Key takeaways
- The 2026 Iran crisis highlights the geopolitical risk premium of fossil fuels, as disruptions to the Strait of Hormuz and oil and gas supply tighten global energy markets and drive oil prices higher.
- Energy security is emerging as a primary driver of the energy transition, strengthening the case for renewable energy, electrification, and localized energy systems.
- History shows energy crises reshape long-term energy strategy, as seen after the 1970s oil shocks that accelerated nuclear power, biofuels, and renewable energy investment.
- The next phase of the energy transition will also depend on critical minerals supply chains, creating new innovation opportunities in alternative battery chemistries, mineral recycling, and resource efficiency.
The Lux Take
The ongoing oil crisis triggered by the war in Iran highlights the geopolitical risk premium associated with oil and gas and reinforces the importance of energy independence, strengthening the case for renewable energy and electrification as a way to reduce exposure to volatile fossil markets. Innovation teams should use this moment to shift the narrative: The primary driver for alternative energy technologies is energy security — not decarbonization. When the risk premium of fossil fuels is taken into account, electrified energy systems can be both more resilient and economically competitive.
What happened? The Iran war and its immediate impact on global energy markets
On February 28, 2026, the U.S. and Israel launched joint strike operations against Iran, starting a war with the stated goal of regime change. Iran responded with military strikes against both countries, as well as Israel’s immediate neighbors including Saudi Arabia, the United Arab Emirates, Kuwait, and Qatar. The war is very much still ongoing but has already had immediate impacts on the global energy sector. The Strait of Hormuz is effectively closed, stopping the flow of approximately 20 million barrels per day of Arabian crude oil to primarily Asian markets; Qatar also shut down the world’s largest liquefied natural gas (LNG) plant, which is significant as more than 80% of Qatari LNG goes to Asian markets.
At the time of writing (March 9, 2026), the price of oil stands at around USD 100/bbl, which is the highest level it has reached since 2022, when the combination of COVID disruptions and the Russian invasion of Ukraine pushed oil prices to similar levels. Some analysts already expect prices could reach USD 120/bbl if the current crisis escalates further, and much of the discussion today understandably revolves around how high prices might climb and how long the disruption might last. However, history suggests that focusing solely on short-term price movements risks missing the more important story as the most consequential effects of energy crises rarely appear in the immediate aftermath of the disruption but rather years later, when governments and markets begin reshaping their energy systems in response to the vulnerabilities such crises expose.
How will the energy system be impacted?
One way to think about the current situation is that fossil fuels carry an often-overlooked geopolitical risk premium. In purely economic terms, oil and gas may still be among the cheapest sources of energy, and they will remain an important part of the global energy system for decades. But their supply chains are frequently concentrated in regions where geopolitical tensions, political instability, or military conflicts can disrupt production and transportation. When markets are stable, this risk is often neglected, and energy decisions are made primarily on the basis of price. But in a geopolitical crisis, that risk becomes much more visible, forcing governments and energy consumers to reconsider whether the apparent affordability of fossil fuels fully reflects their true cost.
The current crisis shows this. In the most optimistic scenario, the conflict ends relatively quickly, and the situation stabilizes, allowing refineries to restart, the Strait of Hormuz to reopen, and oil and gas flows to resume along their usual routes. In a more severe scenario, the Strait of Hormuz could remain closed for a longer period, forcing producers to redirect flows westward across the Arabian Peninsula. Even under those circumstances, however, global markets would likely find ways to adjust, which means that oil prices could eventually fall back below USD 100/bbl once supply chains stabilize and alternative logistics routes are established.
From a purely market perspective, therefore, the current disruption may ultimately prove less dramatic than the headlines around record oil prices might suggest. But dismissing the crisis as a temporary spike would miss the broader lesson: Geopolitical energy disruptions have historically left lasting imprints on the global energy system.
Historical parallels: Lessons from the 1970s oil crises
The oil crises of the 1970s provide perhaps the clearest historical example of how disruptions in energy supply can reshape long-term energy strategies.
The 1973 oil embargo and the first global oil shock
In 1973, the Organization of Arab Petroleum Exporting Countries imposed an oil embargo against Canada, Japan, the Netherlands, the U.K., and the U.S., which resulted in a roughly 300% increase in oil prices as the price of crude rose from approximately USD 3/barrel to USD 12/barrel within a few months.
