus last week when Bangladesh’s government finalised a US$3.3 billion emergency energy package. Of that sum, only US$200 million from the Asian Development Bank is directed toward long-term infrastructure — specifically, repairing the deteriorating electricity grid on the fast-urbanising outskirts of Dhaka, where power cuts lasting 12 hours or more have triggered street protests and blockades. The remaining US$3.1 billion is earmarked for oil and gas imports within the current fiscal year alone.

The ITFC’s Rapid Rise as a Multilateral Lender

Founded in 2008, the ITFC has disbursed a cumulative US$78 billion since inception, the majority of which has flowed into semi-commercial lending for petroleum imports rather than infrastructure development — a model that distinguishes it sharply from conventional multilaterals such as the World Bank or the Asian Development Bank. Between 2020 and 2024, total disbursements reached US$29 billion, placing the institution in the same tier as the African Development Bank and the European Bank for Reconstruction and Development.

This year alone, the ITFC has signed framework agreements worth US$1.5 billion each for the Maldives and Egypt, US$2.9 billion covering Burkina Faso, Côte d’Ivoire and Djibouti, US$1 billion for Mauritania, and US$706 million for Senegal. The appetite for this form of financing is substantial, and the ITFC has grown to meet it with a speed that conventional development banks have not matched in the clean energy space.

Approximately 67 per cent of the ITFC’s cumulative disbursements through 2024 went directly to non-renewable energy, with food and agriculture accounting for roughly 16 per cent. The institution’s mandate is rooted in serving members of the Organisation of Islamic Cooperation, whose OPEC-aligned shareholders have a structural interest in sustaining demand for petroleum exports.

Meeting Immediate Needs — at a Long-Term Cost

There is a humanitarian logic to the arrangement. Fuel shortages can be as economically destabilising as a currency crisis, and the ITFC performs a function analogous to that of the International Monetary Fund when foreign-exchange reserves collapse — providing emergency liquidity to keep essential systems running. The populations of Havana, Karachi and Manila, among others, understand acutely what it means when fuel imports dry up.

Yet critics argue the model defers rather than resolves the underlying structural problem. The world’s poorest nations are capital-scarce; borrowing repeatedly to finance fuel that is consumed within months does not build productive assets, and the same foreign-exchange pressures and debt burdens are likely to recur. Each loan cycle reinforces dependency rather than breaking it.

The economics of the alternative are not favourable to continued fossil fuel financing. A billion dollars invested in solar farms will generate roughly ten times the electricity over their operational lifetimes compared with the same sum spent on liquefied natural gas. Yet cheap financing for LNG imports is readily accessible, while renewable energy projects must navigate protracted approval processes at major development banks — a structural asymmetry that consistently advantages fossil fuels.

Bangladesh as a Case Study in Structural Contradiction

Bangladesh illustrates the contradiction with particular clarity. The country ranks among the most climate-vulnerable on earth, facing intensifying flood risk, heatwaves and cyclones as global temperatures rise. It is simultaneously borrowing from oil-exporting nations to purchase petroleum that its own citizens cannot afford without government subsidies, while maintaining a regulatory environment that actively constrains the expansion of cheaper clean energy alternatives.

The outcome is a policy architecture that subsidises fossil fuel consumption at both the financing and retail levels, while clean energy investment remains structurally disadvantaged. This is not a failure unique to Bangladesh — it reflects a broader pattern across low-income fuel-importing economies that lack the institutional capacity to access concessional green financing at speed.

The Pressure on Development Banks to Move Faster

The response, analysts argue, cannot be confined to moral critique of the ITFC model. Conventional development banks have been demonstrably slow in deploying clean energy financing at the scale and speed required to compete with the fossil fuel economy’s existing financial infrastructure. The energy transition faces an institutional gap as much as a technological or economic one, and that gap is currently being filled by petroleum-backed lending.

If multilateral green finance institutions do not accelerate their approval processes and expand their risk appetite, the structural incentives favouring fossil fuel imports will continue to prevail — not because developing nations prefer them, but because the money arrives faster and with fewer conditions attached.