The Strait of Hormuz has been closed for business for well over a month now. The effective blockage of the waterway that typically hosts the passage of at least one-fifth of the world’s oil and gas resources on the average day has sent global energy markets into a tailspin. The resounding impacts of this disruption – which is now larger than those in the 1973 and 1979 oil crises combined – are just beginning. The question is how the world will choose to deal with the fallout – will we retreat into well-worn fossil fuel supply chains, or forge a cleaner and more resilient renewable future?
Although the current oil description is the biggest in world history, the impact of the shortage has so far been much less devastating than the crises of the 70s. The reason is that the world’s energy mix is much more diverse now than it was then, thanks in large part to the spread of renewable energy sources, which allow for a greater degree of energy autonomy and a lower level of reliance on global fossil fuel supply chains for many nations.
As a result, the countries that have built up the most robust renewable energy industries are among those most sheltered from the impacts of today’s oil market volatility. While Asian energy markets have been incredibly hard-hit by the war in Iran, China’s enormous clean energy buildout (as well as massive crude reserves) have given it a strategic buffer. Meanwhile, over in Europe, Spain has seen much more stable energy prices than many of its neighbors thanks to its massive solar industry.
As energy crises just keep piling up, it’s clear that the world needs to refine its energy security strategy. It also seems clear that diversified energy supplies and energy independence through clean energy transitions are a proven and successful energy security strategy. While solar, wind, and nuclear energy can be produced in practically any nation, oil and gas supply chains are naturally centered on just a few major players, and therefore the supply chains are going to remain inherently geopolitically fraught.
The war in Iran has “once again exposed the fragility of the global fossil fuel system: too much economic power concentrated in too few places, all of which must travel through the same maritime—and militarized—chokepoints,” states a Forbes report published earlier this month.
“For years, clean energy has been sold as a moral imperative. Now it is simply an economic and geopolitical necessity,” the Forbes report continues. “It’s not about emissions. It’s about resilience and price stability.”
While the economic fallout from the conflict and the closure of the Strait of Hormuz has mostly been contained to Asia so far, no one is immune to this kind of geopolitical fallout. Hard times and high oil prices are coming for the rest of the world, and soon. Inflation and recession are just around the corner, and anxieties are high.
But while soaring energy prices will be crippling for import-dependent countries, and particularly for poor countries in the Global South, the latest energy crisis could also push the global clean energy transition into overdrive. As oil and gas prices soar, renewable deployment will likely skyrocket, as wind and solar power were already cheaper than fossil fuels even before the United States and Israel started bombing Iran. This transition, while borne out of duress, will have reverberating benefits for the global economy, energy security and resilience, and the climate.
“Wind and solar cannot be embargoed, blockaded, or shut off by a foreign power,” David Frykman, General Partner at Stockholm-based venture capital group Norrsken, recently wrote in an op-ed for Fortune. “Every terawatt-hour of domestic renewable generation is a terawatt-hour that no adversary can weaponize.”
By Haley Zaremba for Oilprice.com
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