Could the Iran-US War Expedite the Phase-Out of Oil & Gas?

The unfolding conflict in the Middle East, which began with joint US-Israeli airstrikes on Iran on 28 February, has left the world’s energy market in disarray.

In just a matter of days, global oil and gas markets, shipping routes and price benchmarks have lost stability, forcing governments, companies and investors to confront whether continued dependence on hydrocarbons is compatible with energy security.​​

The war has already curtailed oil and gas exports across the Gulf and brought traffic through the Strait of Hormuz – which normally carries around 20% of the world’s seaborne oil and LNG – close to a standstill. 

Attacks on key infrastructure in Iran, Saudi Arabia and Qatar have created a textbook supply shock, and those seismic waves are still working their way through markets.​

Against this backdrop, analysts have warned that if the effective closure of shipping through the Persian Gulf persists, oil prices could reach prices of US$100 a barrel, with Norway’s Rystad Energy estimating a net loss of 8 to 10 million barrels per day of supply.

Is the fossil fuel market too volatile to provide energy security?

For Christophe Williams, CEO of Naked Energy, the crisis underlines how a dependence on gas is making people more vulnerable.

“Escalation involving Iran is yet another reminder that dependence on gas weakens our energy security,” he says.

UK wholesale gas prices have already surged by around 90% over the past week, a jump Christophe says “feeds straight through to businesses and households”.​

For the UK specifically, he does not believe that drilling in the North Sea is a sufficient shield from price shocks.

“Calls to ‘just use more North Sea gas’ are false comfort,” Christophe explains. 

“UK-produced gas is sold at international prices, so it does not insulate us from global shocks. And the remaining reserves are nowhere near large enough to protect the UK from disruption in global supply routes.”​

That critique goes straight to the heart of a broader debate that has been swirling through the sector for some time.

Oil and gas still dominate global energy, yet, with every international flashpoint, it becomes clearer how price is dictated by geopolitics rather than by the needs of energy consumers.

Fear and fatigue

Tamas Varga, who is an analyst at PVM Oil Associates, argues that while the latest escalation in the Middle East is extreme, it fits a pattern.

He notes that during the 2019 attacks on Saudi facilities and after Russia’s invasion of Ukraine, price spikes ultimately unwound as supply adjusted and risk premia ebbed.​​

In this conflict, however, the combination of direct strikes on Iran’s leadership, damage to regional oil infrastructure and a de facto cessation of shipping in the Strait of Hormuz has produced what Tamas calls a “black swan event” whose consequences are “impossible to grasp”.​​

The effect on global supply chains and manufacturing

The conflict in the Middle East is currently being spoken about in boardrooms all over the world.

James Crayton, who is Partner & Head of Commercial at Walker Morris, a UK-based commercial law firm, says that “manufacturers are already seeing the knock‑on effects of the Iran–Israel–US conflict, particularly when it comes to shipping reliability and cost”.​

With major carriers sending their ships around the Cape of Good Hope or pausing services altogether, supply chains are now facing weeks of delays and while the cost of freight skyrocketing.​

“Oil prices jumped almost immediately after the first strikes, rising by 8% to 9%, a shift that directly affects production costs across manufacturing, especially in energy‑intensive sectors,” James says.

Meanwhile, war‑risk insurance is being withdrawn across parts of the Gulf, with several vessels already damaged or stranded, leaving manufacturers exposed to sudden supply gaps that are difficult to hedge.​​

James argues that the firms that are best placed to cope are those actively diversifying suppliers, exploring alternative routes and tightening contracts.

To that end, he suggests that preparations for energy market volatility is now an “operational necessity”.

How will the Middle East crisis affect the energy transition?

The central question for many in the sector is whether this bout of volatility will accelerate a move away from fossil fuels or prompt a new wave of investment in hydrocarbons in the name of security.​​

Dustin Scarpa, the Founder of Transparent Energy, sees plenty of parallels between this war and past conflicts that sent oil prices soaring, from the Iranian Revolution of the late 1970s onwards.

That said, Dustin believes that today’s shock is magnified by LNG’s importance for Europe and Asia.​​

Asked whether volatility will turn companies away from fossil fuels, Dustin draws a distinction between short‑term and structural responses.​

“In the near‑term it’s likely that we’ll see an effort to increase domestic oil and gas production, and to ramp up LNG output even faster to fill the gap,” he says.​

Over a longer period, though, he suggests that persistent volatility and higher baseload costs could expedite the shift towards cleaner power.​

“If fossil fuels remain volatile, or if baseline costs increase to the point where renewables can be deployed at a lower absolute cost, then the green movement will continue to accelerate,” Dustin argues, pointing out that investment in clean energy has already outpaced fossil fuels in the power sector.​

Christophe makes a similar case from the demand side, calling heat “the world’s largest energy end use”. 

“Tackling heat with British and European made clean technologies,” he says, “is one of the fastest ways to lower exposure to gas prices while strengthening energy security.”​