The worst oil and gas supply shock in history has exposed the vulnerability of dependence on fossil fuel imports and is making renewables popular again. As governments scramble to contain the fallout from the energy shock, both in supply and prices, increased electrification in transportation and power generation is once again the talk of the town.

As the war in the Middle East laid bare the shock of losing oil and gas supply, policymakers and analysts are once again considering the benefits of fossil fuel importers boosting the share of renewable energy sources in their power mix and electrifying transport to reduce dependence on the now expensive – and scarce – supply of oil and gas.

The current crisis, the second major shock this decade after the Russian invasion of Ukraine four years ago, is likely to drive increased focus on domestic energy supply. For fossil fuel importers, this means accelerated clean energy adoption.

The war in the Middle East is now making the case for oil and gas-consuming countries to reduce dependence on imported fossil fuels and strengthen their self-sufficiency in energy supply, where possible.

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Yet, boosting renewables is easier said than done. Massive investments are needed in grids and transmission, separate from the spending on turbines, solar panels, battery storage, and electric vehicles, as well as incentives.

In theory, accelerated deployment of domestic solar, wind, and batteries would reduce dependence on fossil fuels for power generation.

But the spike in fossil fuel prices to four-year highs doesn’t make a great case for faster renewables rollout, as the resulting surge in inflation and potentially higher-for-longer interest rates would raise the costs of clean energy materials and installations.

Nevertheless, many governments are set to look to accelerate the adoption of clean domestic energy to future-proof a larger part of their energy systems to supply shocks. Whenever the war in the Middle East ends, it’s unlikely it will be the last.

For Asia, the region most vulnerable to the Middle East’s oil and gas supply, where shortages were almost immediately felt, this could be “the Ukraine moment” to start considering reducing reliance on fossil fuels, according to green energy think tank Ember.

“This is Asia’s Ukraine moment. Unlike the oil crises of the 1970s, there is now a better alternative…Oil volatility means EVs are a common-sense choice for countries wishing to insulate themselves from future shocks,” said Daan Walter, a principal at Ember.

Dependence on fossil fuels has been exposed by the war, once again, Ember’s analysts note.

“The technology to end that dependency exists. The only question is how many more crises it takes.”

The best form of energy security is to onshore and internalize the energy systems, according to Ulrik Fugmann, Co-Head of the Environmental Strategies Group at BNP Paribas Asset Management.

“Put very simply, the cost, and certainly prolonged cost, of a fossil fuel shock far outweighs the investments needed to continue to build out renewables,” Fugmann said on a BNP Paribas Asset Management podcast last week.

Chinese clean energy manufacturers could be the biggest winners of the global rethink of energy security and energy supply.

Since the beginning of the Iran war, investors have bet on higher global demand for renewable energy and electric vehicles, as the conflict traps most of the Middle East’s oil and gas supply at the Strait of Hormuz. As a result, shares of Chinese battery makers and green energy manufacturers have jumped this month.

The domestic energy narrative has been a huge boost to green energy stocks in China, which is the world’s biggest renewable energy developer and a dominant supplier of batteries, wind turbines, solar panels, and other critical components for clean energy solutions.   

By Tsvetana Paraskova for Oilprice.com

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