The War in Iran is Causing an Energy Crisis Nobody Can Opt Out Of
· Time
For years, the case for clean energy has been framed around the future. Lower emissions. Lower costs. Long-term resilience. But markets and policymakers rarely move on future benefits alone. They move when risk becomes immediate.
Over the past eight weeks, that risk has come into view.
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The IEA’s executive director has described the current conflict in Iran as the greatest threat to global energy security in history. Peace talks have collapsed. The United States has announced a naval blockade of the Strait of Hormuz, which remains effectively closed. In a matter of weeks, core assumptions about stability which have underpinned decades of energy policy have been called into question. Can we count on the global fossil fuel system?
What this moment has made clear is not just who was exposed, but how widely that exposure was shared.
The narrative that countries that invested in domestic renewables have buffers to conflict-driven energy shocks, while those that did not are more vulnerable, is incomplete. Even countries with little direct dependence on Gulf oil felt the shock caused by the war in Iran. Roughly 30% of global fertilizer trade passes through Hormuz, linking natural gas disruptions to food prices worldwide. For instance, in East Africa, countries with minimal oil exposure still faced rising food insecurity.
Or take Japan, which entered the crisis with one of the world’s largest strategic petroleum reserves. Despite this, Japan’s currency weakened and its markets fell as supply chain costs surged. The Yen faltered so significantly that Japanese officials reportedly stepped in with a rare intervention.
And despite being a net energy exporter, energy prices rose sharply within the United States, causing a crisis of confidence about President Donald Trump’s ability to manage the economy.
The reason for these ripple effects is that modern energy systems are deeply interconnected. When one part seizes, the impact doesn’t stop at borders.
India offers a useful example. Its crude basket price rose from $69 per barrel in February to over $113 in March, triggering emergency measures and a scramble to secure supply from dozens of countries. But India also entered this crisis having crossed 50% of its installed electricity capacity from non-fossil sources ahead of schedule. Such investments in clean energy did not insulate India from global oil markets because oil remains central to India’s transportation and manufacturing sectors. What it did do was reduce pressure on the power system and limit the fiscal strain associated with energy subsidies, giving policymakers more room to respond. By contrast, more fossil-fuel-dependent economies in the region faced sharper constraints and more disruptive outcomes.
This is where the investment case for clean energy is changing. For years, the argument centered on climate benefits and cost competitiveness. Those factors still matter, but this crisis exposed something they don't fully capture. The global energy system carries concentrated risk tied to geographic chokepoints and fuel dependencies that no single actor can fully hedge.
Markets tend to price that kind of risk only after disruption occurs, treating this less like a one-off shock than a repricing event.
Some of the earliest signals of this shift are already visible. In insurance markets, where risk is recalibrated annually against observed losses, coverage is tightening, and costs are rising in exposed regions such as California, southern Europe, and parts of Australia. But the impact is not limited to those markets. In an interconnected system, those adjustments ripple outward through pricing, supply chains, and capital flows. That shift often precedes broader financial repricing. The warning sign is that when insurers pull back, the risk does not disappear. Instead, that risk is passed on to public budgets, corporate balance sheets, and household finances.
Reducing a country’s exposure to such risks requires reducing a system’s reliance on fossil-fuel chokepoints. Not because doing so will eliminate energy shocks, but because it can reduce their severity.
In the meantime, the vulnerabilities that produced this crisis remain unresolved: control over key transit routes is still contested, and the conditions for disruption remain in place. However, this crisis has also revealed signs of what a more resilient system can look like. Europe’s position today, compared to the height of the Russian gas crisis in 2022, reflects deliberate choices: expanding renewable capacity, diversifying gas supply, and reducing demand. Those changes did not eliminate risk, but they did reduce exposure.
Investors are taking note. Clean energy infrastructure has long been evaluated through the lens of climate impact and policy support. Increasingly, it is being assessed for its contribution to resilience. That shift is changing how risk is priced and who is willing to take it on. Institutions that were once cautious about transition investments are now weighing policy uncertainty against the demonstrated volatility of fossil fuel markets.
Trillions of dollars will be required to build clean energy and grid infrastructure in the United States alone. Emerging markets, such as Indonesia and Nigeria, which are both highly exposed to fossil fuel price swings and constrained in their ability to finance alternatives, represent the largest gap. The familiar risks, from currency volatility to governance challenges, have not disappeared. But they are now being measured against a different baseline. The fossil fuel system is no longer the stable reference point it was assumed to be.
For years, investment decisions were calibrated to a world in which key supply routes held. That world looks less certain today.
The question now is not whether the energy transition will happen. It is whether capital is being deployed in a way that reflects the system we are moving toward, or the one that just failed.