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Hello readers,
As the Iran war drags on, there are growing signs of permanent demand destruction in the fossil fuel industry. The conflict is eroding the competitiveness and attractiveness of traditional fuels, in the process speeding up the energy transition. In the short term, however, consumers and businesses across the planet are taking serious strain. Meanwhile, fossil fuel exporters are profiting handsomely from the crisis, prompting fears that they will double down on their planet-wrecking activities and lock in polluting infrastructure for decades to come.
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Nick Hedley
Graph of the month
The chart above suggests that when oil and gas prices rise, so do China’s exports of clean technologies (solar PV, wind, batteries, grid tech, EVs, and heating and cooling systems). Cleantech exports first peaked in May 2023, around 15 months after Russia invaded Ukraine and sent fossil fuel prices skyward. However, the 2026 energy crisis, along with China’s removal of tax rebates for solar panel exports in April, has supercharged sales into the global market, with almost no lag this time around.
Oil and gas in the transition
A boon for the cleantech industry
With the war in the Middle East nearing the 100-day mark, elevated oil and gas prices are taking a toll on demand for traditional fuels while simultaneously boosting purchases of low-carbon alternatives. This may at least partially explain why publicly traded cleantech companies are outperforming. A Dow Jones index that tracks the shares of American oil and gas companies is trading at roughly the same level as at the start of the conflict, despite the increase in fossil fuel prices. On the other hand, an index that tracks low-carbon energy developers has made strong gains.
Investor sentiment is grounded in market realities: In March and April – the first two months of the war – China exported over USD 50 million worth of cleantech products, a 40% increase from a year before (despite batteries and other ‘green’ goods fetching lower prices).
Electrified transport
Electric vehicles have led the charge, thanks in part to soaring fuel prices. China’s EV exports were up 40% in April, versus a year before, with sales to Brazil surging 221%. Countries that were previously lagging far behind in the transport electrification game have also seen bumper EV sales, including South Africa.
Plug-in models are now expected to account for close to 30% of all cars sold worldwide in 2026, according to the latest forecasts from the International Energy Agency (IEA). “The falls we have seen in battery prices, and the potential policy responses to the current global energy crisis, are set to provide further momentum in EV markets,” IEA executive director Fatih Birol said in a statement.
Power and storage
The battery storage industry has also gained an edge over gas-fired generators amid the fossil fuel crisis. In South Australia, battery technologies outcompeted gas plants in an open tender for long-duration “firming” capacity in May. Across Australia’s main grid, batteries now discharge more power annually than open-cycle gas turbines, which are used to meet demand peaks.
Partly thanks to the rapid roll-out of batteries, alongside energy efficiency measures, Europe may be able to reduce its natural gas consumption by 15 billion cubic metres (bcm) this year, according to the European Commission. For context, the EU imported 140 bcm of liquefied natural gas (LNG) in 2025.
Solar’s meteoric rise is also chipping away at the role of gas in the electricity mix. According to a new report by BloombergNEF, solar will become the world’s single-largest source of electricity by 2032. “Successive energy market shocks could be a boon for the energy transition as some countries look to decouple from imported fossil fuels and bolster their energy security,” the research group says.
Already, wind and solar generated more electricity than gas worldwide for the first time in April.
Investment trends are expected to follow suit, as the IEA reports that global energy investment will edge up to USD 3.4 trillion in 2026, with clean technologies accounting for nearly two-thirds of the total, the highest share yet. There are early signs that deployment of renewables “is picking up” in some markets heavily affected by the energy crisis, the IEA says.
But pain lies ahead
In a Financial Times report, Bob McNally, founder of Rapidan Energy Group, says oil markets are overly optimistic about the situation in the Middle East. As global inventories are depleted, oil prices could soon soar close to $200 – a level that would force the “most gruesome and unpleasant form of demand curtailment and a broader economic downturn”.
