Iran War Cuts Oil Dependency in Global Economy

The global order has been altered, and economies are unlikely to simply pick up where they left off before the U.S. and Israel began bombing Iran.

· Global Energy Transition Accelerates: The energy shock is pushing countries to diversify energy sources and invest more heavily in renewables, batteries, electric vehicles, and nuclear power. While some nations have temporarily increased coal use, the long-term trend favors cleaner energy.

· Shift in Energy Market Power: Traditional oil producers are repositioning themselves. Tensions within OPEC+ have increased, while countries such as Brazil, Guyana, Argentina, Colombia, and Venezuela are expanding oil production to meet global demand.

· China Emerges as a Major Winner: China’s dominance in solar panels, batteries, wind turbines, power equipment, and energy technologies positions it to benefit significantly from the global push toward renewable energy, strengthening both its economic and geopolitical influence.

· Growing Trade and Security Risks: Confidence in the security of the Strait of Hormuz has been shaken. Even after the conflict, shipping routes may face higher costs and risks, affecting global trade and energy flows.

· Reduced Confidence in Regional Stability: Attacks across Gulf countries have raised concerns about the safety of investments, tourism, and business operations in the region, potentially impacting long-term economic growth.

· Challenges to U.S. Leadership: The conflict has raised questions about the United States' ability to guarantee global security and freedom of navigation, potentially weakening its influence among allies and creating opportunities for China to expand its global role.

· Slower Growth and Higher Inflation: The World Bank has downgraded global growth forecasts, while rising energy costs are fueling inflation. Higher interest rates and growing government debt burdens could further constrain economic growth worldwide.

Conclusion

The Iran war has done more than create a temporary energy crisis—it has accelerated the global shift toward alternative energy, strengthened China's strategic position, increased uncertainty in international trade and security, and placed the world economy on a path of slower growth, higher inflation, and greater volatility.

[ABS News Service/18.06.2026]

The framework deal between the United States and Iran sets the stage for an end to the bursts of violence and debilitating disruption of energy deliveries and trade in the Persian Gulf. But don’t expect economies around the globe to simply pick up where they left off before the United States and Israel began bombing Iran on Feb. 28.

The war has set in motion changes that will be hard to reverse.

The global energy order is being reshaped.

The near shutdown in oil and gas deliveries from the Middle East and the leap in prices are causing a shift in power. Energy producers from the Gulf to the Americas are jockeying to maintain or increase their dominance, and customers are struggling to reduce their dependency and shore up their supply.

As a result, the energy market is changing, the energy mix is changing and the energy players are changing.

The profound vulnerability of countries throughout Asia, Europe and elsewhere that depend on imported energy is supercharging the hunt for alternatives. In some places, like South Korea and Japan, that has led to an increased use of dirtier fuels like coal.

But over the longer term, this energy shock — the second in just four years — is likely to accelerate a transition to renewables like solar and wind as well as nuclear power.

Improvements in electric battery technology and efficiency make the shift more feasible than it was when Russia’s invasion of Ukraine prompted a global energy shock in 2022, said Daan Walter at Ember, an energy research group in London.

In many places, for instance, electric vehicles are increasingly affordable. And in April, wind and solar generated more electricity globally than gas for the first time.

“This is a big turnaround,” Mr. Walter said. “So what was five years ago maybe barely competitive, now is almost already clearly cheaper.”

Investments in renewables have also become a better bet, promising returns in closer to two years instead of 30, he said.

Relations among producers are also changing. The war heightened tensions between the United Arab Emirates and Saudi Arabia and prompted the Emirates to leave the OPEC Plus oil cartel. The impact of that departure will be fully felt only when oil production in the region picks up. But a weakened Organization of the Petroleum Exporting Countries could add to volatility in oil markets.

The split has also encouraged the Saudis to move closer to Russia. Vladimir V. Putin, the Russian president, featured Saudi Arabia this month as the “guest of honor” at an economic forum in St. Petersburg.

Russia, the second-largest producer of crude oil and gas after the United States, has been strengthened in other ways by the war. The Trump administration temporarily lifted sanctions imposed on Russia, allowing Moscow to pump up profits from its oil exports when its economy is ailing.

On the other side of the Atlantic Ocean, Brazil, Venezuela, Colombia, Argentina and Guyana are building their oil production capacity as the world looks for alternative suppliers.

