The current tensions in the Middle East are an uncomfortable reminder that much of the world still relies on energy that can be disrupted in an instant.
In Prisoners of Geography, Tim Marshall calls the Strait of Hormuz one of the world’s most strategically sensitive waterways, giving Iran disproportionate geopolitical leverage. We are seeing that leverage play out today as oil, gas and fertiliser shipments are disrupted in the Persian Gulf, with consequences for economies around the world.
There is little that can be done about geography, but there is much that can be done to lessen its strategic importance. In the UK, two broad approaches are often discussed: increasing domestic gas production, or investing more in renewables and nuclear.
Access to energy is fundamental to a successful modern society. It needs to be affordable, secure and clean – often referred to as the “energy trilemma”.
Renewables clearly help on the environmental side, but questions are sometimes raised about whether they can also deliver on cost and reliability. Research from Ember suggests they can. Comparing the current gas price spike with the one in 2021, wind and solar installed in the last five years are estimated to have saved around £7 million a day, driven by a 39 per cent reduction in gas-fired electricity generation. This is particularly relevant given gas prices have risen by more than 40 per cent since the latest conflict began.
Across Europe, a similar pattern can be seen. Analysis from Jefferies shows that countries with higher shares of renewables tend to have electricity prices that are less closely tied to gas prices. In Germany, gas sets the price around 40 per cent of the time, and in Spain around 15 per cent.
This suggests that increasing the share of renewables can help reduce exposure to volatile global gas markets, supporting both affordability and energy security.
Natural gas, whether produced domestically or imported, remains part of a global market and is therefore still influenced by international events.
For this reason, some investors continue to favour companies supporting the transition to a more electrified, lower-carbon energy system. This includes businesses involved in grid infrastructure and energy efficiency, such as National Grid, Siemens and Exelon.
A shifting energy picture
There are no simple fixes when it comes to energy. But what is becoming clearer is that how energy is generated – and where it comes from – plays a big role in how exposed households are to global events.
As the system evolves, reducing reliance on globally traded fossil fuels is likely to be a key part of making energy more stable and affordable.
