Death knell for oil

Your dependence on oil did this (Source: here)

Imagine you are two decades into the future and looking back on today. What you will see most clearly is that the oil shock caused by the Iran War in 2026 was a major turning point, the death knell for the hydrocarbon industry.

Of course, the problems arising from dependence on oil were already well-known in 2026. At the time, Europe had found itself in the uncomfortable situation of actually subsidising Russia's war effort in Ukraine on account of its dependence on Russian energy. Also, hydrocarbon use had been pushing up greenhouse gas emissions and global temperatures for decades, causing serious damage to ecosystems the world over.

Still, it was the Iran War that finally tipped the scales decisively in favour of renewables as any sensible observer could see the sheer lunacy of the entire world being held hostage to a senseless war between religious and fascist belligerents in a 30-miles stretch of water in the Persian Gulf.

All because of dependence on oil.

Today, the world gets 56% of its energy from oil & gas, 27% from coal, and only 13% and 4% from renewables and nuclear, respectively (see chart below). Such extreme dependence on hydrocarbons is insane in a world, where hydrocarbons are mainly produced by dictators, especially since there are plenty of viable alternative energy sources available.

(Source: here)

Granted, it is neither quick nor cheap to switch away from hydrocarbons, so the transition to renewable energy will invariably take time and require major investment. Even so, the shift is now inevitable, in my view. We are likely to look at a dramatically different picture of energy supply a couple of decades from now, courtesy of the Iran War.

Wider adoption of renewable energy will benefit the world. For one, there will be fewer energy shocks. Sunshine does have to travel through the Hormuz Strait. Wind is not controlled by a small number of autocrats. Most solar and wind energy is produced close to where it is consumed, so does not require transport across the world. Moreover, because both sources of energy are ubiquitous they cannot be controlled by a handful of despots. With solar and wind, we will never again see the kinds of shocks we experienced in 1974, 1978, 1990, 2008, and 2026.

Crude oil price (Source: here)

Combined with rapidly improving battery technology, solar and wind also happen to be exactly the right technologies for a warming world. Global warming means more solar penetration and more unstable weather, which directly benefit solar and wind. Of course, wider adoption of renewables also has the benefit of eventually limiting how far global temperatures actually rise, which may even save the planet.

Renewables also promise distributional benefits, both globally and at local level. Globally, solar has the greatest potential in tropical countries, which happen, for the most part, to be poorer and therefore especially vulnerable to oil shocks. Locally, solar and wind power can be generated at household level (in addition to being produced in large scale installations). Household-level production reduces dependence on government energy monopolies, which have all too often been instruments to prop up dictators as we see in many oil producing nations.

The Iran War will also revive the nuclear industry. Nuclear is preferable to hydrocarbons, but compared with solar and wind energy it is less attractive for a few reasons. In addition to the risk of Chernobyl-style accidents and the potential to make nuclear weapons from enriched uranium, I see two particular drawbacks with nuclear:

First, it is still unclear how to safely get rid of radioactive waste products. Second, nuclear, like oil, creates dependence on a relatively small number of suppliers of uranium, though, fortunately, uranium suppliers are mostly a relatively sensible bunch: Kazakhstan produces roughly 40% of global supply, Canada about 20%, and Namibia just over 10%. The rest of the worlds uranium comes from Australia, Uzbekistan, and Russia.

(Source: here)

As the whole world readies to double down on renewable energy, one country stands out like a sore thumb: the United States. Only this week, Trump announced plans to proactively undermine the adoption of renewable technology. Trump's energy policies are myopic and irrational in the extreme. As such, all they will achieve is to set the United States on a path to certain loss of global hegemony.

The End