Oil Markets on Edge as Tensions from War in Gaza Continue, Renewable Energy Push Could Accelerate

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The ongoing conflict in Gaza is causing increased tensions, and these heightened geopolitical concerns have the potential to accelerate the global transition away from fossil fuels, such as oil and gas, towards renewable energy sources, electric vehicles, and heat pumps. This shift mirrors the energy conservation efforts triggered by the sharp oil price increases during the 1970s, as noted by the Executive Director of the International Energy Agency (IEA), Fatih Birol.

Birol expressed his concerns, saying, “Today, we are once again confronted with a crisis in the Middle East that could disrupt oil markets.” These concerns come in addition to the existing stress on energy markets due to Russia’s interruption of natural gas supplies to Europe during its Ukraine invasion.

The confluence of these two factors has led Birol to question the safety and reliability of oil and gas as viable energy choices for nations and consumers. He made these statements in an interview with The Associated Press just before the release of the IEA’s annual world energy outlook report. Birol believes that these developments may further expedite the global shift towards renewable energy sources, such as wind and solar, offering sustainable energy security solutions while also addressing climate change challenges.

The conflict involving Hamas’s attack on Israel and Israel’s subsequent military operations has raised concerns of a broader regional conflict. Thus far, the increases in oil prices have been relatively modest, with Brent crude trading at $90.17 per barrel, up from around $84 before the Hamas attack. Thankfully, this conflict has not yet caused any major supply disruptions.

Although fossil fuel prices have receded from their peak in 2022, the IEA report highlights the continuing tension and volatility in energy markets. It underscores that while some immediate pressures from the global energy crisis have eased, geopolitical uncertainties and global economic instability persist, with the constant risk of further disruptions.

Birol highlighted the substantial government response to energy supply concerns that emerged during the 1973 Arab oil embargo. This response led to an almost 300% increase in oil prices and the establishment of the IEA in 1974 to coordinate a collective response to such disruptions. This era also witnessed the expansion of nuclear power plants and the implementation of fuel efficiency standards for automobiles as strategies.

Birol also emphasized that today, we have a broad array of available technologies, including solar and wind energy, nuclear power, and electric vehicles. These technologies are poised for significant global expansion, providing impetus to the ongoing transition towards cleaner energy sources. For example, electric vehicles have seen remarkable adoption, with one in five cars being electric in 2023, compared to just one in 25 in 2020. Moreover, the share of fossil fuels in electricity generation has decreased from 70% a decade ago to 60% today and is expected to reach 40% by 2030.

The IEA report underscores the need for coordinated international action at the upcoming United Nations climate conference to promote the use of clean technologies and develop new financing mechanisms, particularly in the developing world, to support the substantial investments needed for this transition.

The report also points to a changing role for China, which was once a significant driver of energy demand due to rapid industrialization and growth. However, China’s energy demand may peak as early as 2025 due to slower economic growth and notable shifts towards cleaner energy sources such as solar and nuclear.

The IEA estimates that, under current policies, demand for fossil fuels will peak before 2030. However, it emphasizes that governments must intensify their efforts to expedite the transition if the world is to achieve the global goal of limiting global warming to below 1.5 degrees Celsius (2.7 degrees Fahrenheit).

Source: Associated Press


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