Oil and gas prices have risen sharply since the start of the year. Brent crude now trades at around $100 a barrel, some $40 above its January level, while gas in Europe has climbed to around €45 per megawatt-hour, up from just under €25 at the turn of the year.
The principal driver is the war in Iran and the near-total closure of the Strait of Hormuz, once one of the world's busiest shipping lanes for fossil fuels and other goods. According to analysts, around 13% of global oil supplies and about a fifth of liquefied gas supplies have been lost to the market as a result.
The conflict is already reshaping energy policy. Major importers of fossil fuels, among them European and Asian states, have been forced to confront how dependence on oil and gas leaves them exposed to precisely this kind of shock.
Physical supply shortages are only part of the problem. Analysts warn that traders on the exchanges have yet to fully appreciate the scale of the gap that has opened in the commodities market. The longer the conflict lasts and the higher prices climb, the more urgent the question of how to reduce that exposure becomes.
From Climate Concern to Energy Security
The dominant view in the media and among many analysts is that the war will accelerate the shift to renewables. In an environment of expensive oil and gas, clean energy has rarely looked like a more compelling alternative.
Simon Stiell, the UN climate chief, told the New York Times that the latest upheaval had shown once again how dependence on fossil fuels leaves economies, businesses, markets and people at the mercy of every new conflict. The transition to green energy, he argued, is the natural response.
The driving force behind any such transition, analysts argue, will not be climate concern but the pragmatic desire to secure stable, affordable domestic energy. That is the argument made by Fatih Birol, head of the International Energy Agency.
Birol's reasoning was twofold. "I expect one of the responses to this crisis will be [an] acceleration of renewables," he said — driven not only by the need to cut emissions but because renewables represent "a homegrown domestic energy source".
A survey by the British Sustainable Investment and Finance Association found that 87% of respondents expect investment in renewables to increase as a result of the Iran war. Given the strong selection bias among SIFA's membership, the result cannot be taken as representative of the financial sector as a whole — but it is not without significance.
Green Ambition, Fossil Fuel Reality
The argument for a renewables acceleration is compelling in some sectors and weak in others. Oil remains irreplaceable in aviation and shipping, while gas plays a dual role: it heats homes and balances energy grids that depend heavily on intermittent renewables.
The result may be a paradox: the very shock that is expected to accelerate the green transition could, in the short term, drive demand for fossil fuels higher. Governments and the private sector will need to replenish strategic reserves, and a number of Asian countries in particular are likely to emerge from the crisis with a firm resolve to hold larger stockpiles than before.
When Energy Security Points Toward Coal
The consensus around a renewables acceleration is less solid than it appears. Some analysts question whether the need for energy security will automatically translate into a shift toward wind, solar and hydropower.
One of such voices is Spencer Dale, a professor and former chief economist at both the Bank of England and BP. In the Financial Times, he conceded that fuel importers have a "strong incentive to reduce their dependency on the volatility of global energy markets" and shift toward low-carbon energy. The leap from incentive to outcome, however, "cannot be taken for granted", he argued: it is far from certain that "the current energy crisis will prompt an acceleration in the energy transition".
Dale's skepticism rests on several grounds. Energy security and affordable low-carbon power are difficult to pursue at the same time — progress on one may come at the cost of the other. A heavily electrified grid, moreover, creates new vulnerabilities: it is exposed to both physical and cyber attacks, and the question of emergency energy storage remains unresolved. Even the green alternative carries its own import dependency, with rare earths, batteries and solar panels sourced heavily from China.
The implication, Dale argues, is that not all countries will turn to renewables. "For some countries, especially China and India, which together account for about 70% of global coal consumption, the switch to domestic energy may lead to greater use of home-produced coal", he wrote.
David Victor of the University of California agrees. The war, he argues, has reminded the world of the critical importance of energy security — and that reminder has produced radically different responses in different countries.
Kevin Booke, managing director of research firm ClearView Energy Partners, allows for strategic rethinking over the longer term but argues that in the short term countries will simply source their energy from wherever it is available.