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DNV: Iran war may accelerate global energy transition
DNV vice president and Energy Transition Outlook director Sverre Alvik argues the Iran war could speed the shift toward renewables and nuclear
“The rule-of-thumb that what is bad for fossils is good for renewables applies,” writes DNV vice president and Energy Transition Outlook director Sverre Alvik in his note on the impact of the Israeli-US war on Iran, The likely effects of the Iran war on the global energy transition.
This sets out the central argument on how the war in Iran could reshape the global energy transition.
He wrote that the conflict had “unleashed the biggest fossil fuel supply shock in decades” and that the long-term result appeared to be “a boost for renewables and nuclear”.
DNV said the note was prepared by its Energy Transition Outlook research team as initial thinking on the effects of the war in Iran on the global energy system and the energy transition.
It added that it could not predict when the war, which it said began on 28 February, would definitively end.
According to DNV, Iran’s forced closure of the Strait of Hormuz on 4 March created “the biggest oil and gas supply shock in the history of the industry”.
About 20% of the world’s oil and natural gas shipments normally pass through the Strait, DNV wrote, with more than 80% of those volumes destined for Asian markets. It said flows had since been reduced “to a mere trickle favouring nations friendly to Iran”.
DNV wrote that the short-term impact would fall hardest on countries with low oil and gas stocks and limited ability to pay elevated spot prices, naming Pakistan, Bangladesh and Sri Lanka.
Saudi Arabia and Qatar, it said, had also been hampered by the war, while no alternative large swing producer could make up the shortfall in either the short or medium term. Russia, DNV added, would seek to cover part of the gap, although its oil production and LNG export capacity remained constrained.
Longer-lasting high oil and gas prices were presented by DNV as the likely consequence. It also said inflationary pressure had already intensified, with higher interest rates and weaker GDP expected depending on how long the war continued.
Shipping, DNV wrote, had also been affected, with thousands of ships trapped in the Gulf or rerouted around Africa, while fuel oil prices and insurance costs had risen.
Mr Alvik argues that the conflict strengthened the case for energy diversification.
He writes that when attention turns sharply toward energy security, the pace of the global energy transition increases, because the overall effect of energy security policy works in favour of renewables, batteries, nuclear and energy efficiency.
He noted that the Middle East conflict was “definitely bad for oil and gas” and was “clearly strengthening energy security as a primary global concern because it has once again exposed, dramatically, the vulnerability of many countries to oil and gas dependency”.
Even if supply and prices normalise relatively quickly, he suggested that this would not alter that broader conclusion.
DNV also pointed to market behaviour.
Chinese battery manufacturers, he wrote, had outperformed international oil and gas companies on stock exchanges over the previous three weeks, which he said indicated where long-term capital was placing its bets.
Higher interest rates would raise the capital cost of renewables and grid investment, while efforts to diversify national energy systems would take time.
Energy security concerns would “inevitably pull even more strongly in favour of renewables, batteries, and nuclear going forward”, despite an inflationary environment that worked against capital spending.
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