The Iran war's limited boost for energy transition
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The oil economy's surprising flexibility and countries' plans to cut reliance on the Strait of Hormuz could together limit how much the war boosts the global energy transition.
Why it matters: Energy crises have long-term consequences — like the 1970s oil shocks that brought U.S. gasoline mileage rules for cars, and the country's turn away from burning oil to make electricity.
- The U.S. has been relatively insulated this time, though the crisis raised gasoline prices.
- But in some countries that are highly reliant on oil and gas imports, it has brought early signs of turning more to renewables, coal, and electric vehicles.
Driving the news: A new Bloomberg Intelligence report lays out reasons the crisis will speed efforts to cut reliance on the Strait of Hormuz while meeting global fossil fuel demand.
- "[T]he market's ability to adapt may have marked peak dependency on Hormuz as investments that could reach tens of billions of dollars accelerate in export flexibility, non-Gulf supply systems and infrastructure beyond the vital waterway," it states.
What's next: The United Arab Emirates, for instance, is investing to double its pipeline capacity to bypass Hormuz, from 1.5 million barrels per day now to 3 million by 2027, according to the report.
- Other new or expanded pipelines and related infrastructure in the region are planned, and the report sees even more investment in North American supplies, Guyana and elsewhere.
- Overall, the report says future crude oil and petroleum product traffic through the strait could fall to 7 to 9 million barrels per day, compared to 20 million pre-war.
On the gas side, the war is "reinforcing demand for diversified LNG sources and supporting the growing role of US LNG in Europe and Asia," though coal is also getting a "second wind" in countries including Japan, where use has surged.
- Still, "renewable-energy demand is getting a big bump from security concerns fueled by the war," the report notes, citing the recent surge in solar equipment exports from China.
Catch up quick: While the Iran war has increased oil prices, they never got close to the $150 to $200 per barrel that some analysts predicted.
- The market had plenty of shock absorbers, including China slashing crude purchases, higher U.S. exports, nations' drawdown of strategic reserves and greater use of Middle East pipelines.
What they're saying: "Many have argued, including some hopeful climate advocates, that an oil shock would spur a rapid shift away from oil toward electrification and renewables," energy analyst Jason Bordoff wrote in commentary last month.
- "Yet for some, the evidence from the last three months may cut the other way, revealing the resilience of the global oil system," added Bordoff, the founding director of Columbia's energy think tank.
- The price spike was "probably not high or sustained enough to alter demand behavior" the way the 1970s crises did.
Reality check: The war's economic damage could prove worse than it was looking just days ago.
- The last few days have brought renewed hostilities, another price spike, and even more uncertainty about the revival of oil tanker traffic through the strait.
The bottom line: The most likely outcome? Some greater movement toward low-carbon tech, alongside re-tooled fossil fuel networks that make ongoing — and rising — use less dependent on a single waterway.
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