It took no more than a few days for the impact on global energy prices to be felt after the United States and Israel launched a military operation against Iran. The Iranians effectively shut down commercial shipping via the Strait of Hormuz through which roughly 25 per cent of the world’s oil and 20 per cent of liquefied natural gas flows. Oil prices, which had been around US$70 a barrel, soared almost immediately to over US$100 and spiked briefly in March to almost US$120. More recently they have hovered around US$110.

Three weeks after the Feb. 28 attack, which triggered Iranian counterattacks on Middle East countries, the director of the International Energy Agency called the conflict “the greatest global energy security threat in history.” He estimated that it had disrupted more supply than the oil crises of 1973 and 1979 combined, and caused more gas interruptions than the 2022 Russian invasion of Ukraine.

Yet the forward oil price curve is calm. West Texas Intermediate futures contracts for January 2027 are averaging US$75 over the past month — up from US$63 before the conflict, but well short of the current oil price. Markets do not expect shortages to meaningfully persist less than a year from now. That outlook diverges from the commodities supercycle of the 2000s and the price shock of 2022 when contracts for future oil deliveries signalled sustained supply shortages. Today, millions of barrels per day are being disrupted and Qatar’s Ras Laffan — the world’s largest liquefied natural gas (LNG) complex — faces years of repair after Iranian drone strikes. So why aren’t markets bracing for a prolonged crisis?

The answer: Clean energy production on a large scale now exists.

From efficiency to substitution

Every major oil shock in modern history has been resolved in two stages. First demand adjusted through efficiency gains; then supply recovered. The addiction to fossil fuels was never broken, only moderated.

The 1973 oil price shock ushered in lasting innovation in vehicle fuel economy, improved manufacturing productivity and better building standards. Those efficiency gains stuck. They didn’t disappear after prices fell. The global economy learned to do more with less oil.

Wealthier........

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