The 1979 oil crisis and the Iranian Revolution
Although the embargo formally ended in 1974, instability in global oil markets continued, and in 1979, the Iranian Revolution followed by the Iran-Iraq War triggered a second oil crisis as Iranian production collapsed, causing global oil supply to drop by roughly 7% and pushing prices toward USD 40/bbl, a record at the time. Oil markets wouldn’t fully stabilize until the mid-1980s.
How countries responded to the 1970s energy crisis
At first glance, the parallels between the crises of the 1970s and today are fairly obvious, as both periods were characterized by geopolitical events that suddenly reduced the supply of oil reaching global markets and triggered price spikes, forcing governments around the world to implement short-term measures aimed at cushioning the immediate economic impact while markets gradually adjusted. However, when looking back at the 1970s from the perspective of 50 years later, it becomes clear that the most significant consequences of those crises weren’t the oil price spikes but the structural responses that followed. For example:
France’s nuclear energy expansion
France responded by embarking on one of the most ambitious nuclear energy programs ever undertaken. In 1974, the French government announced Messmer’s plan, which aimed to reduce the country’s dependence on imported oil by rapidly expanding nuclear power generation. As a result of this policy, nuclear energy’s share of France’s electricity mix increased from roughly 8% in 1973 to around 80% by 1990, reshaping the country’s power sector.
U.S. investment in renewable energy R&D
In the U.S., the crisis helped catalyze investment in alternative energy technologies. President Gerald Ford signed the Solar Energy Research, Development, and Demonstration Act in 1974, which eventually led to the creation of what is now the National Renewable Energy Laboratory, which has played a central role over the decades in advancing R&D in solar, wind, bioenergy, and hydropower technologies.
Brazil’s ethanol fuel strategy
Brazil took a different approach by focusing on fuel substitution rather than electricity generation. In 1975, the Brazilian government launched the Programa Nacional do Álcool (Proálcool), a nationwide initiative designed to replace gasoline with ethanol produced from sugarcane. Today, Brazil consumes roughly 238,000 bbl/d of ethanol, which represents around a quarter of the country’s road transport fuel mix.
Why repeated energy crises are reshaping global energy strategy
Although these examples represent only a small sample of the measures implemented around the world during that period, they illustrate a broader pattern: Countries responded to the oil shocks of the 1970s by investing in alternative energy technologies and strategies that would reduce their long-term dependence on imported oil. If history offers any guidance, the current crisis may ultimately trigger similar responses, although the technologies involved stand to look quite different from those that emerged in the 1970s.
The underlying reason is fairly straightforward. Geopolitical crises tend to highlight the inherent geopolitical risk premium of fossil fuels. Oil and gas may still be among the cheapest sources of energy when viewed purely through the lens of production costs, and they will certainly remain part of the global energy system for decades to come. But their supply chains are often concentrated in politically volatile regions, which introduces a level of uncertainty that becomes glaring during periods of geopolitical tension. This doesn’t mean that countries will immediately abandon fossil fuels in response to a crisis. In the short term, governments often respond to supply disruptions by securing additional fossil fuel supplies through measures like expanding LNG imports, increasing domestic production, or temporarily relying more heavily on coal.
However, the past six years have been particularly eventful, with almost back-to-back crises disrupting global energy markets, including:
- The COVID-19 pandemic in 2020
- The Russian invasion of Ukraine in 2022
- The current war in Iran
While the global energy system often prefers to revert to the status quo rather than confront the more difficult task of structural change, the accumulation of these shocks in such a short timeline makes it increasingly difficult to ignore the inherent volatility associated with oil and gas. Over longer time horizons, Lux expects concerns around energy security to push countries toward technologies that can be deployed locally and that are less exposed to geopolitical disruptions.