Trade intelligence firm Kpler seemingly agrees. It says “the real oil shock” may materialise when China starts importing large volumes of oil again, after temporarily relying on local inventories amid the price spike. When this happens, oil prices could rise to above USD 150 per barrel.
Chevron chief executive Mike Wirth is on the same page, saying: “If this goes on for long, it tips us into an economic slowdown or a recession, you might have an offset on the demand side, which you can’t rule out.”
Even at current oil prices of below USD 100, living costs are rising and central banks may have to take action. Eurozone inflation increased to 3.2% in May, meaning the European Central Bank will probably be forced to push up borrowing costs in early June, analysts say. In the US, there are growing fears of a looming recession sparked by the fossil fuel crisis.
Yet there are some silver linings to this energy price shock, the second in four years
Veteran energy analyst Michael Liebreich authored a piece titled ‘The Great Clean Energy Acceleration 2.0’, in which he argues that the Iran war could bring forward the peak in fossil fuel use and emissions “to this side of 2030”.
Wood Mackenzie analysts agree. If the conflict drags out, the long-term outlook for oil and gas consumption will be bleaker, they write in a new report. Of note, countries in emerging Asia will be less keen to build new gas-fired plants, while Europe could further accelerate the electrification of heating and industrial processes, while doubling down on renewables.
If the conflict is not resolved soon, the world’s oil and gas consumption will have to fall meaningfully, says Federal Reserve Bank of Dallas president Lorie Logan. “The economic consequences would depend on the degree to which end users can switch to other energy sources or use energy more efficiently, versus curtailing economic activity.”
Energy transition strategies
There is some evidence that the Middle East conflict is shifting priorities within the oil and gas sector, too. Global investments in oil projects are expected to decline for the third straight year in 2026, as producers focus more on alternative trade routes and energy sources.
“ExxonMobil and Chevron have defied calls from the White House to increase oil production, resisting pressure from an administration that is struggling to end the biggest energy crisis in decades,” the Financial Times reported.
Nevertheless, spending on new fossil fuel projects remains far above the amounts needed to limit climate change to relatively safe levels.
In what may be a win for Norwegian oil and gas giant Equinor, which has opposed a ban on drilling in the Arctic, Norway is now pressuring the European Union to once again allow extraction in the region. “The blockade of the Strait of Hormuz has handed Norway fresh arguments to persuade Brussels to drop the moratorium… with the EU increasingly dependent on Norway’s gas exports,” Bloomberg reported.
Changes at the top
Meanwhile, at a time when the company is returning to its fossil fuel roots, the head of BP’s global gas and low-carbon energy business is set to leave the company later this year. William Lin’s departure is the latest change to BP’s senior management as it tries to refocus on its core oil and gas business, after a mismanaged pivot to green energy six years ago,” the Financial Times reported.
Two chief executives and two chairs have left the company over the past three years, according to the publication. In late May, BP fired board chair Albert Manifold, “who had kick-started the company’s retreat from renewables”.
Elsewhere in the industry, ExxonMobil has won shareholder approval to move its incorporation from New Jersey to Texas, which is seen as a friendlier home for oil and gas companies.
And Shell is lobbying for weaker rules governing the production of green hydrogen in Europe.
Clean energy investments
TotalEnergies is pushing ahead with its planned 1.5-gigawatt offshore wind farm in France, which is set to become the country’s biggest renewable energy project. Meanwhile, seven US states are taking the Trump administration to court over its deal with TotalEnergies, in which the company walked away from its two offshore wind leases in exchange for a refund of their USD 928 million cost, and a pledge to redirect the money to fossil-fuel investments, the Financial Times reported.
As it doubles down on fossil fuels, BP is selling its shares in two British carbon capture and storage projects.
From Zero Carbon Analytics
The ongoing energy crisis is accelerating the clean energy transition. 23 countries have announced new measures, clean energy funds are outperforming oil and gas, and investor sentiment towards renewables is rising.
Scope 2 emissions accounting can be strengthened through hourly matching of a company’s energy use with concurrent renewable electricity generation.
