Iran Conflict and Its Fallout on Worldwide Energy Markets
The war in Iran has triggered a severe energy shock that is reshaping the global energy landscape. Pulitzer Prize winner and S&P Global Vice Chairman Daniel Yergin has described this disruption as the 'mother of all supply shocks.' He pointed out that rising oil prices are boosting Russia's revenues, thereby funding its military operations. Unlike the period following Russia's invasion of Ukraine, energy prices have not remained elevated for an extended time, thanks to American shale gas and liquefied natural gas (LNG), which undercut Moscow’s attempts to weaponize gas supplies against Europe.
According to Yergin, the current crisis stems from an absolute shortage rather than a matter of rerouting existing flows. China, which imports 75% of its oil, sources roughly half of that volume through the Strait of Hormuz. Notably, Beijing receives three times as much crude from Arab nations as it does from Iran. Asia has been hit hardest, as it was the destination for 80% of Persian Gulf oil and 90% of its gas. Europe has also felt the impact, particularly in the aviation fuel sector.
Forecasts and Ramifications of the Energy Shock
Yergin predicts a resurgence of coal use in parts of Asia, which could alter the region’s energy dynamics. He also highlights the growing significance of data centers, which already consume about 5% of U.S. electricity—a figure projected to climb to 14% within five years. This trend may become a major bottleneck for the advancement of artificial intelligence in tech companies.
“You truly notice trust only when it’s absent. And I see this trust deficit expanding—making the world more dangerous and uncertain.” - Daniel Yergin
Against this backdrop, Yergin’s forecasts point to the emergence of a new world order characterized by neomercantilism, with an emphasis on resilience, self-sufficiency, and supply diversification. The consequences of this energy shock may include:
- higher costs
- inflation
- new international frictions
This signals growing strain on the alliance system established after World War II. It may compel energy-importing nations to rethink their strategies and policies regarding resource dependence.
The ongoing conflict in Iran not only disrupts energy supplies but also poses a significant risk to global markets, particularly through the potential blockade of the strategically vital Strait of Hormuz. This critical chokepoint is essential for oil transport, and any escalation in tensions could further exacerbate the energy crisis, influencing prices and availability worldwide.