Silver lining amid the smoke: Iran war could spark renewables revolution

As the bombs and missiles rain down on Iran and the countries of the Gulf, the tremors are being felt far from the battlefields.

Oil prices have surged beyond US$100 per barrel, the highest since 2022, and may well shoot higher. Shipping lanes through the Strait of Hormuz – that narrow, indispensable choke point through which roughly a fifth of the world’s oil and gas passes – are all but blocked. Production cutbacks among the Gulf’s energy producers are intensifying as their storage levels approach full capacity. Everywhere, political leaders, as well as central bankers, are faced with the daunting task of having to deal with this.

The US-Israel-Iran war, whatever its ultimate military and political outcome, has already delivered one verdict with brutal clarity: an energy system dominated by hydrocarbons is a system built on sand. Not because oil and gas will run out any time soon, but because they are hostage to human conflict, political miscalculation and inconvenient geography.

The Middle East sits at the centre of the global energy map. Every war, every revolution, every logistical disruption in that volatile region sends shockwaves through economies that have nothing to do with the conflict. Households, factories and farms across the world, especially among energy importers – which means most countries – can be forced to pay for a war they had no part in starting.

This is not a new lesson. We learnt it after the 1973 Arab oil embargo, then again during the second oil shock of 1980, the Gulf War of 1990, the war on Iraq in 2003 and the Russia-Ukraine war of 2022. Yet, the world has been slow to learn – paralysed by dependence when oil prices rose after these shocks, but then seduced by cheap oil when prices fell.

But this time, something is different – there is a genuine alternative – and the economics makes it irresistible.

The volatility trap

Even if a ceasefire is declared tomorrow, the energy market disruption will not dissipate any time soon. Hydrocarbon infrastructure, comprising wells, pipelines, refineries, storage depots and export terminals, is not a tap that can simply be turned back on. In the current war, some of it has been physically damaged or destroyed. Some requires months of rehabilitation. As Qatar’s Energy Minister Saad al-Kaabi warned in the first week of March, even if the war ended today, it would take “weeks to months” for the country’s gas deliveries to normalise. And with the end of the war nowhere in sight, there will be more infrastructure damage to come.

Moreover, the investment appetite to rebuild it quickly will be dampened by the same uncertainty that caused the disruption in the first place. Will companies commit billions of dollars to expand oil production in a region that, as recent events show, can be catastrophically unstable. That is far from certain and depends on what political configurations emerge in the Middle East in the aftermath of the war and to what extent hostilities linger.

The result could well be a prolonged period of elevated and volatile energy prices, felt most acutely in countries with the least ability to absorb the shock. This is the hidden cruelty of hydrocarbon dependence: the poorest nations, who contributed least to the system and benefit the least from it, often suffer most when it fractures.

The renewables cost revolution

Here is where the story could take an unexpected turn – not towards despair, but possibility.

Over the past decade, while the world was distracted by a succession of crises, something remarkable happened quietly in the energy sector. The cost of solar power fell by roughly 90 per cent. Onshore wind became cheaper than almost any other form of electricity generation. Battery storage, the crucial technology that addresses the intermittency problem, has followed a similar downward curve. These are not marginal improvements. They represent one of the fastest cost declines of any technology in industrial history.

The result is that renewables are no longer the idealistic, expensive alternative that governments had to subsidise out of environmental conscience. In most parts of the world, they are the cheapest option, and their adoption has shown results. A standout example is Denmark, which was more than 90 per cent dependent on imported oil in the 1970s. It now gets most of its electricity from wind and even exports green energy.

Globally, and thanks to many of the low-cost technologies coming from China, renewables are enabling hundreds of billions of dollars in fuel costs to be avoided every year. The increasing electrification of transport, heating and even parts of manufacturing add to the importance of the switch away from fossil fuels. A solar farm or a wind installation built today will, over its lifetime, produce electricity at a cost that new oil or gas generation cannot match. This is the quiet revolution that the current crisis can now turbocharge.

When energy security becomes an urgent political priority – as it does every time conflict flares up involving the Middle East or some other energy producer – governments reach for the tools that reduce dependence on imported fossil fuels.

After the 2022 Russian invasion of Ukraine, Europe embarked on the fastest expansion of renewable capacity in its history, driven not by idealism but by the practical imperative of not wanting to be at the mercy of Russia. The Iran war will hopefully trigger a similar response, but globally and at greater scale, because the disruption is deeper. The alternatives are also now more mature, and do not need subsidies to be priced competitively with fossil fuels.

The nuclear option

But wind and solar, for all their extraordinary progress, cannot on their own fill the gap left by hydrocarbons. The sun does not always shine, the wind does not always blow, and the energy density of fossil fuels – their ability to deliver vast amounts of power on demand – remains unmatched, despite current battery technology. Industrial processes, heavy manufacturing and central air-conditioning, the kind of always-on baseload power that modern economies require, cannot be met by intermittent sources alone.

That is why nuclear energy needs to be part of the mix. The nuclear plants of the 20th century were engineering marvels but were also expensive, slow to build and haunted by the psychological traumas of the Chernobyl and Fukushima disasters.

But technology has moved on. Small modular reactors, or SMRs, represent a new proposition. They are, as the name suggests, smaller and factory-built rather than constructed piecemeal on site, which dramatically reduces both cost and construction time. Their safety architecture is fundamentally different from older designs, relying on passive cooling systems that do not need human intervention or backup generators to prevent a meltdown of an overheated reactor.

Several designs are now moving from blueprint to reality in the United States, Canada, the United Kingdom, and the European Union. The first commercial land-based SMR – known as Linglong One – is expected to begin operation in China by the end of 2026. Even tech giants such as Amazon and Google have entered the SMR space, with a view to powering their energy-intensive operations.

SMRs can be deployed in places with speed and scale that were never viable for conventional nuclear plants. They can provide the reliable, round-the-clock, zero-carbon power that anchors a grid built around variable renewables, working in tandem with wind and solar.

Diversification, not replacement

The goal is not to eliminate hydrocarbons from the global energy mix. That is not realistic on any timeframe that is politically or economically acceptable. Oil and gas will remain a key part of the global energy system for decades. They will continue to power shipping, aviation, much of heavy industry and parts of the developing world that have neither the capital nor the infrastructure yet to transition rapidly.

But that is not the point. The point is acceleration – a decisive shift in the direction and speed with which we reduce the share of energy exposed to the vagaries of Middle Eastern geopolitics. Every gigawatt of demand met by domestic renewables or SMRs is a gigawatt that cannot be weaponised by a foreign adversary or upended by a distant war.

History teaches us that crises, for all their disruptive consequences, are often the moments when transformation becomes possible. The oil shocks of the 1970s produced the first serious wave of energy efficiency and research on renewables. The current crisis arrives at a moment when those efforts have paid off. The alternatives are ready – cheaper, proven and scalable.

The war in the Gulf will end, but the volatility it has unleashed will not disappear quickly. If governments, investors and citizens respond with the urgency this moment demands, the lasting legacy of this conflict can turn out positive: faster energy diversification, less global warming and greater national security.