Sustainable Energy - May Commentary

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The Iran war has triggered very significant disruption to global oil and gas markets, prompting a broad-based policy response that is likely to catalyse investment into the energy transition. With the energy shock likely to persist through the rest of 2026, policy makers are increasingly looking to renewables, electrification and energy efficiency as long-term levers to mitigate high energy costs.

The Middle East conflict two months on

There has been no meaningful progress in restoring energy flows through the Strait of Hormuz, with around 12m b/day of oil and oil products effectively removed from global supply and no viable alternative routes to market. Since the onset of the conflict, we estimate cumulative losses to the market of close to 0.8bn barrels, with this rising by 0.36bn barrels with each additional month of disruption. Even in the event of a near-term resolution, the global oil market is likely to face a sustained supply shortfall through the remainder of 2026. In that context, policymakers are beginning to contend with a higher energy price environment and its implications for the global economy.

While the outcome and duration of the conflict remain uncertain, historical precedent suggests that Middle Eastern energy shocks are rarely resolved quickly. On average, past disruptions have taken eight months for supply to normalise, and the current crisis is larger in scale than those seen previously. Importantly, the recovery in production is likely to lag any resolution. While the IEA estimates that around 80% of affected supply could return within two months, a meaningful portion of capacity (1-2m b/day) may take longer to restore or may not return fully due to reservoir and operational constraints. The longer the disruption persists, the more challenging the restart process becomes. Taken together with the re-emergence of a geopolitical risk premium and the need to rebuild global inventories, this suggests that oil prices are likely to remain elevated for a sustained period, even after the conflict is resolved.

Historical Middle Eastern oil shocks

Figures in bold are the largest responses. Source: Guinness Global Investors, May 2026

The Iran war will fundamentally reshape global energy markets and accelerate the energy transition

The supply shock from the Iran war will be a major catalyst for the energy transition. As we wrote last month, periods of high and volatile energy prices expose the vulnerabilities of energy systems that rely on imported fossil fuels and strengthen the case for a more electrified system, powered by domestic renewables. As seen in Europe’s response to the 2022 Russia/Ukraine crisis, policymakers will usually respond to an energy crisis with an “all of the above” approach to energy security, focusing on building greater and more diversified domestic supply. This is increasingly translating into support for more flexible, low-carbon energy solutions which offer both resilience and reduced dependence on imports. We believe the current crisis will reinforce this trend, with policymakers again prioritising measures that improve energy security while accelerating the transition.

We therefore expect to see a growing focus on:

• Energy security: Low-carbon energy systems (renewables, energy storage, grid expansion, nuclear) tend to be distributed and localised. Governments increasingly view the transition to homegrown clean energy as the most effective lever to mitigate the risks of high energy import costs and maritime disruptions; and
• Energy flexibility: Flexible energy systems generally have the following characteristics, enabling them to weather future shocks.
  • More diversity of supply (many sources of energy): especially renewables, nuclear and liquefied natural gas (LNG) import facilities;
  • More modularity (lots of smaller, distributed assets);
  • More responsiveness (ability to adjust supply/demand quickly): more storage, greater demand side flexibility (smart grids, smart meters, demand response programmes);
  • More electrification: an electrified energy system is more flexible as it reduces fuel-specific dependence.
  • More interconnection: cross-border electricity interconnectors and integrated power grids also improve flexibility.

This is consistent with commentary from Fatih Birol, head of the IEA, who commented that the war will “profoundly transform” global energy systems and accelerate the switch to low-carbon technologies, with countries accelerating investment in nuclear energy and small modular reactors as well as renewables.

The European Union

We wrote last month about a possible EU response to the crisis. On April 22, the European Commission published “AccelerateEU”, its long-term roadmap to strengthened energy resilience. In the report, the Commission states that “the need for transition is not new, but it must be significantly accelerated” to help reduce the bloc’s reliance on imported fossil fuels and shield its economies from rising energy costs. This is particularly relevant for Europe since imported fossil fuels account for a significant proportion of energy consumption (57%), and where the recent price shock has already resulted in an additional €24 billion in fossil fuel spending.

AccelerateEU builds on the REPowerEU framework, which was initially focused on reducing dependence on Russian gas through increased investment in wind, solar, storage and energy efficiency. The new plan broadens this approach beyond a single supply shock, reflecting a more structural shift towards energy security and strategic autonomy. The emphasis is now on reducing overall import dependence, strengthening system resilience and scaling domestic energy supply. The strategy is organised around five key pillars:

• 'Closer EU coordination': Both internally and with suppliers to support actions such as filling gas storage facilities, strategic oil releases, and national policy responses.
• 'Protecting consumers and businesses': Proposed measures include targeted income support, energy vouchers and temporary electricity tax reductions to shield households and industry from price spikes. This includes mobilising €100bn through the Industrial Decarbonisation Bank and an Investment Booster funded by EU Emissions Trading Scheme (ETS) allowances.
• 'More homegrown clean energy': Reduce oil and gas imports by encouraging investment into renewables and skills, supported by electrification targets and the removal of barriers to electrification across industry, transport, and buildings. By summer, the Commission will present an Electrified Action Plan.
• 'Stepping up our energy systems': Upgrading and transforming energy systems to ensure the full implementation of current rules, accelerate the negotiations on the EU Grids package, and advancing 'Energy Highways' projects.
• 'Boosting investments': Mobilising public funding at both the EU and national level to support the scaling up of private capital, alongside initiatives such as the Clean Energy Transition Investment Forum and a Clean Energy Summit. An estimated €660bn in annual investment through 2030 to facilitate the energy transition.

