As the oil and gas crisis drives the world economy towards another financial crash, green energy is the only viable future

Could this be a watershed moment heralding US geopolitical and technological decline?

Let’s not make a secret of this. The world is hurtling at breakneck speed towards the worst-ever energy crisis. This will be worse than the oil crises of the 1970s. It could be worse even than the oil crisis of 2007-2012, the latter which triggered the global financial meltdown of 2008. Maybe it is small comfort to those billions of people around the world facing hardship in this developing crisis. However, out of the ruins we shall see a market and state-driven renewed drive towards installation of wind, solar, batteries and Electric Vehicles.

Of course, if the US/Israel war with Iran ceased at once and The Straits of Hormuz were reopened by the end of March this apocalyptic scenario could be greatly reduced. Even then, the damage to oil and gas fields would take time to be repaired, and prices would remain high. Yet, time drags on. Reports circulate that the US is planning a military assault to secure the Straits (which would take a long time to assemble and execute), so the likelihood of deep damage to the world economy seems all but certain.

Figure 1

As can be seen in Figure 1 today’s oil crisis looks much worse than those of the 1970s with Saudi, Kuwaiti and Iraqi oil shut off from transport through the Straits of Hormuz. I take into account in Figure 1 that some oil from these countries, mainly from Iran, but also a minority of the oil from Saudi Arabia, and a trickle from Iraq, will keep on flowing. The release of oil from the IEA’s strategic reserve has some short-term public relations calming effect, but has modest physical effect. But on top of all of this gas production from Qatar and the UAE is shut down. This accounts for 6 per cent of the world’s gas production, although only around half of this is exported in the form of Liquified Natural Gas (LNG).

As can be seen from Figure 2 the world’s worst oil crisis, in terms of impact on oil prices occurred between 2006 and 2014, where oil prices (expressed in 2024 prices) topped $100 a barrel. The increases in oil prices after 2006 corresponded with a dramatic increase in oil imports by Eastern nations, especially China. Prices spiked in 2008 at $142 per barrel and in 2011 at $155 per barrel. There’s a good argument to be made that without this oil price spike the 2008 financial crash might not have occurred (at least when it did).

Figure 2

Source: Energy Institute Statistical Review of World Energy (2025)

Regrettably, the energy crisis to which we are already entering may well be even worse than the 2007-2014 high price period. This is because our current crisis is not just an oil crisis, but also a crisis of shortage of natural gas. Added to that, as if more was needed, the closure of the Straits of Hormuz means that other important goods such as large amounts of nickel and material for fertilisers is also blocked off. A vicious round of inflation is striking the world, and what we are seeing now in terms of increases in oil and gas price increases are only the low foothills of the process.

Energy insiders recognise that current oil prices, increasing now above $100 per barrel (up from around $65 per barrel in February), are not yet reflecting the market shortages. Oil traders may be hedging on the conservative side, expecting a political deal, or at least an understanding, to end the War and open the Straits of Hormuz soon. But, if, as seems increasingly likely, the war drags on for months, then physical market realities will send the oil price into a very steep climb.

As Sebastian Kennedy says, regarding Liquefied Natural Gas (LNG) supplies, in his Energy Flux bulletin: ‘Qatari and UAE cargoes loaded before the conflict erupted are still making their multi-week voyages to Europe and parts of Asia. The tap has been turned off, but the last of the pre-war LNG is still flowing through the system. When that constraint shows up in physical market balances, the price adjustment will be sharp and one-directional.’ (See HERE)

Drastic demand curtailment

Indeed market price equilibrium will only come when the amount of oil and gas demanded shrinks to the amount of available supply. Logically, such dramatic contractions in capacity as currently exist can only ultimately happen with massive price increases. This will produce massive economic recession around of the world.

