How the Iran war will reshape our energy future
Fatih Birol, head of the International Energy Agency, has six predictions
Over the Easter weekend, columnist Ruchir Sharma noted that this oil crisis has hit just as governments are too broke to bail out consumers while Saudi Arabia posted the latest premium it charges for its crude — breaking all records. Of course, some traders suggested Riyadh could have asked for even more, considering the circumstances.
I spoke with Fatih Birol, the 68-year-old Turkish head of the International Energy Agency, which was founded after the 1973 Middle East oil crisis in order to manage future shocks.
In the interview, Birol urged countries not to hoard oil and fuel, since resource nationalism is only likely to make shortages worse.
He also spoke at length about how the twin oil crises of the 1970s had reshaped the world, as countries decided to build huge numbers of nuclear power plants and introduced fuel-efficiency standards for cars. Birol remembered how the UK fast-tracked new licences for the oil and gasfields in the North Sea, allowing the basin to go from “virtually nothing” to 6mn barrels per day of production in just 20 years.
I asked Birol if today’s energy crisis would also change our behaviour, and here were his six predictions:
Countries will pour money into nuclear power again
“There will be the acceleration of nuclear power through small modular reactors. We were expecting SMRs to come to market [in the] mid-2030s. It can be even faster.”
Renewables get another push
“I would like to give you one number in Europe. In the last three years, after Russia’s invasion of Ukraine, annual renewable installation increased by a factor of three.”
Consumers weigh up their next petrol or diesel car
“I expect a big push for electric cars, both for new and second-hand electric cars, including in Asia, which is the main driver of global oil demand growth.”
Countries think twice about relying on natural gas
“The gas industry presented natural gas as a secure, reliable and affordable fuel. But what happened in 2022, after Russia’s invasion of Ukraine, and what is happening now is likely to cast a long shadow over the outlook for gas, particularly in gas-importing developing countries where the gas industry expected to import even larger volumes of gas. I think the natural gas industry will need to work hard to regain its reputation.”
Trade relationships get re-examined
“The geopolitical risk premium for energy products is going to be higher than before the conflict. Importers will look not just at the product and the price, but also assess carefully who is selling — in terms of energy security. And that can affect what fuels and technologies they prioritise and which exporters they buy them from.”
Coal is the big winner
“The oil shocks in the 1970s set off a wave of investment in coal-fired power generation. In the 10 years after 1973, coal power capacity around the world rose by 50 per cent. This time, we may well see some countries increasing the use of coal again, at least temporarily, especially in emerging economies in Asia but also in Europe and North America.”