Washington DC [US], March 21: The energy shock caused by the war on Iran and the broader conflict in the Middle East is pushing policymakers around the world to rethink how to cut long-term reliance on imported oil and gas, opening room to ideas varying from expanding nuclear and renewable energy, boosting strategic reserves and domestic output, to diversifying foreign sources of supply.
Iran's closure of the vital Strait of Hormuz shipping lane, after the U.S. and Israel attacked on Feb. 28, marks the third time this decade that an international energy shock has forced governments to reckon with the risks of a world dependent on the free flow of vast quantities of petroleum to fuel its economic engine.
It has also stoked the view that the fossil fuel age must end, after pushback in recent years to ongoing efforts to mitigate climate change.
"The issue of energy security has never been as acute as now. Until a few weeks ago, markets took Gulf resources for granted.
That will not be the case going forward," said Geoffrey Pyatt, who was assistant secretary of state for energy resources under Joe Biden and is now a senior managing director at US consultancy McLartyAssociates.
The world's biggest energy consumer nations are now back at the drawing board: Europe last week unveiled new financial guarantees for atomic power after decades of closing nuclear plants. Other major importers are planning to source fuel from a broader array of suppliers to hedgetheir risk.
In a timely article about a potential blockage to Hormuz, a department within China's state planner, which shapes the country's economic strategy, said on the first day of the war that the country should accelerate its renewable energy transition, as well as expand its emergency reserves and source more energy from alternative suppliers.
"Not only China, but around the world," governments "will reconsider their energy supply lines and production systems and perhaps pay more attention to nuclear and clean energy," Wang Jin, senior fellow at the Beijing Club for International Dialogue, a think tank under the purview of the foreign ministry, told Reuters.
China is already the world's leading source of clean energy technologies.
In the shorter-term, big consumer nations have opted for a record-sized coordinated release of emergency stocks, along with requests by governments, particularly in Asia, for consumers to conserve energy.
Around 20% of the world's oil and liquefied natural gas (LNG) supply has been blocked after Tehran effectively locked down Hormuz, the main artery for Middle East fossil fuels headed to world markets.
The International Energy Agency (IEA) has called it the worst disruption to global energy supplies in history. Global crude oil prices have now surged to above $100 a barrel.
The crisis follows two previous major energy upsets of the 2020s: Russia's 2022 invasion of Ukraine led Europe to slash its dependence on Russian imports; and the 2020 COVID-19 pandemic that triggered a sudden, massive decline in world demand for fossil fuels, followed by a rebound that world's top producers were ill-prepared to meet.
Asia sources the vast majority of its oil and LNG imports from the Middle East, making it the region most affected by both higher prices and physical supply disruption caused by the Iran conflict.
The issue has revived support in some corners for nuclear energy as a way to reduce regional reliance on power fueled by natural gas and other fossil fuels.
In Taiwan, Economy Minister Kung Ming-hsin said on March 11 that the self-ruled island is considering restarting its last nuclear station, which closed in May, after the main opposition party lambasted the government following the start of the Iran conflict for phasing out nuclear power. Around one-third of Taiwan's LNG supply comes from Qatar, whose production has been cut by the fighting.
Tokyo had already been discussing the restart of reactors idling since the 2011 Fukushima disaster, as Japan looks to reduce the country's large dependence on energy imports. But politicians have called on Prime Minister Sanae Takaichi to do more to boost the industry since the start of theIran war.
Taiwan's economy ministry said the use of nuclear power must be premised on ensuring nuclear safety. Taiwan will continue the expansion of renewable energy and natural gas storage facilities to increase safety reserves, it said. Japan's industry ministry did not reply to a request for comment.
In China, the world's top buyer of Iranian oil, refiner Sinopec has cut production by 10 percent. Beijing has also banned fuel exports to help avert domestic shortages.
China has, however, been relatively insulated from the crisis due to its ample emergency oil reserves and high rate of electrification, with EVs representing more than half of its domestic new car sales and its grid more than 50 percent powered by renewable energy sources.
In the US, by comparison, EVs are less than 10 percent of the market, while renewable power is around a quarter of the nation's electricity generation.
Jin, of the Beijing Club think tank, said China saw the Iran crisis as an opportunity to create new avenues for cooperation, and that Beijing sought friendly, stable energy relations with all producers.
China's foreign ministry declined comment and the National Development and Reform Commission did not respond to a request forcomment.
Government officials and company executives in Japan, Taiwan, Bangladesh and Pakistan have said they also plan to diversify their import sources and buy LNG on the spot market, instead of relying on long-term contracts from theMiddle East.
The cost of the EU's fossil fuel imports, meanwhile, has risen by 6 billion euros ($6.88 billion) since the start of the war, putting massive upward pressure on the continent's power prices.
Being "completely dependent on expensive and volatile imports" of fossil fuels puts Europe at a structural disadvantage to other regions, European Commission President Ursula von der Leyen said in a March 10 speech, while putting forward a new program to offer a 200 million euro guarantee for private investments in innovative nuclear technologies.
Reducing the share of nuclear in the overall mix of power supplies in Europe over the past 25 years "was a strategic mistake," von der Leyen said.
EU member states led by Germany had shut down nuclear plants in recent decades amid worries about accidents and radioactive waste, reducing generation to a 15 percent share of the trade bloc's total from about a third in 1990.
To shield residents and businesses from spiking power costs, the European Union is drafting changes to its carbon market to try to curb CO2 prices, alongside state aid measures like subsidies and tax breaks.
As the world's largest oil and gas producer, the USis less concerned about domestic supply shortfalls. It sources only a small amount of its from the Middle . But Washington is focused heavily on ways to tame global energy prices while conducting the war.
A White House official said the disruption to Middle East supply was a reason for countries to increase production of fossil fuels, not replace them.
"The terrorist Iranian regime's control over a chokehold like the Strait of Hormuz has proven that our allies need to invest in infrastructure to produce reliable, affordable, secure energy sources like crude oil and natural gas," said White House spokesperson Taylor Rogers.
Source: Qatar Tribune
