The Impact of the Iran War on the Global Energy Transition

The ongoing conflict in Iran, described by the International Energy Agency as the worst oil crisis in history, has significant implications for the global energy landscape. The war has disrupted supply routes through the Strait of Hormuz, a critical passage for approximately 20% of global oil and liquefied natural gas (LNG) flows. This disruption has led to increased volatility in fossil fuel markets, while simultaneously prompting calls for a more rapid transition to renewable energy sources.

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Despite the urgency for a shift to clean energy, the war has created substantial challenges for the renewable sector. Supply chain disruptions are affecting the transport of essential materials, such as aluminum, which is crucial for solar panel production. The Middle East contributes about 9% of global aluminum production, and ongoing conflict has led to the scaling back of operations in the region. Additionally, inflation driven by the war could hinder the significant upfront investments required for renewable energy projects.

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The conflict has inadvertently benefited fossil fuel industries in the short term. Countries heavily reliant on imported LNG, such as India, Thailand, and Vietnam, are resorting to increased coal usage to meet energy demands. The war has also spurred more oil and gas drilling, as nations scramble to replace disrupted supplies. High fossil fuel prices are generating windfall profits, prompting companies to fast-track LNG expansion plans. For instance, Venture Global recently announced a five-year contract to supply LNG to Vitol, the world's largest independent energy trading company.

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Experts are advocating for policy reforms to facilitate the transition to renewable energy. Suggestions include implementing windfall taxes on oil and gas companies to curb excessive profits and subsidizing materials necessary for renewable energy infrastructure. Jan Rosenow, a professor at Oxford University, emphasized the need for governments to reform tax structures that currently favor fossil fuels over electricity. Lauren Pagel, policy director at Earthworks, warned that doubling down on fossil fuels could lead to a "carbon lock-in effect," where newly built infrastructure remains operational for decades, exacerbating climate issues.

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The Iran conflict is not only a geopolitical issue but also a significant factor in shaping the future of energy markets. While the war has created immediate challenges for renewable energy, it has also highlighted the need for a robust transition away from fossil fuels. As countries like Spain and Portugal experience declining electricity prices due to their investments in clean energy, the urgency for a global shift becomes more pronounced.

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Moving forward, the key question remains whether the supporting systems—physical, regulatory, and political—can evolve quickly enough to sustain the energy transition amid ongoing conflicts. The current crisis serves as a critical juncture, emphasizing the importance of accelerating the shift to renewable energy while addressing the immediate challenges posed by the war in Iran.

New York Times

• “Electricity generated from wind and solar is largely insulated from fossil fuel price volatility—once built, the fuel is free,” — Jan Rosenow, Professor of Energy, Oxford University

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• “War is being used as a false justification for rushed and irresponsible extraction.” — Lauren Pagel, Policy Director, Earthworks

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• “High fossil fuel prices generate windfall profits that flow back into exploration, extraction and export infrastructure,” — Jan Rosenow, Professor of Energy, Oxford University

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• “This should be the final wake-up call that there is a better way than continued dependence on fossil fuels.” — Lauren Pagel, Policy Director, Earthworks

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