We have been warned.

More precisely, we have been warned again. The oil shock that reverberated around the world as a result of the American war on Iran came just four years after the global gas and oil shock from Russia’s invasion of Ukraine. Prices soared, and in the countries most dependent on Middle Eastern fuel imports, in Asia, people were forced to grapple with physical shortages and panic buying.

In the 20^th century, three great oil shocks, spread across two decades, gave us ample warning of the hazards of dependency on fossil fuels.¹ Now two 21^st-century shocks in the span of half a decade drive home a point we have all been too slow to understand: fossil-fuel dependency is not just bad for the environment. It is bad for national and regional security, bad for the cost of living and bad for the food supply. As shortages loomed and prices soared in recent months, Indians found themselves bereft of cooking gas, Vietnamese motorcyclists could not get petrol, and Bangladeshi classrooms went dark. Ceasefires have been declared in this war and then fallen apart weeks later; the war still threatens to morph into a broad regional conflict involving multiple countries. Despite an American-led operation that appears to be moving millions of barrels of oil out of the region under cover of darkness,² reserve margins in the oil markets are eroding. Worse may be to come over the next few months as food shortages take hold.³

Anybody familiar with the geography of the Persian Gulf has long understood that Iran and its authoritarian mullahs loomed menacingly over one of the world’s most important waterways, the Strait of Hormuz. Little more than 50 kilometres wide at its narrowest point, it is the only route for ships to enter and exit the Persian Gulf, the world’s single most important oil-producing region. Nonetheless, the ill-considered American and Israeli attack led the Iranians to discover a power they did not know they possessed: the ability to frighten companies that insure marine shipping. They mined shipping lanes. They threatened to fire on ships passing through the strait, and episodically made good on the threat. That caused insurers to cancel or reprice cover on hundreds of vessels, effectively closing the strait to traffic and bottling up a quarter of global seaborne oil trade, a third of global seaborne fertiliser trade and nearly a fifth of global trade in liquefied natural gas.⁴

Shortages of other critical materials that had been exported from the Gulf quickly propagated through entire industries, including deficits of sulphur, used as an intermediate chemical in mining, in fertiliser production and for many other purposes. Helium exports were blocked; this gas is used to produce computer chips and to cool tens of thousands of magnetic resonance imaging machines around the world. The helium shortage thus disrupted the diagnosis of strokes, cancers and other medical problems. The partial reopening of the strait over the summer did not entirely alleviate the shortages, in part because production facilities were so badly damaged in the war that they will take years to repair.

The vulnerabilities and the potential for shortages run in both directions. While the Earth’s geological history has blessed the Middle East with oil, that region is not blessed with water or an abundance of fertile land. As they ship out the fertiliser that allows other countries to grow food, the countries of the Middle East and North Africa must import more than half the calories their people consume. In some countries, that figure approaches 90 percent.⁵ In summary, the region stretching from Morocco to Iran is home to 590 million people who cannot grow enough food to feed themselves, and the region is headed toward a population that will approach 800 million by 2050.⁶

Luckily, the world grain market was oversupplied for several years before the war broke out. Most Middle Eastern countries were smart enough to build national food reserves when they could. Egypt, the world’s largest wheat buyer, and the wealthy Gulf states all added to their reserves during 2025.⁷ For countries in this fortunate position, the consequences of the war were transmitted through markets as higher prices, not physical shortages.

But the regional average conceals a sharp divide. For war-torn countries and areas including Palestine, Yemen, Sudan, Syria, and now Lebanon, the issue is not the grain market itself; it is the collapse of income and the devaluation of currency caused by conflict, robbing people of ready access to the market. Famine was confirmed in parts of both Gaza and Sudan in 2025,⁸ and it is there, not in the commodity balances, that the real emergency lies. In the rest of the region, no famine appears to be at hand in the near term, but these countries cannot rest easy. If the fertiliser shortage leads to poor global harvests this autumn and the building El Niño weather pattern hits crops as well, the region’s grain reserves may come under pressure, and hunger could spread beyond the war-torn countries where it is already acute. Another factor compounding the situation is reductions in foreign-aid budgets by the US and several other rich countries, resulting in large-scale cuts to feeding centres and medical clinics in the world’s poorest places.⁹