The long-term impact of an oil crisis in 2026
The immediate effects of the Iran crisis are already beginning to materialize. Earlier this week, Saudi Arabia announced that it would begin cutting oil production as the Strait of Hormuz remains closed and domestic storage capacity approaches its limits. Once Gulf producers are forced to reduce output, global oil supply declines while demand remains largely unchanged, a dynamic that leads to prolonged tightness in oil markets and persistently high prices. If that scenario unfolds, the oil industry faces a familiar dilemma: Elevated oil and gas prices will generate significant cash flow for producers, much as they did in 2022, which could be directed toward shareholder buybacks or new exploration efforts, particularly as companies like Shell face declining reserve bases. However, such decisions implicitly assume that the role of oil and gas within the global energy system remains broadly unchanged, an increasingly questionable assumption in an environment where geopolitical volatility is becoming a defining feature of fossil fuel markets.
In the long term, an oil crisis in 2026 will also boost renewable energy and electrification.
Why electrification and renewable energy are becoming more attractive
During the 1970s oil crises, the technological path forward was far from clear — policymakers were simultaneously exploring nuclear energy, solar power, biofuels, and a variety of other alternatives without knowing which technologies would ultimately prove viable at scale. Today, the situation is different. Electrification powered by renewable energy, particularly solar and wind, is becoming increasingly practical as these technologies get cheaper and as battery technology improves.
Pakistan’s solar boom driven by energy security
This shift was already underway before the current crisis. Pakistan offers an interesting example of how energy security concerns can drive renewable adoption, even in countries where climate policy isn’t the primary motivation. The country’s domestic natural gas production has declined as major gas fields depleted, and estimates suggest reserves could run out within about 15 years. As a result, Pakistan has increasingly relied on imported LNG to meet energy demand. This dependence exposed the country to volatile global gas markets, particularly after Russia’s invasion of Ukraine, when LNG cargoes often diverted to higher-paying European buyers. In response, Pakistan accelerated solar deployment, enabled by the rapidly falling cost of Chinese-manufactured panels. Notably, climate policy did not drive this expansion. Instead, households and businesses installed solar systems to reduce exposure to volatile LNG markets, unreliable fuel supply, and rising electricity prices. Solar adoption has grown so rapidly that Pakistan generated roughly 25% of its electricity from solar power in 2025. The shift has been significant enough that the country now holds surplus LNG cargoes and has attempted to resell them on global markets.
Given the expanded role of geopolitical realities in propelling the energy transition, Lux expects countries around the world to factor in the risk premium when considering new investment in oil and gas assets. In many countries with no domestic production of oil and gas but potential for renewable electricity generation, that risk premium may be so high that it tips the scale toward solar plus battery storage.
Why China could benefit from a faster energy transition
One country that will ultimately benefit from the current crisis is China. While disruptions in oil supply will undoubtedly be painful for Asian economies that rely heavily on imported energy (particularly China, the main buyer of Iranian oil), the longer-term implications may look quite different. If geopolitical instability accelerates the global shift toward solar energy, battery storage, and electrification, China is already well positioned to benefit from that transition, given its dominant role in solar cell manufacturing, battery production, and EV supply chains.
The critical minerals risk in an electrified energy system
It’s worth noting, however, that electrification carries its own form of geolopolitcal volatility in the form of critical minerals. This became evident in 2025, when China leveraged its leading position in critical mineral supply chains to pressure the U.S. to soften its proposed trade tariffs; in response, the U.S. announced the USD 12-billion Project Vault in February 2026 to build a national stockpile of critical minerals and reduce its vulnerability to Chinese dominance in the sector. If the world forges ahead with electrification, it should be careful not to simply swap its dependency on oil and gas for dependency on critical minerals. For innovation teams, this risk highlights the importance of technologies that reduce or bypass critical mineral dependencies altogether, whether through alternative battery chemistries or mineral recycling technologies.
How political change is reshaping innovation
Geopolitical shocks rarely stay confined to energy markets. They ripple through supply chains, technology investment, and long-term innovation strategy. The Iran crisis is one example of how global events can rapidly reshape the economics of entire industries — from energy and materials to manufacturing and critical minerals.
For innovation leaders, moments like these highlight an important reality: Policy shifts, geopolitical tensions, and regulatory changes can accelerate or derail emerging technologies just as quickly as market forces. To better understand how political change can reshape the innovation landscape, explore our e-book “One Year of Trump: The Biggest Impacts on Innovation and What’s Coming Next.” The report examines how policy shifts are influencing technology development, investment flows, and strategic priorities across sectors including energy, manufacturing, and advanced materials.