Russia will gain, of course, since a major portion of its GDP comes from oil sales. China will gain in strategic terms. Haley Zaremba, writing for the premier oil industry website ‘Oil Price’ explains ‘How China Could Turn the Iran War Into an Energy Advantage. She argues ‘China’s massive oil reserves are helping shield it from the worst of the global energy shock…..Its supergrid and renewable buildout give it a deeper structural advantage than most major economies…..If the conflict drags on, China could come out stronger in both energy and geopolitics.’ (See HERE)

To understand the scale of the crisis, the decline in world oil demand needed to bring market equilibrium is almost identical to the (13 per cent) drop in European gas consumption that the continent experienced in 2022-3. The Trump-US choice has been to start a war that will result in the whole world experiencing drastic inflation and recession (possibly depression). In fact, the crisis for the world is that not only will they have to suffer a 13 per cent or so decline in oil consumption but also at least a 3 per cent drop in globally traded world gas consumption.

Indeed the impact of the ‘3 per cent’ decline in gas availability is very significant since it represents 20 per cent of the global LNG market. This sets the effective price for European gas. Hence, counting all of these factors, the world’s oil, gas and critical trade crisis will be rather worse for the world compared to the very painful impact of the 2022-23 gas crisis was for Europe.

It should be kept in mind that whilst there is a global market for oil for most of the world, the same is not true of natural gas. A much smaller proportion of gas compared to oil in the world is shipped - most is run through pipelines. By contrast, the majority of oil is shipped. The USA, at the moment, is self-sufficient in natural gas and therefore protected from most fluctuations in global LNG prices. However, US consumers are fully exposed to global increases in the price of oil in the prices they pay for gasoline and other oil uses.

Indeed, Trump’s USA and Israel can blow up Iranian gas fields and increase the profits of interests of US oil and gas companies without immediately affecting US consumers. This is because the US natural gas market is largely insulated from world gas prices. But Europe will pay heavily for this since natural gas prices in Europe are governed by prices of world LNG supplies. Further destruction of natural gas supplies will see European gas prices go even faster upwards and for much longer than they are anyway. Ultimately, the US economy will get blowback as the rest of the world’s economy collapses through the oil and gas crises - and of course also as US consumers see their gasoline bills spiral upwards beacuse of increases in oil prices.

Each oil crisis has created a new green energy revolution

The oil crises of the 1970s powered the inception of the modern wind power industry. This was started by grass roots activists in Denmark, and soon modern wind turbines were given a market in California. The technology then proliferated throughout the world thereafter.

The next oil crisis, which began in 2007, boosted state efforts to promote renewable energy, especially through the EU’s Renewable Energy Directive of 2009. It also marked the emergence of solar PV as a mass market technology on the back of the new European market for solar PV created by state incentives for solar PV. The costs of the technology began a rapid decline, which continues today. This oil crisis also saw the birth of the modern Electric Vehicle. The Tesla Roadster began production in 2008 and the Nissan Leaf was first manufactured in 2009.

One thing that did not happen, though much predicted, was a ‘nuclear renaissance’. This has been trumpeted for 20 years, yet now nuclear power generates a much lower proportion of world electricity than it did then.

This oil crisis will boost renewables, EVs and heat pumps

So what technological leaps will this latest oil crisis generate? Certainly, the crisis will make wind power, solar PV, batteries, heat pumps and Electric Vehicles essential means to help mitigate the effects of the coming economic cataclysm. Without solar and wind power the European gas crisis of 2022-3 would have been all the worse. This oil and gas crisis would be all the worse without the amount of solar PV, wind power, batteries and also heat pumps that are in operation.

According to the European Heat Pump Association, there were 25.5 million heat pumps operating in its 19 member states in 2025. This saves around 5 per cent of European gas supply. In the UK renewable energy generates getting on for half of UK electricity. If this were all produced from natural gas, then UK natural gas consumption would be around a third higher than it is. As more gas is demanded, the price goes up as more expensive supplies have to be purchased. The Energy and Climate Intelligence Unit has calculated that without wind and solar, UK electricity prices would have been 25 per cent higher (See HERE). Without renewables being rapidly installed in Europe, the European gas crisis would have been much worse as much more gas would have had to be imported at very expensive prices.

In the UK, for example, the Reform Party might oppose giving government contracts to wind and solar. However, these contract prices are way below the (rising) wholesale power on the UK wholesale power market. The same is also (or will soon be) true across the world. The way forward to counter the effects of fossil fuel crisis will be to dramatically increase renewable energy supplies, energy efficiency and also electrificaton of the economy. In this way total energy consumption will be greatly reduced alongside the reduction in carbon emissions (see ‘How small increases in renewables produce big cuts in carbon emissions’ HERE).