Having discovered their ace in the hole, the Iranians are not going to forget it, whatever settlement they ultimately manage to strike with the United States and Israel. Possibly for decades to come, the Strait of Hormuz will have to be viewed as one of the world’s most dangerous trouble spots. As this report was going to press, official traffic through the strait was still well below its pre-war level. In late August, though, news broke that the US Navy was shepherding many ships through a channel on the south side of the strait, hugging the Oman coast.¹⁰ This traffic cannot be tracked well by independent analysts, because the ships turn off their location beacons and transit at night, but some estimates put the flow of oil leaving the Persian Gulf this way as high as 10 million barrels a day, or half the pre-war volume. Presumably, vital imports — including food supplies — are moving into the region by the same route. It is not a full restoration of commodity flows, but this development should ease pressure in the markets. How long the American Navy can sustain it is an open question. Controversy erupted in late summer over excessively long deployments of some American ships, a threat to the well-being of their crews.

Hormuz is not the only critical chokepoint on the world map. The largest oil tankers cannot use the Suez Canal, another chokepoint at the north end of the Red Sea. To pick up oil from Saudi Arabia’s western coast, they must pass through the Bab el-Mandeb, a strait at the southern end whose main channel is but 26 kilometres wide at its narrowest point. This waterway has long been threatened by an Islamist insurgency in Yemen, and in September, a group called the Houthis seized the port of Mokha on the Red Sea, threatening one of Saudi Arabia’s major conduits for supplying world markets. The Suez Canal itself is almost certainly vulnerable to drone warfare: unknown parties have already struck Egyptian ports nearby.

Historically, much of the Persian Gulf oil destined for delivery to the Mediterranean region and to Western Europe had to travel in smaller vessels that passed through all three chokepoints: they exited the Strait of Hormuz, looped around the Arabian Peninsula, entered the Red Sea through the Bab el-Mandeb, and then exited the region via the Suez Canal. (Some of this oil is now being re-routed through an Egyptian pipeline that can load ships at a Mediterranean port, but the volume is limited.) Even before the Hormuz closure, the world got a glimpse in 2021 of what a deliberate targeting of one of these chokepoints might achieve. A cargo ship called the Ever Given accidentally got stuck in the Suez Canal for six days, blocking more than $9 billion worth of seaborne trade per day.¹¹ An escalation of the war could conceivably shut down all three chokepoints at once.

More than 6,000 kilometres to the east of Suez is another critical chokepoint: a quarter of the world’s seaborne trade and more than a quarter of its oil passes through the Strait of Malacca, the main shipping channel between the Indian and Pacific oceans.¹² The strait narrows at one point to less than three kilometres, though for most of its length it is at least tens of kilometres wide. It would become a theatre of war in any conflict between China and the West. We know this for certain because it happened in World War II, when Britain mined the Strait of Malacca to hinder Japanese shipping. Additionally, the Panama Canal, the Cape of Good Hope, the Strait of Gibraltar and the Bosphorus Strait are all narrow shipping lanes representing potential bottlenecks for global trade. A severe drought in 2023 lowered water levels in part of the Panama Canal, creating a massive shipping backlog. The same thing may be about to happen again, with some shipping restrictions having taken effect in early September.¹³

If you believe the rhetoric of the moment, governments are chastened by the vulnerabilities highlighted by the Iran war. Many of the rational governments—a category that does not include the one now running the United States—are suddenly pledging to accelerate the energy transition as a way to reduce their susceptibility to fossil-fuel shocks. “The Republic of Korea as a whole must move very quickly toward renewable energy,” the president of South Korea, Lee Jae Myung, declared in late March in a characteristic comment. “Our future will be at serious risk if we continue to rely on fossil fuels.”¹⁴ We hope countries now expressing such sentiments are sincere, but history gives us pause. Three-quarters of the world’s countries are fossil-fuel importers;¹⁵ had they been working diligently in past years to carry out their own pledges and promises regarding the energy transition, they would already be much less dependent on these fuels, and thus less vulnerable to this kind of energy shock. Even before the Iran war broke out, the countries that had made faster progress saw large benefits. The International Energy Agency calculated that they avoided $260 billion in fossil-fuel import costs in 2025 alone.¹⁶

