How the Iran war is changing the way countries think about renewable energy

Analysts told CNBC that the fallout from the Iran war is likely to accelerate the shift away from fossil fuels and force countries to think differently about the role of renewable energy in promoting energy security.

The Middle East crisis has severely disrupted oil exports through the strategically important Strait of Hormuz. usually Carries approximately one-fifth of the world’s oil and liquefied natural gas (LNG) and represents a major bottleneck for fertilizer trade.

It has highlighted how dependent the world is on fragile fossil fuel trade routes, while rising oil and gas prices have roiled energy markets and raised fears of widespread inflation.

Asia’s dependence on imported energy means it is now at the forefront of the global fossil fuel crisis, but supply disruptions are also weighing heavily on Europe and Africa, where countries are responding to rising fuel costs and considerable threats to food security.

The head of the International Energy Agency said the Iran energy transition was progressing “very strongly” before the war broke out – but the fallout from the resulting energy shock means countries will likely direct even more investment towards clean energy sources.

“I expect one of the responses to this crisis will be an acceleration in renewables. Not only because they’re helping to reduce emissions, but they’re also a viable domestic energy source,” IEA Executive Director Fatih Birol said at the National Press Club in the Australian capital on Monday.

Clean energy sources continued to dominate new power installations last year, for example, with renewables accounting for 85% of all new global power capacity, Birol said, citing solar power as the primary driver of this trend.

“It’s amazing. Ten years ago, solar was a romantic story – but now solar is a business,” Birol said.

However, fossil fuels such as coal, oil and gas continue to dominate the global energy mix, which will meet about 80% of worldwide demand in 2023. According To IEA.

“The Iran crisis accelerates the shift toward renewables and electrification. Higher fossil prices encourage switching, making already cheap electrotech even more competitive,” Sam Butler-Sloss, research manager at global energy think tank Amber, told CNBC by email.

“In the old fossil fuel world, energy security meant diversifying fuel supplies. With electrotech, nations now have the tools to eliminate imported fuels altogether.”

Electrotech, which refers to solar, wind, batteries and electrified transport, heating and industry, became the world’s leading engine of global energy growth last year, Amber found in a Analysis Published in December. This led to the emergence of China as the world’s first so-called “electrostate”.

Butler-Sloss said electric vehicle adoption is already growing rapidly around the world, especially in Asia, and this crisis further hinders that trend. He estimated that scaling up EVs could save importers more than $600 billion per year in oil imports, calling the switch a “security superlever.”

Butler-Sloss said, “This is Asia’s Ukraine moment. Just as Ukraine forced Europe to cut gas dependence, Hormuz will push Asia to cut oil dependence – but with even cheaper technology available.”

Anna Maria Zaller-Makarewicz, lead energy analyst for the Europe team at the Institute for Energy Economics and Financial Analysis (IEEFA), described the Iran war energy shock as a “wake-up call” for the EU.

Zeller-Makarewicz said Spain is a prime example of how countries have been able to limit their exposure to fossil fuel price volatility.

He said that the Spanish government had to face heavy criticism after this There were catastrophic blackouts last year that some policymakers blamed on renewable energy, but the country is now reaping benefits from its investments in wind and solar technologies.