It took no more than a few days for the impact on global energy prices to be felt after the United States and Israel launched a military operation against Iran. The Iranians effectively shut down commercial shipping via the Strait of Hormuz through which roughly 25 per cent of the world’s oil and 20 per cent of liquefied natural gas flows. Oil prices, which had been around US$70 a barrel, soared almost immediately to over US$100 and spiked briefly in March to almost US$120. More recently they have hovered around US$110.
Three weeks after the Feb. 28 attack, which triggered Iranian counterattacks on Middle East countries, the director of the International Energy Agency called the conflict “the greatest global energy security threat in history.” He estimated that it had disrupted more supply than the oil crises of 1973 and 1979 combined, and caused more gas interruptions than the 2022 Russian invasion of Ukraine.
Yet the forward oil price curve is calm. West Texas Intermediate futures contracts for January 2027 are averaging US$75 over the past month — up from US$63 before the conflict, but well short of the current oil price. Markets do not expect shortages to meaningfully persist less than a year from now. That outlook diverges from the commodities supercycle of the 2000s and the price shock of 2022 when contracts for future oil deliveries signalled sustained supply shortages. Today, millions of barrels per day are being disrupted and Qatar’s Ras Laffan — the world’s largest liquefied natural gas (LNG) complex — faces years of repair after Iranian drone strikes. So why aren’t markets bracing for a prolonged crisis?
The answer: Clean energy production on a large scale now exists.
From efficiency to substitution
Every major oil shock in modern history has been resolved in two stages. First demand adjusted through efficiency gains; then supply recovered. The addiction to fossil fuels was never broken, only moderated.
The 1973 oil price shock ushered in lasting innovation in vehicle fuel economy, improved manufacturing productivity and better building standards. Those efficiency gains stuck. They didn’t disappear after prices fell. The global economy learned to do more with less oil.
Wealthier nations added a second response — nuclear power. France pushed a program that brought nuclear generation from near zero to 80 per cent of its electricity supply by 2000. Japan used 1973 as a launchpad to extend its nuclear infrastructure. These were structural shifts toward electrification, but ones only the richest, most technologically advanced nations could afford.
War in the Gulf will only accelerate oil’s long-term decline
The critical constraint in previous price shocks was a lack of cheap, easily expandable substitutes for oil or gas that could be made available to most of the world’s consumers. Efficiency was the core lever through which markets could respond. In 2026, that constraint has been lifted.
The International Renewable Energy Agency reports that renewables are now cheaper than fossil fuel alternatives for 91 per cent of new power projects globally. Between 2010 and 2024, the life cycle costs of solar, onshore wind and offshore wind dropped 90 per cent, 70 per cent and 62 per cent, respectively. The Institute for Energy Economics and Financial Analysis says LNG used for power generation now costs three to four times as much as solar or wind. Onshore wind, solar and hydro are the three cheapest sources of new power generation in the world.
Efficiency gains from previous shocks were achieved with small reductions in fossil fuel consumption. Oil was still being burned, just less of it. But the dynamics of the current crisis could result in entire consumer markets devoid of fossil fuels. An electric vehicle does not burn slightly less gas. It burns none. A home with solar panels and a heat pump removes the need to be connected to a gas line entirely. When a country has built enough renewables and storage, the economic case for regasification terminals to import LNG disappears.
The case for homegrown renewable power generation is no longer solely a matter of energy security (though each crisis adds to that case), but of economics. Pakistan’s solar power growth could save it as much as US$6.3 billion in 2026 alone. Spain — where only 25 per cent of power is generated by fossil fuels — has already been insulated from the latest oil price shock.
Transition accelerating in real time
Early evidence of a speedier clean energy transition is already visible. The United Kingdom has introduced policies mandating heat pumps and solar panels in new homes. Prime Minister Keir Starmer is linking the measures to reduced dependence on volatile fossil fuel markets. Egypt has announced plans to add 2,500 megawatts of renewable capacity by next summer. India’s electricity regulator has proposed eliminating regulatory waits on new wind and solar projects. Energy ministers from six European Union nations are lobbying for immediate investment in clean power.
Consumers are also making decisions independently. Bloomberg has reported stock surges for solar panel companies, fuel cell producers and electric vehicle manufacturers, along with significant consumer shifts. Producers of electric rickshaws and induction stoves in India are reporting incredible sales growth. Sales of solar panels and heat pumps by Octopus Energy, the U.K.’s largest domestic electricity supplier, have climbed 50 per cent. Consumer markets are sensitive to price and, as fossil fuel prices surge, alternatives allow a transition away from energy shocks.
Canada’s dilemma
Canada finds itself in a position where short-term opportunism is misaligned with longer-term strategic interests. Several LNG export projects, as well as oilsands expansion projects, are approaching final investment decisions. LNG Canada Phase 2 and the Ksi Lisims project would almost triple Canada’s nascent LNG exports. The federal government is touting Bay du Nord’s offshore Newfoundland oil proposal as “a very attractive project.” Canada’s oilsands producers have tens of billions worth of proposed projects, but they would not be producing until the 2030s.
But short-term plans for Canadian fossil fuel production are not supported by evidence when considering economic infrastructure. History has shown that price shocks contract demand but subside quickly, and none of these projects would be online before a resolution to supply shortages. New LNG export terminals take a decade or longer to begin operating and decades more to be paid off and producing revenue. With energy demand potentially reaching a point at which renewable power generation beats out fossil fuels on price, any new Canadian LNG production could be entering a market that may not be interested.
Canada’s key target markets compound the problem. Japan, South Korea, and China all face demographic projections of significant population loss through the rest of this century. Japan’s domestic consumption has fallen nearly 20 per cent since 2018. China’s transportation fuel demand may have peaked. The growth that fuelled previous supply-side responses to oil shocks no longer exists, and those same buyers will spend the intervening years ramping up production of their own domestic renewables.
The verdict
Canada is responding with a false urgency. The lesson of 1973 is that oil shocks motivate reductions in fossil fuel consumption and, for those who can afford it, substitutions with cleaner energy. The lesson of 2026 should be that renewables now hold a competitive advantage, and are available to a far broader range of nations and consumers than any previous era’s alternatives.
By the time proposed projects, if approved, come online in the early 2030s, this latest energy crisis is likely to be in the rearview mirror. Qatar will be rebuilding. U.S. LNG expansion will be nearing completion. The departure of the United Arab Emirates from OPEC is likely to soften prices. A glut anticipated before this latest war will be asserting itself in a potentially larger way. The move away from fossil fuel dependence — one previous generations could not afford — is now cheap.
This is not an argument for doing nothing, but rather a caution to avoid spending generational amounts of capital on projects at risk of being stranded. Canada’s critical minerals sector represents a growth market aligned with the energy transition. Modernizing electricity grids and improving interconnectivity can provide durable competitive advantages that can’t be disrupted by drone strikes on the other side of the world. The question is whether Canada will mistake a temporary energy shortage as a reason to spend the next decade constructing pipelines toward a destination from which the world is actively turning away.
