Rising fuel costs have been partly blamed for the situation
Highland Council has revealed a £19.6m gap in its 2009/10 budget - almost £14m as the result of rising energy costs.
Service bosses have been asked to propose savings to help the local authority meet its commitments for the next two years.
Budget leader David Alston warned 2010/11 would also be "challenging" with an estimated gap of £15m.
He said prices for heating, costs of fuel for school transport and waste collections had increased.
The problems facing Highland follow Aberdeen City Council having to make savings of about £50m.
Highland Council service chiefs have been asked to find 5% savings.
That would mean in the case of the big spending education department a cut of about £10m.
Mr Alston said there would be job cuts but he would not speculate what they might be.
The council, he said, had never faced anything as bad as this.
Mr Alston said: "After energy and fuel pressures have been factored into budget considerations, there remain limited resources to meet all other cost pressures, including pay awards and other inflationary pressures."
He added: "There are clear signs of a really challenging budget ahead and it is crucial we take early action to identify the necessary savings.
"We will do all we can to manage what is a very difficult financial situation and we will be consulting closely with the trade unions throughout the budget process."
The Unison union said the council signed up to the Scottish Government's concordat with local authorities which - among other things - brought an end to ring fencing of funds, and left the council with no room for manoeuvre.
A spokesman said savings will affect frontline services and as many as 500 council jobs could now be at risk.
There were warnings in May that rising food and fuel prices could threaten the education budget.
A report to the council's education committee said transport costs, which had been budgeted to rise by 2%, could actually increase by more than 6%.
It was estimated that heating costs would rise by a quarter, leading to increased costs of at least £700,000.
The report also estimated that rising food prices could add a further £500,000 to its expenses.
The report, presented to the council's education, culture and sport committee, said the increased budget pressures could have a detrimental impact on next year's education budget.
It said the increased cost of school transport was the biggest known risk from rising fuel prices. This could mean a further expense of up to £400,000, while increased heating bills could add another £371,000.