The ongoing conflict in Iran has starkly illuminated the world’s deep-seated dependence on volatile fossil fuel supply routes, amplifying calls to accelerate the transition towards renewable energy sources. The hostilities have effectively choked off oil exports through the Strait of Hormuz, a critical maritime chokepoint responsible for transporting approximately one-fifth of global oil and liquefied natural gas (LNG). This severe disruption has sent shockwaves through energy markets, driving up prices and placing immense pressure on economies heavily reliant on imports.
Asia, the primary destination for much of this oil, has borne the brunt of the impact. However, the repercussions are also being felt keenly in Europe, where policymakers are scrambling to devise strategies for reducing energy demand, and across Africa, which is bracing for the dual blows of escalating fuel costs and rampant inflation.
A significant shift has occurred since previous oil crises. Today, renewable power generation has become economically competitive with fossil fuels in numerous regions. Data from the International Renewable Energy Agency indicates that in 2024, over 90 per cent of new renewable energy projects globally were more cost-effective than their fossil-fuel alternatives. While oil remains indispensable for various industrial processes beyond electricity generation, including the production of fertilisers and plastics, its widespread use means most nations are experiencing the fallout. Countries with a more robust renewable energy infrastructure are proving more resilient, as their energy generation relies on indigenous resources like solar and wind, rather than imported fuels.
James Bowen, a spokesperson for the Australia-based consultancy ReMap Research, highlights the systemic nature of these disruptions. “These crises regularly occur,” he states. “They are a feature, not a bug, of a fossil fuel-based energy system.”
China and India: Divergent Paths in Renewable Adoption
China and India, the world’s two most populous nations, share the monumental challenge of meeting the burgeoning electricity demands of over a billion people. Both have significantly expanded their renewable energy capacity, though China’s efforts have been on a far grander scale, even as it continues to rely on coal-fired power.
Currently, China stands as the global leader in renewable energy deployment. The International Energy Agency reports that approximately one in ten vehicles on Chinese roads is electric. Despite remaining the world’s largest importer of crude oil and a major buyer of Iranian oil, China’s electrification drive has lessened its dependence on fuel imports. Lauri Myllyvirta of the Centre for Research on Energy and Clean Air asserts that without this transition, China would be “far more vulnerable to supply and price shocks.” China also benefits from strategic reserves built during periods of low prices and the flexibility to switch between coal and oil for industrial power.
India has also made strides in adopting clean energy, particularly solar power. However, its progress has been slower, with less government backing for the domestic manufacturing of renewable energy equipment and a less developed grid infrastructure for integrating solar power. Following Russia’s invasion of Ukraine in 2022, India prioritised energy security by securing discounted Russian oil and increasing coal production. While it also ramped up solar and wind installations, these measures helped mitigate supply disruptions but did not entirely prevent them, according to Duttatreya Das of the think tank Ember. “Everyone cannot be China,” Das observes. India is now grappling with a shortage of cooking gas, prompting a surge in demand for induction cooktops and raising concerns about potential restaurant closures. The fertiliser and ceramics industries are also facing potential impacts.
Developed Nations: A Return to Fossil Fuels?
Wealthy nations in Europe and East Asia are experiencing a déjà vu of energy shocks. In 2022, some European governments initially aimed to reduce their reliance on fossil fuels. However, many soon pivoted to securing alternative fossil fuel suppliers, according to Pauline Heinrichs, a climate and energy researcher at King’s College London. Germany, for instance, rapidly constructed LNG terminals to replace Russian gas, primarily with fuel from the United States, while its energy transition initiatives, including demand reduction efforts, experienced a slowdown. A 2023 study revealed that Europe’s expenditure on fossil fuels since the Russia-Ukraine War equated to approximately 40 per cent of the investment required for its power system’s transition to clean energy. “In Europe, we learned the wrong lesson,” Heinrichs states.
In import-dependent Japan, policy responses to past energy crises have historically focused on diversifying fossil fuel imports rather than investing in domestic renewable sources, notes Ayumi Fukakusa of Friends of the Earth Japan. Solar and wind power currently constitute a mere 11 per cent of Japan’s energy production, a figure comparable to India but lower than China’s 18 per cent, according to Ember. Japan’s overall energy consumption is considerably lower than both these Asian giants. The conflict in Iran has taken centre stage in discussions, including a recent meeting between Japanese Prime Minister Sanae Takaichi and US President Donald Trump. Trump, a long-time advocate for Japan to increase its LNG purchases from the US, has urged allied nations like Japan to bolster efforts to secure the Strait of Hormuz. South Korean President Lee Jae-myung has suggested that the current crisis presents an opportune moment for a swifter transition to renewable energy.
Developing Nations: Most Exposed to Price Volatility
Poorer nations across Asia and Africa are finding themselves in direct competition with affluent European and Asian countries, as well as major consumers like India and China, for limited gas supplies, which is driving up prices. Import-dependent economies, such as Benin and Zambia in Africa, and Bangladesh and Thailand in Asia, are particularly vulnerable to severe shocks. Elevated fuel costs translate to more expensive transportation and food, and many of these nations possess limited foreign exchange reserves, hindering their capacity to afford imports if prices remain high.
Africa, in particular, faces significant exposure, as many of its countries rely on imported oil to power their transport networks and supply chains. Investing in cleaner energy for long-term energy security represents a sound strategic move for African nations, according to Kennedy Mbeva, a research associate at the Centre for the Study of Existential Risk at the University of Cambridge. However, not all countries are embracing renewables; South Africa is contemplating the construction of an LNG import terminal and new gas-fired power plants. Conversely, nations like Ethiopia, which banned gasoline and diesel-fuelled cars in 2024 to promote electric vehicles, are doubling down on their commitment to renewables. Hanan Hassen, an analyst at Ethiopia’s government-linked think tank, the Institute of Foreign Affairs, stresses that the real challenge lies not only in withstanding the immediate shock but also in ensuring it does not “derail the country’s development trajectory.”
Renewables as a Buffer: A Glimmer of Hope
The increased adoption of renewable energy has provided a crucial buffer for some Asian countries against the prevailing energy shock. Pakistan’s burgeoning solar sector has already saved over $12 billion (€10.3bn) in fossil fuel imports since 2020 and is projected to save an additional $6.3 billion (€5.45bn) in 2026 at current prices, according to analyses by the think tanks Renewables First and the Centre for Research on Energy and Clean Air. Vietnam’s current solar power generation is expected to help the country avoid hundreds of millions of euros in potential coal and gas import costs in the coming year, given the prevailing high prices, as indicated by the research group Zero Carbon Analytics.
Other nations are struggling to manage constrained supplies. Bangladesh has resorted to closing universities to conserve electricity. With limited storage capacity to absorb supply shocks, the government has initiated fuel rationing following a period of panic buying at filling stations, according to Khondaker Golam Moazzem, an economist with the Centre for Policy Dialogue in Dhaka. For the immediate future, governments are compelled to manage shortages and control prices. Thailand has suspended petroleum exports, increased its domestic gas production, and begun drawing on its reserves. Areeporn Asawinpongphan, a research fellow with the Thailand Development Research Institute, warns that if the conflict persists into April, Thailand’s finite reserves and limited budget for subsidies will inevitably lead to higher prices.