For now, at least, governments are putting up money and clearing red tape. Many corporations and ordinary citizens are also drawing the obvious conclusion from recent events, and taking action. When the first of the great oil shocks hit the Western world in 1973, there was no apparent alternative to dependency on oil. Governments of the time took the only path immediately open to them, which was to use taxes and regulations to push drivers into more efficient cars. However, the crisis also set off a long search, and today, alternatives are very much at hand. People who drive electric cars in California or ride electric scooters in Ho Chi Minh City are not fretting about the price of petrol at the pump. The first quarter of this year saw a huge grassroots response to the fossil-fuel price shock. In Europe, sales of electric heat pumps jumped 17 percent and electric cars 30 percent; African imports of solar modules from China jumped 120 percent; Indians rushed to replace gas-burning hobs with electric induction models, with sales of the devices rising 10-fold for a brief period.¹⁷

These reactions occurred even though the price shock from the closure of the Strait of Hormuz was not as bad as initially feared. When the war broke out, some analysts predicted costs to rise to $200 a barrel of oil. In reality, oil trading in the futures markets for near-term delivery has not exceeded $130 a barrel during the conflict, although it is true that some physical cargoes changed hands at higher prices. As of this writing, oil futures are 40 to 45 percent above the pre-war price, although some refined products like diesel have seen much larger price spikes. To some extent, the restraint in the oil market was a matter of luck: just ahead of the conflict, that market, like the grain market, had been oversupplied, and commercial channels were stuffed with fuel. Another big factor, though, was that governments had actually learned something from the previous oil shocks. Many countries of the world now hold strategic petroleum reserves, and coordinated releases of millions of barrels helped to replace the missing Persian Gulf oil and suppress the price hike.¹⁸

The most remarkable behaviour came from China, which does not publish figures on its strategic oil reserves, but appears to hold the largest in the world, according to estimates from Western analysts. Several published estimates suggest the stockpile could well exceed 1 billion barrels. When the war started, China managed to cut its imports by almost half, more than 5 million barrels a day, greatly easing the shortfall in the world market. Nobody is entirely certain how China did it, and that country has been in no hurry to explain. One possibility was a covert increase of imports from Russia, but the available pipelines are not large enough to support a huge increase, nor was ship traffic detected that could have explained it. Several measures helped, including a ban on the export of refined petroleum products. China’s switch to electric cars was already limiting the growth in oil demand for several years before the Iran war started.¹⁹ However, the major factor seems to be that China drew down its underground reserves.²⁰ The lack of a clear explanation represents a danger to the West: if China has this much flexibility in its oil market, that means it may have the power to manipulate global oil prices by raising or lowering import demand. In other words, if China had a reason to send prices soaring, it might well be able to do so. Thus, understanding exactly what happened with oil demand in China is now an urgent imperative for Western policymakers.

In so many ways, China is the fulcrum, simultaneously, of the fossil economy that needs to be replaced and of the renewable economy that is struggling to be born. That country remains the world’s largest user of fossil fuels, the largest emitter of greenhouse gases, the largest builder of new coal-fired power plants, the largest operator of coal-fired steel mills, and it runs by far the largest chemical industry based on coal. Yet China is also the world’s dominant producer of solar panels, wind turbines, electric cars and large-scale batteries. As we will detail later in this report, China within its borders is moving faster than any country on renewable energy, and at the same time, is determined to be the merchant nation selling low-carbon technology to the rest of the world. It has built a dominant position in refining lithium, needed for batteries; the production and refining of rare-earth elements, needed in most renewable technologies; in electrolysers, needed for creating clean-burning green hydrogen; and many more.

This means the nations of the West confront a delicate problem. The latest shock makes it abundantly clear that they must redeem their pledges about switching to clean energy, for immediate reasons of national security and long-term reasons of climate protection. But if they buy all the needed kit from China, will they be trading one odious set of dependencies for another?

