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Iran’s disruption of oil and gas exports from the Persian Gulf is causing immediate shortfalls in global energy supplies, evident in soaring prices of diesel, petrol and liquified natural gas (LNG).

This will inevitably cause a surge in inflation and cut economic growth throughout the world – the classical symptoms of stagflation. Far more important will be the long-term consequences on the renewable energy revolution, nuclear energy and the use of other fossil fuels, including coal.

For the past 30 years, Western governments have invested trillions of dollars into renewable energy projects aimed at ending the use of fossil fuels, on the basis that carbon dioxide, which is increasing in the atmosphere, is poisoning the air we breathe, and leading to uncontrollable global warming.

Both these propositions are demonstrably untrue.

Indispensable

But the Iran war shows that oil and gas are indispensable to the survival of a modern economy and that, without them the prosperity on which political stability depends will be severely shaken. To say that an economy can be built on renewables alone is a greenie fantasy, not reality.

Despite the fact that the Persian Gulf supplies just 20 per cent of the world’s oil and gas, the effects of the current shortfall are economically catastrophic.

One surprising consequence of the disruption is the replacement of oil and gas by coal.

Tsvetana Paraskova wrote recently on oil industry website oilprice.com: “Asian countries have been criticised for years for not ditching coal fast enough. They were vindicated this month when the Middle East war cut off 20 per cent of global LNG flows overnight after Qatar, Asia’s key term LNG supplier, shut production and exports.”

She added: “China, India, South Korea, Japan, and the whole of Southeast and South Asia are using the coal buffers they have created in recent years.

“Their insistence that diversification and energy security are more important than headline emission reductions is paying off as spot LNG prices in Asia surged by 70 per cent to three-year highs that few countries in the Asia-Pacific can afford.”

The authoritative Singapore-based Straits Times said: “War in the Middle East is forcing Asia to turn to coal to plug the gaping hole emerging in its supply of liquefied natural gas (LNG).

“Nations from South Korea to Indonesia and Bangladesh are prioritising coal as a power source, as the intensifying conflict upends gas supplies from a key exporting region. Among the worst-hit countries is Qatar, home to the world’s biggest LNG export facility that Asian customers rely on.

“That means doubling down on their main source of energy – coal.”

The Straits Times quoted Rystad Energy AS energy analyst Sam Chua as saying: “Coal is already the dominant fuel in Asia’s power mix, making up well over 40 per cent to 50 per cent across the region, and it has long been more cost-competitive than gas. But what is accelerating now is gas demand destruction … LNG is simply unaffordable for price-sensitive buyers.”

Coal cannot fully replace the lost gas supply, but it creates a welcome buffer to help Asia get through the biggest supply disruption in energy markets, ever.

Natural Gas and Nuclear

Countries in Western Europe and Australia, which are abandoning coal for power generation, are now badly caught. In 2025, the EU imported over 140 billion cubic metres of LNG, according to the Brussels-based think tank Bruegel.

The United States was the largest supplier of LNG to the EU, accounting for almost 58 per cent of total LNG imports, which tripled after Russia’s invasion of Ukraine triggered an end to Russian oil and gas imports. Most of the rest comes from Qatar, Norway, Azerbaijan and Nigeria.

The largest LNG importers in the EU are France, Spain, Italy, the Netherlands and Belgium, all of which receive gas from Qatar.

Another consequence of the Iran war is the shift towards nuclear energy. Speaking at the Nuclear Energy Summit in Paris early in March, European leaders stated that nuclear energy is vital to Europe’s energy independence.

President of the European Commission Ursula von der Leyen said the EU’s earlier anti-nuclear policy was wrong. She said: “I believe that it was a strategic mistake for Europe to turn its back on a reliable, affordable source of low-emissions power.”

The long-term effects of the Iran war will be profound.

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Republished with thanks to News Weekly. Image courtesy of Adobe.