Iran War Disruption May Spark Long-Term Shift Away from Fossil Fuels

Global energy markets are bracing for a reckoning as the Iran war's disruption begins to lift. With the US and Iran agreeing on a framework to reopen the Strait of Hormuz, traders are expecting a short-term sugar rush from relieved energy prices.

The crisis has already seen at least 1 billion barrels of crude oil and refined products lost from Middle East producers, with up to 20% of global liquefied natural gas supply trapped in the waterway. However, strategic releases, commercial inventory releases, and reduced imports by China have helped keep Brent crude futures under $100 a barrel.

Asian countries are likely to shift towards electric vehicles (EVs) and hybrids in response to the crisis, with Australia already seeing record-high EV sales and market shares approaching levels seen in China. Governments may also adopt policies favouring renewables over fossil fuels, potentially leading to a long-term shift away from crude oil and LNG.

Coal may emerge as a beneficiary of the crisis, with countries such as China, India, and Indonesia tempted to continue using it due to its cost advantage and supply security. However, producers and exporters of crude oil and LNG are unlikely to take their demise lying down.