The big difference, of course, is fundamental to the technologies in question. In economic terms, it is the difference between stocks and flows. Oil has to be bought again and again, and that flow can be interrupted by, say, threats to shoot at oil tankers. Solar panels only have to be bought once, and they can produce electricity for 30 years. Sunlight does not need an armed escort through the Strait of Hormuz. Likewise, an electric car only has to be bought once, and may give 20 years of service. Moreover, China is going to have competition in at least some segments of the transition: India, for one, is developing the capability to produce its own solar panels, and aspires to sell them in volume to the world. The US, too, is gradually increasing its ability to produce all the components of solar panels. The offshore wind industry would not have come to scale without strong investments from Britain, and Europe retains a technological edge in putting giant turbines into the water. A recent report from Ember, a think tank, found that Europe could meet its internal demand for wind turbines, electric vehicles and heat pumps entirely with domestic manufacturing if the right government policies were put into place. The West is simply going to have to pick the sectors where it can compete, then swallow its pride and buy the rest of the kit from the East. This implies that smoothing over trade tensions and retaining good commercial relations between China and the West is a critical enabling condition of the energy transition.

Will the Iran war and its aftermath finally lead us to see the risks of the fossil economy clearly? A war ought not to have been required. Last year once again brought record emissions of greenhouse gases, record levels of carbon dioxide in the atmosphere and record heat waves across many parts of the world. Scientific work is still under way to determine the cause of the catastrophic flood that killed thousands in Nepal, but early indications suggest that melting ice may have played a major role.²¹ Preliminary calculations suggest that tens of thousands of people died over the summer in heat waves in Europe, India, the US and elsewhere.²² Great European rivers — the Rhine, the Danube, the Po, the Loire — fell to such critically low levels that shipping had to be halted or restricted. Forest fires are wrecking air quality across large parts of the world. Global temperatures are tracking near the high end of projections, and temperature records may be shattered over the next year as a developing El Niño weather pattern amplifies global temperatures on top of the human-caused increase.

We have yet to turn the corner and start driving global emissions down, despite the Paris Agreement, and despite the pledge countries made almost three years ago to “transition away” from fossil fuels. The fossil pledge, made at a big global climate conference in Dubai, has produced little real action. Exasperation with the slow pace of the United Nations-led talks prompted a group of countries to convene in Colombia this year to discuss the need to end dependency on fossil fuels. They produced no grand plan, yet this group of 57 countries is — at last — discussing the right problem. Unfortunately, they are discussing it without the participation of the largest users of fossil fuels, with China, India and the US all skipping the talks.

The Paris Agreement on Climate Change is now just over a decade old. The United Nations Environment Programme warned in early September that the countries of the world would fail to meet its most ambitious target, limiting overall global warming to 1.5 degrees Celsius. In a report, it warned that the only way to return to that temperature later in the century might be to rely on expensive and uncertain technologies to draw emissions out of the air.²³ Countries still have time to meet the main goal, keeping warming below 2 degrees, but the UN warned that will not happen either without a sharp change of direction. Are countries finally ready to push harder, chastened by the vulnerabilities that now stand exposed?

If you want reasons to doubt that, look no further than the lobbying activities of the fossil-fuel companies and their handmaidens, the Western car industry. As renewable energy and electrification start to threaten their markets, they are not embracing the future. Instead they are fighting to weaken targets, undermine national commitments and repeal longstanding goals. In Europe they are on the verge of undercutting a law that requires phasing out sales of fuel-burning vehicles by 2035. They have already broken the cross-party political consensus in Britain in favour of a rapid move to clean energy. Their greatest success has come in the US, where these forces of revanchism did a great deal to put Donald Trump into the White House, motivated by his pledge to stop the energy transition.

We will make the case in this report that Mr Trump is failing in that ambition. Paradoxically, in launching his Iran war, he has managed to clarify the dangers of fossil dependency in a way nothing else could have done.

We hope most of the world’s governments will analyse recent events and come to the right conclusion: the way to get away from fossil-fuel shocks is to create an economy where they no longer matter. The energy transition is under way, and we have new reasons to speed it up. The only question left is how fast we can go.