Until now, the intermittent nature and high cost of low-carbon energy transitions have frequently been regarded as fundamentally incompatible with an energy security paradigm predicated on reliable and inexpensive fossil fuels. However, as hostilities between the United States and Iran have intensified, the global energy market confronts an intriguing paradox amid unprecedented uncertainty.
The crisis in the Strait of Hormuz — through which roughly one fifth of maritime crude oil shipments transit — has showed how a geopolitical shock can precipitate restricting effects in the global energy system, demonstrating that such shocks can dislodge the basic premise of stable energy supplies and abruptly disrupt upstream and downstream supply chains and market pricing. In the wake of the Russia-Ukraine war, the outbreak of an additional armed conflict has amplified concerns that the foregoing energy security shocks may recur and become systemic.
Against this background, policymakers increasingly encounter the paradoxical conclusion that responding effectively to energy crises requires greater emphasis on domestically produced energy such as renewable energy and nuclear power. Domestically produced renewable energy with energy storage system is insulated from liquefied natural gas and oil price spikes and from trade interruptions. Meanwhile, nuclear power, once fuel is loaded, can sustain electricity generation for years and can therefore function as a domestically based source of energy that is comparatively resistant to external supply-chain shocks. These considerations carry implications for statutory and regulatory prioritization and may oblige countries to recalibrate energy policy, procurement frameworks and strategic reserves.
National responses have been prompt and varied. On March 13, economic ministers from Association of Southeast Asian Nations member states issued a joint statement agreeing to accelerate the transition to renewables to strengthen regional energy security and resilience. On March 16, the European Commission leadership, in a letter to member states, urged the acceleration of domestic low-carbon energy deployment to mitigate vulnerability to fossil fuel price shocks. At an April 6 Cabinet meeting convened as an emergency economic review at Cheong Wa Dae in Seoul, President Lee Jae Myung stated that “this Middle East-originated crisis should be converted into an opportunity to become a renewable-energy powerhouse,” directing relevant ministries to expedite diversification of energy supplies and a comprehensive energy transition. These pronouncements are understood both as immediate countermeasures to uncontrollable volatility in global oil prices and fossil fuel supply chains and as strategic initiatives to reorient national energy systems toward domestic sources.
The intentions are reflected in sectoral market movements. According to a Financial Times report on March 22, equity prices of Chinese companies emblematic of the energy transition — manufacturers of electric vehicles (EVs), batteries, and energy storage systems such as BYD, CATL and Sungrow — rose by approximately 20 percent in the month following the Iran conflict, whereas shares of major global oil firms increased by only about 10 percent over the same period. The report posits that this disparity evidences a pronounced intent among major fossil fuel importers to concentrate on domestically sourced energy, and further suggests that the conflict has exerted upward pressure on retail fuel prices, thereby incentivizing a modal shift from internal-combustion vehicles to EVs. For example, by late March, the average gasoline price in the United States increased roughly 35 percent in the wake of the U.S.-Iran hostilities, pushing national averages above $4 per gallon for the first time since the Russia-Ukraine war; when converted into equivalent electricity costs under comparable conditions, EV fuel costs were cited at approximately $1.70 per gallon equivalent — less than half the gasoline cost — thereby strengthening the economic rationale for the electrification of transport.
Nevertheless, for the security-driven impetus toward energy transition to be sustainable, economic viability must follow. Even if domestic energy production reduces exposure to security shocks, the transition will be constrained if costs remain prohibitive. Economic feasibility is principally a function of technology prices and interest rates. To illustrate: The economics of constructing a solar power facility with an energy storage system depend on the capital cost of solar panels and storage devices and the cost of borrowing to finance those purchases. Fortunately, technology costs have fallen markedly over recent years, with solar-panel costs having declined by approximately 95 percent since 2007, and battery energy storage system costs having fallen by about 93 percent since 2010. For EVs, purchase price parity with internal combustion vehicles is as important as lifecycle maintenance savings; ongoing declines in battery costs are expected to exert downward pressure on EV purchase prices over time. The countervailing risk, however, is interest rates. Rising oil prices driven by the U.S.-Iran conflict may intensify inflationary concerns, rendering expectations of near-term rate cuts unlikely. Market participants recall that, although the Russia-Ukraine war initially accelerated interest in energy transition for security reasons, rising interest rates subsequently impeded the pace of that transition.
Ultimately, the decision to pursue an energy transition rests on three interrelated pillars: Environmental imperatives (decarbonization), security imperatives (supply stability) and economic imperatives (profitability). While the trajectory of energy transition originally derived momentum from environmental objectives, and while directionality has been established, full attainment of transition goals remains unrealized. Recurrent wars now threaten security and, paradoxically, may act as a catalyst for accelerated transition. Nevertheless, policymakers and stakeholders must not overlook the economic condition — embodied in technology costs and interest rate levels — that will determine whether such a transition can be sustained in practice. In the absence of careful adaptation of legal, regulatory and fiscal frameworks to reconcile these three pillars, the proclaimed commitments to a secure and low-carbon domestic energy posture may prove vulnerable to short‑term market distortions and financing constraints.
Kim Sung-woo, head of Environment & Energy Research Institute at Kim & Chang, is a member of the National Climate Fund management committee.