Sustainable Energy - April Commentary

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The outbreak of war in the Middle East, which has brought the effective closure of the Strait of Hormuz, has triggered a meaningful energy shock that is disrupting global markets. While the threat of weaker economic growth, inflation and higher interest rates is weighing on equities (including sustainable energy equities) in the short term, we believe that the war will accelerate the energy transition as governments come to regard energy security as even more critical. In this report, we discuss the likely impact of the war on the sustainable energy sector and review fund performance in 1Q 2026. We conclude that current valuations reflect short-term war-related concerns such as interest rate increases and inflation, while discounting the structurally improving outlook for sustainable energy equities.

The US-Iran conflict

At the end of February, the United States and Israel commenced military strikes on Iran with the stated aim of regime change. In response, Iran attacked a number of foreign oil tankers, effectively shutting the Strait of Hormuz and with it, a significant proportion of global energy supply. The Strait is a stretch of water 21 miles wide which separates Iran from the UAE and Oman. It is a vital corridor that represents a critical chokepoint in global energy logistics, as it facilitates the transit of:

• Approximately 20m barrels per day (b/d) of crude oil, condensate, and oil products, equivalent to around 20% of global oil supply and 30% of seaborne oil trade. 
• 20% of global liquefied natural gas (LNG) production.

The conflict has resulted in materially tighter energy markets. After allowing for pipeline re-routing and strategic inventory releases, we estimate that the closure of the Strait has removed 9-11 million b/day of physical oil supply, an unprecedented shock that took Brent spot prices as high as $117/bl in March, a 95% increase year-to-date. Natural gas markets have also been severely disrupted, with the loss of c.11 billion cubic feet per day of LNG supply through the Strait, a disruption comparable to around 75% of the amount of Russian gas lost from Europe in 2022. More dramatic price spikes have been seen in oil products than in crude oil, with aviation fuel, diesel and naphtha prices experiencing particularly violent swings as those markets had lower inventories and tighter supply vs demand before the war.

While the outcome of the conflict remains uncertain, a prolonged disruption will see oil prices reach demand destruction levels around $125-150/bl. Elevated energy prices weaken the economic outlook and cause higher inflation as they feed through to higher input costs (particularly across more energy-intensive industrial sectors) and complicate the path to lower interest rates for central banks, given renewed inflationary pressures. Equity markets have responded to these risks, with the MSCI World Index falling -6.4% in March in USD. Companies manufacturing equipment for the energy transition are not immune to these near-term issues, with raw material inflation impacting manufacturing profitability and interest rates impacting consumer buying habits and underlying project economics.

The Iran war will accelerate the energy transition

Like the 2022 European energy crisis resulting from the Russian invasion of Ukraine, we believe that the Iran war will accelerate the energy transition. The conflict has exposed the vulnerabilities of energy systems reliant on imported fossil fuels and reinforced the advantages of a more electrified system which, once built, is far less dependent on volatile energy imports. With energy security solidly at the top of the policy agenda for governments, we expect to see an acceleration in investment across renewable generation, grid infrastructure, and energy efficiency as policy makers work to directly reduce their reliance on fossil fuels and build resilience in their power supply. The target now clearly becomes electrified sovereignty. The current situation exceeds the 2022 crisis in that it affects both power generation markets (via higher natural gas prices) and transportation markets (via higher oil, gasoline, diesel and jet fuel prices).

The oil, oil product and gas supply disruption has been significant. Fatih Birol, executive director of the International Energy Agency (IEA), described the energy crisis as "the greatest global energy security threat in history" which will kick renewables “into an extraordinary new phase of even faster growth as countries seek to capitalise on their energy security benefits". The crisis is being most keenly felt in energy-importing countries and regions (for example, the EU imported €336.7bn of fossil fuel-based energy products in 2025), with European Commission president  Ursula von der Leyen saying “we know first-hand that the more you build homegrown energy, the sooner you get independent and thus can shield yourself from energy price shocks. We are in a race to electrify our economies", while Japanese prime minister Sanae Takaichi has said "In light of the Iran situation, the strategic importance of resources and energy security is once again being recognised globally".

