The war in the Middle East has roiled oil and gas markets.
The war in the Middle East has roiled oil and gas markets. Under a severe scenario, with more strikes on energy infrastructure, Bloomberg Economics estimates that crude could reach $108 a barrel, adding a significant boost to inflation and even pushing some European economies to the brink of recession.
These price shocks will have global impacts. When such spikes occurred in the last century, there was little choice for import-dependent countries but to pay a premium or burn less fuel. This century, however, falling prices of solar and batteries offer another option. “When a technology becomes cost competitive, you get to a tipping point on adoption,” said Antoine Vagneur-Jones, head of trade and supply chains at BloombergNEF. Take the case of Europe, which was plunged into a gas crisis after Russia attacked Ukraine four years ago. In the immediate aftermath, the region paid steep prices for whatever liquefied natural gas it could get its hands on. But in the years that followed, Europe saw a rapid rise in solar deployment and a subsequent battery boom. Even though European countries are breaching government debt levels not seen since World War II, they have enough capital to make the upfront investments needed to install solar panels and batteries. And they could pay a premium for gas until those new energy installations came online. The same crisis in 2022 hit developing countries much harder. Pakistan, Bangladesh and Sri Lanka suffered devastating blackouts because they simply couldn’t afford LNG supplies. Unlike China and India, these countries don’t have much domestic supplies of coal to lean on. As a result, Pakistani businesses and households that could afford to pay for solar panels started buying them from China. Demand increased so much that in 2024, Pakistan ranked fourth in the world after the US, India and Brazil for imported panels. Like Europe, a surge in battery installations followed a year later. Europe and Pakistan largely rely on batteries and solar panels imported from China. In Europe, national security concerns have led to the Industrial Accelerator Act, which launched Wednesday with the goal of kickstarting clean tech domestic manufacturing to reduce dependence on Chinese goods. Other countries that are friendly with China, though, have continued to buy its clean tech. In Cuba, for example, energy shortages have long been a feature of life on the island, which has been under sanctions from the US for decades. Those have become more severe in the last year, prompting the government to turn to China for support building solar power and batteries. In January, US President Donald Trump threatened to impose tariffs on any country supplying Cuba with oil, which the nation uses for most of its cars and power plants. To be sure, solar and batteries can't replace oil in existing internal combustion engine vehicles or gas in the chemicals industry. Also, in some major economies such as Germany, the blistering rally in gas markets this week has so far had a limited impact on electricity prices — without a sustained increase in gas prices, the incentive to switch to cleaner alternatives may not be as strong. A lack of access to finance used to make it difficult for developing countries to build out capital intensive renewables projects. But that’s now changed with much of the solar and battery demand in Pakistan and Cuba coming directly from consumers. Plus, Chinese solar and battery makers have huge overcapacity, leading companies to seek new markets and offer good deals. Solar installations globally reached a record 655 gigawatts last year. Before the war in Iran broke out, BNEF analysts expected solar growth to be roughly flat this year, while they forecast energy storage for the grid would rise more than 50%, given battery prices are expected to fall further. That could change if the disruption to oil and gas supplies last, BNEF analysts wrote in a report published Monday, adding that there is plenty of inventory of green technologies so any supply chain snarls are likely to be minimal. “It could push customers toward technologies like solar and batteries,” they said. Rathi writes for Bloomberg.
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