China is a major beneficiary.

The push to build out and diversify energy networks is going to continue long after the war ends. And China is poised to benefit most from the expected boon in renewables.

It is leagues ahead of the rest of the world in producing wind turbines, high-voltage cables, transformers, solar panels, batteries, software to manage energy flows and more.

China’s increasing role ensuring that other countries have a dependable supply of energy amplifies its strategic influence and importance.

“China looks to be an out-and-out winner,” analysts from Wood Mackenzie, a global energy consulting firm, concluded.

The Trump administration’s aggressive push to halt renewable energy projects — even paying companies to cancel wind farms — means the United States is essentially withdrawing from this global competition and ceding the industrial and technological advantage to its biggest rival.

The economic advantages are reinforced by geopolitical ones. The war has deepened the wedge between the United States and longtime allies in Europe, providing another opening for China to enlarge its role as an international leader.

Re-establishing trust will be difficult.

It is unclear whether shipping traffic will ever again be able to move freely through the Strait of Hormuz — the only sea route for moving oil, natural gas and other cargo out of the Persian Gulf.

Iran has pushed to impose fees on ships that pass through the narrow waterway, even though such a plan could violate international agreements. Even if new payments are not codified, Iran has shown it can disrupt trade any time it wants, which raises risks and costs.

“I think the strait is never going to go back to the certainty of free passage that we’ve been used to,” said Maurice Obstfeld, a former chief economist at the International Monetary Fund.

Similarly, the trust in the region’s peace, stability and growing prosperity has also been shaken.

“The dynamism of the Gulf economies may be impaired by the vulnerability they showed,” Mr. Obstfeld said, and that “raises Iran’s leverage in the region.”

Iran has hurled drones and missiles at Kuwait, Qatar, Saudi Arabia, the Emirates and other neighbors. The damage to Qatar’s natural gas fields was extensive, affecting 17 percent of its capacity to export liquefied natural gas. In Saudi Arabia, a petrochemical complex was bombed.

For the Emirates, which has billed itself as a global financial hub, trade center and tourist attraction, attacks on its five-star hotels, data complexes and a nuclear facility could scare off visitors and investors.

As for the United States, Mr. Trump’s decision to provoke a war with Iran, combined with his chaotic policymaking, has further undermined confidence in Washington’s willingness and ability to maintain global order and commerce.

“The capacity of the U.S. as a military force has been once again shown to be limited,” Mr. Obstfeld said. And Iran’s continued resistance “is a huge blow to global faith in the U.S. as a provider of security.”

For decades, a primary mission of the U.S. Navy has been to guarantee freedom of navigation on the seas, said Mark Blyth, a political scientist at Brown University. Iran’s success in continuing to block ship traffic, though, has demonstrated that for all its might, the United States cannot ensure the seas will be open and free.

The economy has been kicked onto a path of slower growth and higher prices.

When economists at the World Bank began sifting through data early this year, they were pleasantly surprised. “We were starting to think about upgrading our forecasts, between January and February, because things were looking so good,” said Indermit Gill, the bank’s chief economist. “Inflation was coming down, growth was picking up, trade had kind of taken it on the chin and was still standing.”

No more. The bank just revised its economic outlook, lowering its forecast. It now expects global growth to decline to 2.5 percent this year from 2.9 percent in 2025.

Inflation is also starting to roar. In the United States, it rose for the third month in row, hitting an annual rate of 4.2 percent in May. And instead of planning for the next drop in interest rates, Wall Street is expecting the Federal Reserve to increase rates at least once this year. Last week, the European Central Bank raised rates to 2.25 percent. “The war in the Middle East is generating inflation pressures,” the bank said.

Higher rates have serious longer-term effects on both rich and poor countries that have already run up staggering public debts and are using a growing portion of revenue just to pay interest costs.

Those budgetary pressures are only going to increase as governments offer assistance to households struggling with higher energy prices and increase military budgets to cope with growing security threats.

Asian economies, slapped hardest by the crisis, have already inundated the Asian Development Bank for emergency loans as they seek to rescue their economies and finances from the impact of the Iran war.

“The world economy is going to end up being more jittery,” Mr. Gill said. And that is not good for long-term planning, investment or growth.