How a new energy order could emerge from the war
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The throttling of oil and gas flows could push multiple countries to try to cut exposure to seaborne energy commodities — and create different risks in the process.
Why it matters: The Iran crisis is chaotic and costly enough to spur long-term policy changes.
- New or faster efforts to swap hydrocarbon imports for homegrown electrons are something that analysts are increasingly watching as shortages bite.
Threat level: "The inherent risk to economies relying on oil and LNG shipped from the Gulf has been laid bare," Wood Mackenzie researchers write.
- It follows the Kremlin's 2022 move against Ukraine that highlighted risks of heavy reliance on single regions — in that case, European thirst for Russian gas.
What we're watching: Fast-growing, import-dependent economies in Asia, where the war is already prompting emergency rationing measures.
- The second gas price spike in recent years — Russia's invasion also increased costs — will boost competition from coal, renewables, and storage, Ben Cahill writes for the Atlantic Council.
Driving the news: Woodmac has begun modeling what happens if the crisis becomes a catalyst for hydrocarbon importers to seek self-sufficiency.
- For many nations, that means accelerating electrification.
- Its analysts see more EVs, deferred coal-plant retirements, and more renewables.
Zoom out: It also looks very long term.
- "After 2040, nuclear power and supporting supply chains rapidly scale. Road transport power demand surges 57% as EVs achieve a dominant market share and oil demand in transport drops 30%, relative to our current base case," a summary states.
- Its modeling shows global oil demand declining to 75 million barrels per day in 2050, 20% lower than its base case. Global gas demand falls by 10% by 2050.
- The cost of building out domestic electrification is a brake on faster efforts.
My thought bubble: Big policy changes are something to watch — not to assume.
- One reason is money. Another is short memories. And another is inertia.
- BloombergNEF researcher Martin Tengler warns against seeing the war boosting green hydrogen (the stuff made with renewable inputs).
- Investors are unlikely to see gas prices staying high long enough to make it competitive, he writes.
The intrigue: A new essay in Foreign Affairs says countries seeking isolation and "energy autarky," or independence, face big risks and costs.
- "There are better solutions than retreating from markets," Jason Bordoff and Meghan O'Sullivan write.
- Yes, nations should seek greater domestic capabilities where appropriate, and strategic reserves — but also a wider pool of global suppliers, steps to reduce the influence of chokepoints, and other moves to boost the resilience of global markets.
The bottom line: "China looks to be an out-and-out winner," the Woodmac analysts write.
- "It has plentiful coal, as well as a material domestic oil and gas resource, and can leverage its dominant existing clean-tech platform."
