What’s Happened?
It’s now over a month since the US Israeli attacks on Iran. The Brent crude oil price has climbed to above USD100 per barrel and largely remained there, reaching a three year high. The key pressure point is the choked Strait of Hormuz, through which around 20% of global oil and LNG normally flows. Despite previous US rhetoric about de escalation, the situation remains highly uncertain.
What This Means for Energy
The International Energy Agency (IEA), a leading global intergovernmental body that advises major economies on energy policy, warns this war could be the most disruptive event in the history of global energy markets. The combination of damaged energy assets across the Middle East and the closure of the Strait of Hormuz is having severe consequences for global energy supply, among other sectors, and could lead to a global recession.
This could cause:
Prolonged and high energy prices worldwide
Higher costs for renewable developers
But also, stronger upsides for domestic clean energy, creating new opportunities
The IEA head, Fatih Birol, has cautioned that the impact will be severe regardless of how long the conflict lasts, as it could take up to six months to bring damaged or shut down oil and gas facilities back online.
What This Means for Developers
For renewable developers, the effects are two sided. The conflict raises costs and risks, but also accelerates the strategic case for clean, domestic energy. Below are some of the potential impacts:
Pressures on Projects
Higher energy prices raising inflationary risks will push up equipment and construction costs, increasing project viability risks.
Potentially higher interest rates, if governments move to contain inflation, will raise financing costs.
Tailwinds for Clean Energy
Governments are expected to speed up renewables deployment through new policy measures and targeted funding if the crisis continues.
Demand for clean energy is likely to rise as consumers and businesses look for alternatives to volatile fossil fuel prices.
Looking Ahead
There is clear potential for severe consequences, with potential rising costs and tightening financing conditions for developers, globally. At the same time, demand for clean energy, and particularly small scale, distributed solutions that can compete directly with traditional supply, is already accelerating.
For developers able to navigate higher input costs and more complex risk profiles, this crisis will open significant opportunities to deliver reliable, domestic alternatives to oil and gas at a moment when energy security.