Alternatives to fossil fuel cars will be big winners of the oil crisis

Running a motor vehicle is going to be much more expensive as long as this oil crisis continues. Hence, other transport options, whether they be walking, cycling, public transport or EVs will become relatively cheaper. The speed of the EV revolution will be boosted.

EVs are already cheaper

To those of us who actually run EVs, EVs already are much cheaper and reliable compared to fossil fuel vehicles. This certainly applies to my own circumstances. In summer last year I bought a 2021-2022 Nissan Leaf (62 kWh) for £13000. The Nissan Qashqai fossil fuel equivalent model (it actually looks much the same as the Leaf) costs the same for the same mileage as mine (a bit over 30,000 miles) - according to comparisons on ‘autotrader’. But the running costs of the Leaf are a lot lower. To cut a slightly longer story short, for driving 8 thousand miles a year I will pay around £270 a year in fuel costs (electricity at 12 p/kWh) compared to nearly £1000 a year more for petrol at around £1.40 per litre (now going up quickly).

The annual service and insurance costs are no higher (insurance slightly higher, annual service slightly lower). Plus of course hardly anything can go wrong with an EV, whilst fossil cars have a range of problems (gears, oil leaks, water leaks, exhaust, clutch etc etc). Range only declines gradually. The range of my car is 230 miles. On the rare times I actually go on a round trip more than 200 miles I don’t have problems with recharging. Indeed, the costs of electricity from the commercial rapid charging will be reduced relative to home charging because VAT on electricity from rapid chargers will soon come down from 20% to 5%. Charging times at rapid chargers are going down, with ‘5 minute charging’ to be introduced. (See HERE)

EV Trucks on the move

The surprise recent change in the EV revolution is the proliferation of EV lorries. It was thought only a few years ago that as energy transition progressed the big trucks would be powered by hydrogen. However, batteries have become much cheaper to produce and hydrogen is no longer in contention, if ever it was. Now that EV trucks are being made with longer ranges the economic superiority of electric trucks over trucks run on diesel is beginning to dawn. Of course the big advantage of EVs is that they can have lower operating (fuel) costs. This matters rather more for trucks compared to smaller EVs because trucks are driven a lot farther each year than passenger EVs.

This theory is now being put into practice in China, where last year 28 per cent of purchases of new trucks were electric. According to an article published by AP: ‘By the first half of 2025, battery-powered trucks accounted for 22% of new heavy truck sales, up from 9.2% in the same period in 2024, according to Commercial Vehicle World, a Beijing-based trucking data provider. The British research firm BMI forecasts electric trucks will reach nearly 46% of new sales this year and 60% next year.’ (see HERE). Cheaper electric trucks are coming to Europe in large numbers.

Conclusion

Already, it seems that the effects of the War will last for months even if War stopped tomorrow. Much oil and gas production is being put out of production either through continuing military strikes or because oil storage tanks are full. Meanwhile, as the closure of the Straits of Hormuz continues for months and the damage to oil and gas facilities intensifies, the outlook for the world economy is bleak. The effects of the massive disruption in oil and gas supplies are yet to be felt. This is because it takes time for the tanker fleet which sailed before the beginning of March to sail and then unload. But after then, the price increases will be drastic.

Nevertheless, when the world rebuilds its energy systems there will be increased emphasis on green energy technologies. China, which is deeply involved in green energy technology, will see its economic and geopolitical position strengthened. Although US oil and gas companies will make enormous profits from the War, US citizens will be impoverished by rising fuel and food prices, and world respect for the US as a geopolitical actor will be much reduced into the bargain. The longer this current crisis continues, the greater the risk will be of another global financial crash.

Trump-USA’s attempt to prevent green technological progress will make the USA a loser compared to the rise of China. Finally, and crucially, the battle to combat the climate crisis through market/technological changes and changes in people’s behaviour will be boosted. It would, of course, be much better to do this through peace, not war.