Hormuz Closure Reshapes Global Energy: Renewables Surge, Coal Rises
The Strait of Hormuz closure is accelerating renewable energy adoption globally, though coal use and emissions are also climbing as nations scramble for secure power.
Six months into the U.S.-Israeli conflict with Iran, the effective closure of the Strait of Hormuz—a conduit for roughly a fifth of global oil and LNG—is forcing governments across Europe and Asia to fast-track renewable energy projects. The aim is to reduce reliance on volatile fossil fuel imports, giving the global energy transition a significant new push.
Rooftop solar has emerged as a particularly attractive option due to its speed and low cost of installation. In the Philippines, soaring power prices are driving households and businesses toward solar, while Australia is seeing a rooftop resurgence fueled by battery subsidies. European demand for rooftop systems has also jumped since the war began.
The International Energy Agency (IEA) projects renewable power will become the world's top electricity source for the first time this year, with output expected to jump 8.5%. However, the crisis has also triggered a rise in coal-fired generation, which is forecast to grow 1.4%, as renewables alone cannot yet guarantee round-the-clock power. Even in the United States, where the administration has opposed green energy, renewable generation rose 10% in the first half of the year.
Despite the surge in clean power, the IEA expects global greenhouse gas emissions to climb 1.1% this year to an all-time high of 14.2 billion tonnes. While coal output is expected to dip slightly in 2027, gas-fired generation is projected to rise, underscoring the need for even greater investment in renewables, power grids, and energy storage.
Asian economies most dependent on Hormuz oil and gas have absorbed the sharpest shock. China has leaned heavily into solar, with output growing more than three times as fast as coal between March and July. In contrast, India, Vietnam, and South Korea have increased coal burn. Vietnam, despite a 2021 pledge to build no new coal after 2030, is now considering new plants to secure supply.
The conflict has also reshaped the transport sector. While demand for oil as fuel has not collapsed, higher prices, reduced air travel, softer Chinese consumption, and faster EV adoption have reversed growth forecasts. Goldman Sachs estimates gasoline-related demand fell about 20% at the disruption's peak. Costlier fuel has pushed drivers toward EVs, with China's EV export value topping $10 billion this year and electric models making up 63% of its passenger-car retail sales in June. EV sales have also soared across Europe.
The long-term trajectory remains uncertain. High interest rates could make the significant upfront capital for renewables more expensive, and many Asian markets have domestic gas and coal buffers. Furthermore, a wave of new U.S. LNG supply expected between 2026 and 2030 could reduce the incentive for a permanent shift away from gas. As one analyst noted, while the conflict is likely to ultimately favor decarbonization, it is not a one-way street.