The final three pillars highlight the structural nature of the shift underway in European energy policy. AccelerateEU aims to accelerate domestic renewable deployment, upgrade grid infrastructure and mobilise capital to address longstanding bottlenecks to build-out. In doing so, it is likely to support both stronger electricity demand and a faster expansion of renewable supply across Europe.

It is worth highlighting the scale of the shift in Europe’s generation mix since 2022. REPowerEU catalysed a meaningful acceleration in renewable deployment, with 2025 marking the first year in which wind and solar generation exceeded that of fossil fuels. Solar output reached a new high, growing by more than 20% for the fourth consecutive year and accounting for around 13% of EU electricity generation.

Share of electricity generation in the EU 2015-2025

Source: Ember, May 2026

National policy responses

Alongside the coordinated regional response, the crisis is also beginning to drive more concrete action at the national level. France is a notable example, having published a detailed roadmap outlining its pathway to reduce fossil fuel dependence and strengthen energy security. France has outlined explicit end-of-consumption targets for coal (by 2030), oil (by 2045) and fossil gas (by 2050). These milestones fall under a larger target of reducing the fossil share of final consumption to 40% by 2030 and 30% by 2035, before reaching carbon neutrality by 2050.

The French roadmap targets:

• Transport and Mobility: targeting 66% sales penetration for EVs and a 25% increase in public transport use by 2030;
• Building and real assets: 85% reduction in oil-fired boilers in tertiary buildings, and a 60% reduction in the residential sector as parts of a wider foal to phase out oil for heating by 2035
• Industry, Power and Infrastructure: phase out fossil fuels and increase wind (15 GW of offshore by 2035, and 1.3 GW of onshore each year), solar (3x capacity by 2035), nuclear power (new EPR2 reactors and lifetime extensions), hydrogen and biogas (6x production increase by 2035), and alternative fuels.

Like Europe, many Southeast Asian economies are highly exposed to rising energy prices and the conflict has forced energy security to re-emerge as a core priority and for governments to reassess their energy mix. This exposure is particularly acute in the current crisis, given that roughly 80% of oil transiting the Strait of Hormuz is destined for Asian markets. In response, there is now a more assertive policy reaction across the region:  

• South Korea is heavily reliant on imported fossil fuels and generated 55% of its power from coal and gas in 2025. In response to the crisis, the country has pledged to increases its renewable energy capacity from 37 GW to 100 GW by 2030 and is expected to increase its support for nuclear energy. In order to meet these ambitious targets, the country is set to mandate the installation of solar panels on the rooftops of new factories. At the same time, the country is looking to cut its demand further by incentivising electric vehicle adoption, targeting 40% sales penetration over the same period.
• Japan imports 95% of its crude and 6% of its LNG from the Middle East, most of which passes through the Strait. The conflict is accelerating a long-term re-evaluation of the energy mix, specifically in the context of restarting nuclear power plants and increasing investment in renewable infrastructure to reduce structural vulnerability.
• Elsewhere in the region, Indonesia plans to accelerate the roll-out of its mandatory biodiesel mandates to cut its diesel imports; Malaysia is encouraging wider adoption of rooftop solar; and Cambodia has reduced import taxes related to EVs, renewables, and electric stoves to encourage adoption.

Multilateral agreements

The policy response to the crisis has extended beyond national and regional initiatives, spurring the first multilateral conference dedicated specifically to transitioning away from fossil fuels. The Colombia Conference brought together almost 60 countries representing roughly one-third of the global economy and focused on the practical implementation of the transition, including national phase-out roadmaps, electrification, financing and the reduction of fossil fuel dependence, reflecting a growing recognition that energy security and long-term economic resilience are increasingly aligned with the transition to low-carbon energy systems.

While it remains at an early stage and produced no binding commitments, the conference nevertheless represents a notable shift in the global policy landscape and a further indication that the current crisis is likely to have lasting implications for the global energy market.

Conclusion

The Iran war has triggered a material energy shock and prompted a broad-based policy response. In addressing their dependence on imported fossil fuels, policymakers are placing greater emphasis on energy security and system flexibility, supporting increased investment across the energy transition. There will be a further focus on low-carbon and electrified energy systems, which are typically more distributed, localised and flexible, and therefore better positioned to withstand supply disruptions.

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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.