As more than 500 lives have been claimed, the ongoing war between the United States, Israel and Iran poses a severe economic damage threat across the world, by pushing up the oil, gas and energy prices.
About a fifth of the world’s oil and liquefied natural gas (LNG) passes on ships through the Strait of Hormuz, a narrow stretch of water separating Iran from the Gulf countries.
With Iranian missiles hitting oil and gas sites in the Gulf – including the world’s largest LNG export facility Ras Laffan – and fears that ships may be targeted, Qatar has halted its LNG production and traffic through the Strait has slowed drastically.
The disruption has sent oil and LNG prices skyrocketing, raising costs for households and businesses worldwide that rely on fossil fuels for electricity, transport, heating and manufacturing.
In two online briefings – focused on Europe and Asia, respectively – energy analysts warned journalists that prolonged disruption could trigger a global economic crisis. Governments should seek to reduce their reliance on oil and gas – through investments in clean energy and energy efficiency.
Seb Kennedy, founding editor of EnergyFlux.News, said the war is “a bonanza for US LNG exporters and a catastrophe for everyone else,” adding “if this goes on for months and months then [the energy crisis] could be on the scale we saw in 2022”.
Asia affected the most
Asian economies are expected to suffer the most as the largest buyers of Qatari LNG. Research by ZeroCarbon Analytics suggests that Japan and South Korea, which get over three-fifths of their energy from oil and gas imports, are among the most vulnerable.
Several South-East Asian nations – like Vietnam, the Philippines and Thailand – have invested in infrastructure to import LNG over the last few years while China and India are also reliant on Gulf oil and gas and are now exploring alternative suppliers like Russia and, at least in India’s case, Canada and Norway.
Oxford University energy and climate professor Jan Rosenow said that China is also likely to double down on moving away from oil and gas by promoting electric vehicles, batteries and electrifying industries.
Europe’s suffering
Rosenow said that he was experiencing “deja vu” from when Russia restricted gas supplies to Europe, sparking a global energy crisis. Following that, he said, Europe had “not really managed to scale up the alternatives fast enough”, further saying “now we pay the price for that”.
He cited the example of Germany, where the government last week weakened requirements for buildings to install electric heat pumps instead of gas boilers. “We [in Europe] just haven’t made enough progress in terms of rolling out heat pumps, decarbonising industry and scaling up electric mobility,” he said.
Meanwhile in UK, the government is nder pressure from US President Trump as well as the right-wing opposition to reverse its ban on licenses for new oil and gas fields in the North Sea.
But in the short term and without government policy intervention, Tancrède Fulop, Morningstar equity analyst told Climate Home News that the crisis is likely to slow down the development of renewables.
The reason being renewables projects requiring large upfront capital investment while rising inflation from higher energy costs is likely to prompt governments to raise the cost of borrowing, he said.