Lessons from the European energy crisis

To get a sense of the longer-term implications of a severe energy disruption, we reflect on some of the outcomes of the European energy crisis of 2022. In this case, Europe cut its reliance on Russian natural gas in response to the invasion of Ukraine, triggering a crisis and forcing the bloc to enact supportive policy that accelerated investment into renewables and storage, energy efficiency, and incentivised the electrification of end demand.

European (EU-27 and UK) energy transition investment ($bn)

Source: BNEF, January 2026

Developed economies

In response, Europe saw a major acceleration in solar deployment, with installations increasing from 33 GW in 2021 to 72 GW in 2023. The inflection in solar installations was followed by a similar surge in battery installations, which increased from 2 GW in 2021 to 9 GW in 2023.

Source: BNEF, March 2026  

In certain European markets, the invasion also spurred major investment into both onshore and offshore wind generation. Germany, for example, reformed its permitting for onshore wind and has seen installations increase from 2 GW in 2021 to an expected 10 GW in 2026. As a result of these investments into renewable energy technologies, Europe has seen its share of power generation from wind and solar increase from 19% to 30% while gas has fallen from 19% to 17%.

EU renewable power as a percentage of total power generation 

Source:  IEA estimates, February 2026

The 2022 crisis not only catalysed a wave of new renewable generation but also highlighted the importance of investing in energy efficiency as a means of structurally reducing energy demand and fossil fuel imports. Elevated gas prices brought the cost of energy consumption sharply into focus, driving a step change in policy and capital allocation. IEA data shows that investments made in the aftermath of Russia’s invasion led to global energy intensity improvements of around 2% in 2022, a meaningful acceleration compared to the c.0.5% seen in previous years. In the European Union alone, energy efficiency investments made in response to the energy crisis helped the bloc reduce its gas consumption in the residential sector by 18% between 2021-2024.

We expect the US-Iran war to support these trends, with countries either building upon the actions taken in previous years or implementing new frameworks to incentivise clean energy investment. Although it is difficult to assess the long-term impact of the Iran war at this stage, we are already starting to see some changes in government and consumer behaviour towards energy efficiency, energy security and the electrification of demand:

• In government policy, Germany committed in March to a further 10GW of onshore wind tenders to 2030 (on top of the 10GW already included in the Renewable Energy Act to 2032) while the UK brought forward its AR8 renewable power capacity auction after the record awards in AR7.
• In domestic power generation and energy efficiency, Octopus Energy has seen the busiest three-week period in its history with a 41% rise in enquiries from UK homeowners about how to become “energy independent”. Heat pump sales increased by 51% versus the prior month while solar sales increased 54% and EV charger sales grew by 20 per cent. In Germany, renewable energy firm Enpal BV saw enquiries for heat pumps and solar panels up 30% since the start of the war.
• In transportation, higher gasoline and diesel prices are showing signs of changing purchasing behaviour. According to AutoTrader, advert views for new models from EV brand BYD in the UK have risen 77% year-on-year, while searches for used BYD vehicles were up more than 375%. Renault reported a 24% increase in EV model enquiries on its website since the end of February, while Kia saw requests for EV test drives increase 84% year-on-year.

While there continues to be questions about the duration and outcome of the war, we believe the conflict represents another catalyst for the energy transition. While the threat of higher interest rates and inflation will cause some near-term headwinds for sustainable energy equities, we believe it will ultimately catalyse long-term investment into the energy transition, as it did following the European energy crisis. Importantly, the actions taken in the aftermath of that crisis have created a stronger foundation on which to build. Renewable technologies are increasingly cost-competitive, electrification is already underway, and policy frameworks are in place, suggesting that the response could be both faster and more sustained than in previous cycles.

For our full report, including analysis of fund returns in the first quarter, click below.

The value of this investment can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you invested.