DNV: Iran war may accelerate global energy transition

“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.