Four BIG Questions:

Question 1: In the current Gulf crisis, if shipping through the Strait of Hormuz becomes riskier or disrupted, how would that ripple through to Europe – in oil prices, fuel costs, and inflation? 

The Strait of Hormuz is a vital energy artery for the world economy. Each day, about 20 per cent of global oil and liquefied natural gas (LNG) trade passes through it. Now, due to the conflict, tanker traffic through Hormuz has plunged, with insurers reluctant to provide cover. Qatar, the world’s third biggest LNG exporter, has even halted LNG production altogether. Although most of the oil and LNG cargoes from the region are bound for Asia, the effects are felt globally, in terms of higher prices.

While oil prices rose only modestly on Monday, by 8.5 per cent, having already priced in the risk before the conflict, the benchmark gas price in Europe rose by 50 per cent. This is inconvenient as Europe’s gas storage has just dropped below 30 per cent of its capacity, well below its five-year average. Lower reserves make countries more vulnerable to supply disruptions and price volatility. Higher gas prices can also push up electricity prices and, if sustained, fuel inflation.

For now, we are nowhere near the price levels we saw in 2022, when oil went above $120 a barrel and gas prices in Europe above €300/MWh, but the Iran war has infused a lot of uncertainty into energy markets and the world economy. A scenario in which a prolonged and severely escalating conflict sparks a global energy crunch can at this stage not be ruled out.

Question 2: When energy price shocks translate into inflation and political pressure, governments often face a trade-off between economic stability and climate commitments. How can European leaders turn a crisis like this into an acceleration of the energy transition? 

Just like the 2022 energy shock, which was caused by Russia’s weaponization of gas exports, the current crisis in the Middle East shows how vulnerable Europe is to geopolitical risks to its energy supply as long as it keeps importing large volumes of oil and gas. The European Green Deal and many of the EU’s climate policies that have come under attack recently are not the cause of the current energy crisis. In fact, they provide a pathway out of it, by lowering our dependence on imported fossil fuels.

If anything, the lesson that should be drawn is that Europe needs to accelerate its efforts to increase efficiency, electrify its energy demand, reinforce and expand grid connections, and roll out energy technologies that can tap into domestic sources of energy, from solar panels and wind turbines to heat pumps and EVs. These measures are necessary for security and resilience. Coincidentally, they are also needed to bring down emissions and set Europe on a pathway to climate neutrality.

Question 3: Much of your work argues that the energy transition does not eliminate geopolitics but transforms it – shifting competition from fossil fuels towards technologies, infrastructure and critical materials. How does a crisis around Iran fit into that transformation? 

The energy transition does not eliminate global interdependencies. Europe is already heavily dependent on other countries for imports of critical minerals like rare earths and lithium, needed to build clean tech, as well as imports of green technologies like solar panels and batteries.

But the key difference is that, unlike a disruption in oil and gas markets, a hiccup in the supply chain of these minerals and technologies does not pose immediate energy security risks. It does not mean our cars stop running or that we cannot heat our homes, or that these things become too expensive. It does hamper our ability to buy or build new solar panels and batteries, yes, but that risk is much more muted in terms of impact than an energy price crunch, which immediately reverberates throughout the economy.

Question 4: Europe has diversified suppliers since Russia's invasion of Ukraine. But if a conflict in the Gulf can still send major shockwaves through Europe, does diversification meaningfully increase security, or merely spread exposure? 

Diversification was needed in 2022 because Russia closed one gas pipeline after another, and it will still be needed in the coming months as Europe seeks to phase out Russian gas altogether by September next year. Yet diversification is no panacea.

Despite having diversified to non-Russian gas and oil suppliers, Europe’s gas prices are still much higher than in many other places in the world, hampering our economies. So, diversification has come at a cost in the form of a much higher energy import bill.

In addition, you could argue that the EU has just traded one dependency for another. The EU still relies heavily on energy imports from autocratic states that are not necessarily geopolitical allies, especially in the Middle East and North Africa, but also increasingly on the Trump administration, which is already using its energy dominance as leverage to try to hollow out EU climate policies.

The real solution lies not in diversifying our fossil energy suppliers but in reducing our dependence on imported fossil fuels altogether.