Commodities
Prolonged Middle East Conflict Will Boost Electric Cars, Renewables, Analysts Say
A protracted Middle East conflict will strengthen the case for transport electrification and renewable energy adoption, but the transition will still take years to unfold as countries prioritize economic resilience over investment, according to analysts.A six-month conflict scenario will be detrimental to the global economy, as the fossil fuel supply shock causes surging energy prices and inflation.This would prompt governments to implement immediate measures toward easing financial strain, some of which has already taken place, rather than investing in clean energy, despite the urgency and necessity."Governments caught between soaring import bills and retreating international capital may find that the energy transition, however necessary, simply cannot compete with the immediate pressure of economic survival," said Amy Zheng of Abundant Climate Action Institute.The war has exposed the vulnerability of many countries to oil and gas dependency, making the energy transition more urgent and indispensable, but less affordable at the same time, according to Zheng.Many countries now grappling with restoring energy security have reinforced policies supporting renewable energies, although an immediate increase in installed capacity is unlikely."That dynamic is consistent with how energy shocks tend to work: prices and security concerns move first, while structural investment responses follow with a lag," assurance and risk management provider DNV said.The firm noted that the war, which started in late February, has not yet resulted in a notable shift to transport electrification or faster renewables deployment, and might not result in a "real" demand destruction even if tensions extend to six months."But the impact, and a further push in this direction, is already happening," DNV highlighted.Energy think tank Ember projects that Asian countries mainly exposed to a petrol price surge, such as the Philippines, Singapore, Vietnam, and Australia, will see electric vehicle uptake become "more aggressive than ever."Meanwhile, Vietnam, Thailand, and Indonesia, where passenger vehicles are a daily necessity due to inadequate public transport infrastructure, will likely lead in EV adoption.China's EV export market is expected to remain strong, along with rapid EV uptake domestically, with production capacity underpinned by the country's robust battery supply chain.DNV noted that, in the last three weeks, stocks in Chinese battery manufacturers have risen more than those of international oil and gas firms, suggesting market participants were betting on EVs and utility storage amid rising oil prices.In India, "the more immediate response to a fuel price spike is likely trip reduction or deferred purchases rather than switching to EVs outright," said Saurabh Trivedi of the Institute for Energy Economics and Financial Analysis.While an EV transition for three-wheeler segment will likely continue, India's passenger car segment will face financing challenges due to the high upfront cost of EVs, which could be reduced by targeted policy support, Trivedi said.In Europe, EV adoption may also rise given that the region is an energy importer and exposed to global price shocks, but positive demand upside due to the war may not extend into the longer term, according to DNV and Tradition Energy.The picture could be different in the US, where higher pump prices look less likely to result in a consumer behavior shift."EVs could see a bump in sales if prices at the pump remain significantly elevated, but we are not yet seeing enough momentum to create new demand as US consumers simply grimace through the increases in cost rather than make a rapid shift," Tradition Energy analyst Gary Cunningham said.Similarly, renewables expansion in the US is unlikely given that the region is not heavily impacted by the war, Cunningham noted. The current US government has also focused on extending the life of coal plants and opposed some wind projects at a late stage of construction.Countries without considerable oil and gas reserves are the ones expected to drive any energy shift, although limited investment firepower will prove a challenge despite availability of some cheaper alternatives like solar energy.Physical infrastructure will take years to build, although the present conflict could accelerate the timetable for renewables, batteries and nuclear, as governments focus on supply security and energy independence.