The ongoing conflict in Iran has starkly illuminated the world’s deep-seated dependence on precarious fossil fuel supply routes, amplifying the urgent calls for a swift transition to renewable energy sources. The fighting has effectively choked off oil exports flowing 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 strain on economies heavily reliant on energy imports.
While Asia, the primary destination for much of this oil, has borne the brunt of the impact, Europe is also feeling the pinch, with policymakers scrambling to devise strategies for reducing energy demand. African nations, too, are bracing for the unwelcome consequences of escalating fuel costs and the ensuing inflation.
Renewables: A Competitive Alternative in a Shifting Landscape
Crucially, unlike during previous energy crises, renewable power sources have now achieved a level of cost-competitiveness with fossil fuels in numerous regions. Data from the International Renewable Energy Agency indicates that over 90 per cent of new renewable power projects initiated globally in 2024 were more economical than their fossil fuel counterparts. This is a significant development, as oil’s utility extends far beyond electricity generation, playing a vital role in industries such as fertiliser and plastics manufacturing. Consequently, most nations are experiencing the ripple effects of these supply disruptions. Those with a more robust renewable energy infrastructure, however, are finding themselves better insulated, as their energy generation relies on abundant domestic resources like sunshine and wind, rather than volatile imported fuels.
“These crises are not an anomaly; they are an inherent characteristic of a fossil fuel-dependent energy system,” observes James Bowen, a consultant with ReMap Research, an Australian-based consultancy.
China and India: Building Renewable Buffers, with China Leading the Charge
China and India, the two most populous nations on Earth, face the monumental challenge of generating sufficient electricity to fuel the growth ambitions of over a billion people each. Both countries have made significant strides in expanding their renewable energy capacity, though China’s efforts have been on a far grander scale, even while it maintains a substantial reliance on coal-fired power.
Today, China stands as the undisputed global leader in renewable energy. The International Energy Agency reports that approximately one in every ten vehicles on Chinese roads is electric. Despite remaining the world’s largest importer of crude oil and a major purchaser of Iranian oil, China’s electrification of key sectors has measurably reduced its vulnerability to import fluctuations. Lauri Myllyvirta of the Centre for Research on Energy and Clean Air suggests that without this strategic shift towards renewables, China would be “considerably more susceptible to supply and price volatility.” Furthermore, China possesses the advantage of strategic reserves accumulated during periods of lower prices and the flexibility to switch between coal and oil as fuel sources for its industrial base.
India has also increased its adoption of clean energy, with a particular focus on solar power. However, its progress has been more gradual, and it has received less government support for the domestic manufacturing of renewable energy equipment and for integrating solar power into its national grid. Following Russia’s invasion of Ukraine in 2022, India prioritised energy security by securing discounted Russian oil and increasing its coal output. While it also accelerated its deployment of solar and wind power, which helped to mitigate supply disruptions, it did not entirely escape their impact, according to Duttatreya Das of the think tank Ember.
“Not everyone can emulate China’s approach,” Das notes. India is currently grappling with a shortage of cooking gas, prompting a surge in demand for induction cooktops and raising concerns about potential restaurant closures. Industries reliant on fertilisers and ceramics may also face significant challenges.
Developed Nations: A Temptation to Revert to Fossil Fuels
Wealthy nations in Europe and East Asia are no strangers to energy shocks. In 2022, several European governments initially aimed to reduce their reliance on fossil fuels. However, many soon pivoted towards securing alternative fossil fuel suppliers, according to Pauline Heinrichs, who researches climate and energy at King’s College London. Germany, for instance, rapidly constructed LNG terminals to replace Russian gas with fuel primarily sourced from the United States, while simultaneously experiencing a slowdown in its energy transition efforts, including demand reduction initiatives. A 2023 study revealed that Europe’s expenditure on fossil fuels since the Russia-Ukraine war equated to roughly 40 per cent of the investment required to transition its power system to clean energy. “In Europe, we seem to have drawn the wrong conclusions from this experience,” Heinrichs remarks.
In import-dependent Japan, policy responses to past energy crises have historically favoured diversifying fossil fuel imports over investing in domestic renewable energy sources, according to Ayumi Fukakusa of Friends of the Earth Japan. Solar and wind power currently constitute a mere 11 per cent of Japan’s total energy production, a figure comparable to India but lower than China’s 18 per cent, as reported by Ember. Japan’s overall energy consumption is significantly lower than that of both China and India. The ongoing conflict in Iran has featured prominently in discussions, including a recent meeting between Japanese Prime Minister Sanae Takaichi and US President Donald Trump. Trump, who has consistently advocated for Japan to increase its purchase of American LNG, has urged allied nations like Japan to “step up” their efforts in securing the Strait of Hormuz. South Korean President Lee Jae-myung, however, views the current crisis as a potential “opportunity” to accelerate the shift towards renewable energy.
Developing Nations: The Forefront of Exposure
Poorer countries across Asia and Africa are finding themselves in direct competition with affluent European and Asian nations, as well as major energy consumers like India and China, for limited gas supplies. This competition is inevitably driving up prices. Import-dependent economies, such as Benin and Zambia in Africa, and Bangladesh and Thailand in Asia, are particularly vulnerable to significant economic shocks. The escalating cost of fuel translates to higher transportation and food expenses, and many of these nations possess limited foreign exchange reserves, hindering their capacity to afford imports should prices remain elevated.
Africa, in particular, faces heightened exposure due to the widespread reliance on imported oil for its transport and supply chain infrastructure. Investing in cleaner energy sources represents a sound long-term strategy for energy security 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, for example, is contemplating the construction of an LNG import terminal and new gas-fired power plants. In contrast, nations like Ethiopia are doubling down on renewables, having banned gasoline and diesel-powered vehicles in 2024 to promote electric vehicle adoption. The fundamental challenge, as highlighted by Hanan Hassen, an analyst at Ethiopia’s government-linked think tank, the Institute of Foreign Affairs, is not merely withstanding the immediate shock but ensuring that it does not “derail the country’s development trajectory.”
Renewables as a Protective Shield
The increased utilisation of renewable energy has provided a crucial buffer for several Asian countries against the current energy shock. Pakistan’s burgeoning solar sector has reportedly averted over $12 billion (€10.3 billion) in fossil fuel import costs since 2020 and is projected to save an additional $6.3 billion (€5.45 billion) in 2026 at current price levels, according to analyses by think tanks Renewables First and the Centre for Research on Energy and Clean Air. Vietnam’s existing solar generation capacity is expected to help the country save hundreds of millions of euros in potential coal and gas imports over the coming year, given the prevailing high prices, as estimated by the research group Zero Carbon Analytics.
Other nations are struggling to manage strained energy supplies. Bangladesh has resorted to closing universities to conserve electricity. With limited storage capacity to absorb supply shocks, the government has implemented fuel rationing following a period of panic buying at petrol stations, according to Khondaker Golam Moazzem, an economist with the Centre for Policy Dialogue in Dhaka. For the immediate future, governments are focused on managing shortages and controlling prices. Thailand has temporarily suspended petroleum exports, increased its domestic gas production, and begun drawing down its strategic 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 constrained budget for subsidies will inevitably lead to a significant surge in prices.
