The financial giants gathering in Washington this week made one thing clear: The Iran war is setting the world on a new energy path.
But which is the source of sharp disagreement between nations?
Many of the countries most affected by the war say they recognize the benefits of rapidly transitioning to renewable energy to avoid future shocks related to oil disruptions. Others are bullish on fossil fuels, including the United States – whose Treasury Secretary, Scott Besant, praised America’s growing oil and gas production, and called for leaner climate policies.
Fatih Birol, the head of the International Energy Agency, said at an event on Tuesday that the US and Israeli attacks on Iran and the subsequent blockage of oil supplies from the Middle East would “redraw the global energy map.” He then warned: “We’re not going to go back to where we were.”
The question of what will happen next dominated the spring meetings of the International Monetary Fund and the World Bank in Washington this week. Officials in the US and other countries talked vaguely about diversifying energy sources as a possible consequence of Iran closing the Strait of Hormuz, through which one-fifth of the world’s oil and one-third of fertilizer travels.
For some, this meant changing shipping routes away from the Persian Gulf. For others, it meant finding oil and gas outside the Middle East. Or harvesting local coal reserves. Or perhaps restarting idled nuclear power plants. In many cases, this means expanding renewable energy to prevent dependence on other countries in an increasingly fragmented, unstable world.
“History shows us that even a crisis of this magnitude is a catalyst,” Asian Development Bank President Masato Kanda told a gathering of the Council on Foreign Relations on Wednesday.
This comes amid disappointing economic forecasts. The IMF is projecting slow growth and high inflation even if the war ends relatively quickly, an outcome that is highly uncertain.
Its impact will be felt unevenly, with low-income, import-dependent countries suffering the most. The IMF said that in a severe scenario, where energy supply disruptions would extend into next year, global growth could fall to only 2 percent.
It’s a message that echoed in the halls of this week’s meetings. How the world energy map is redrawn has profound implications for supply and demand and how new infrastructure related to both fossil fuels and clean energy is financed.
Meetings come up as economic effects of war start cutting Pocketbooks around the world, countries often brace for the worse. While the world is at lower oil intensity than during the 1970s oil crisis, the IEA says the size of this shock is much larger.
“Intuitively, you would imagine this would encourage diversification away from fuels that are in short supply right now,” said Tim Gould, the IEA’s chief energy economist.
But diversification takes many forms, and Gold questioned the global appetite for major new supplies of liquefied natural gas produced in the United States.
“Has gas taken a reputational hit? Are they willing to trust that it is a reliable and economical fuel?” he said, referring to Asian importers or others. “This is an interesting open question for the next few years.”
Import-dependent countries such as Pakistan and Thailand have used this time to emphasize their desire to rapidly transition to renewable energy. from pakistan rooftop solar boom Natural gas prices are due to rise in 2022 – helping to cushion it from current supply shocks.
“We were on the right track,” the country’s Finance Minister Muhammad Aurangzeb said at an IMF panel this week. “But clearly we think the journey needs to be accelerated.”
Thailand’s finance minister, Ekaniti Nitithanprapas, echoed that sentiment, pointing to the rising costs of oil and gas imports.
“Because of the high prices right now, it forces you to change,” he said. “That’s why we offer tax incentives for (people) to install solar energy on their home.”
Nithithanprapas also talked about leveraging investments to expand physical infrastructure such as smart grids and battery storage. This is something that the Asian Development Bank is supporting through a $10 billion program to advance regional connectivity in Southeast Asia.
ADB chief Canda also called for exploring nuclear energy and other alternatives. He acknowledged that while Asian countries have turned to coal to deal with gas supply challenges, he does not see a long future for that fuel source.
The call for diversification has received support from the World Bank and the IMF, which are urging countries to prioritize domestic resources rather than paying for rising dollar-denominated barrels of oil.
“That often means renewable energy, so we are likely to see a big push in that direction,” said Pierre-Olivier Gourinchas, IMF chief economist.
For Middle Eastern oil producers, change looks less imminent, even as they grapple with repairing facilities damaged in the conflict or restarting production after long shutdowns.
“People have wanted to move away from oil and gas for many years. They haven’t been able to achieve it. So it will take a long time,” Qatar’s Finance Minister Ali bin Ahmed Al Kuwari told POLITICO. “At this level, it is really very difficult to replace energy.”
President Donald Trump is banking on the enduring need for fossil fuels as his administration positions itself as a reliable supplier of oil, gas and coal amid the ongoing conflict. For now, US crude oil shipments are above As countries struggle for supplies, it also comes with knock-on effects Like high prices of petrol.
Besant praised the World Bank’s “all of the above” energy strategy and stressed the importance of energy innovation.
“We were about to run out of crude oil and crude derivatives in the United States,” he said at the Institute of International Finance on Tuesday. “And then fracking was invented. And now the US has bigger reserves than Saudi Arabia and Venezuela combined.”
A day later, Besant called on the bank to abandon its climate finance target, which sets a goal of spending 45 percent of its loans on projects that provide climate benefits. It expires in June. He too Cast doubts on the role of fossil fuels Are at high temperature.
Energy analytics firm Wood Mackenzie expects shale gas It is re-emerging as countries including Mexico and Australia prioritize energy security.
Whatever the nation sees as the solution, he said this week that no one is immune from the disruption of war.
Adebayo Olawale Edun, Nigeria’s finance minister and chair of the G24 group of developing countries, said, “Oil producing countries can see the impact of higher oil prices in higher revenues. This is completely different from oil importing countries, but it is not a one-way street either.” “Gas prices, fertilizer and food prices… this crisis is affecting countries on both sides.”
This means nothing to say about climate change. Former Secretary of State John Kerry has long argued that clean energy sources are needed to combat rising temperatures. Now, he suggested, war could lead to that result.
“The biggest changes in energy globally have come when the biggest disruptions have occurred,” Kerry, who was climate envoy under former President Joe Biden, said at a Semaphore event on Wednesday.
He pointed to France’s adoption of nuclear power after the Arab oil embargo in 1973 and clean energy measures taken by the European Union after Russia’s invasion of Ukraine.
“You really have to control your sources of energy,” Kerry said. “It is my belief that one of those moments of change is here now.”
