President Donald Trump announced the United States would apply its own blockade of the Strait of Hormuz in retaliation for Iran’s de facto shutdown, which is now stretching into its seventh week. But, as Andrew Chang explains, responding this way to Iran’s control of 20 per cent of the world’s energy supply could pose several risks as the war in the Middle East escalates. Here is a direct video link.
We all hope for a speedy, lasting solution to the current Iranian conflict. An upside of the turmoil is that high fossil fuel prices intensify efforts to reduce dependence via greater fuel efficiency and substitution. In some countries, employees are being told to work from home more to reduce fuel demand. The transition to electric vehicles is also accelerating, see interest in EVs surges in Europe as fuel prices jump after Iran war:
Carwow, which links buyers with dealers in the UK, Spain and Germany, reported 20% to 30% increases in inquiries about electric cars in all three markets between February and March. In the UK, electric demand was up 23% over the month, while hybrid interest was up 19%.
“We’ve seen a shift away from internal combustion engines for quite a while now,” said Iain Read, Carwow’s content director. “But what we’ve seen with the war is it’s accelerating. Consumers are worrying about cost of living and wanting to keep their regular bills down.”
Figures last week from the Society of Motor Manufacturers and Traders (SMMT) showed that in March battery electric car registrations, based on sales several months before the break out of hostilities, totalled 86,120. This was a jump of 24.2% compared with the same month last year and a record high.
La Centrale, one of France’s largest car marketplaces, said that its searches for electric vehicles had increased by 160% between the start of March and the start of April.
At the same time, alternative fuel production has even more incentive. See, Renewable energy sets new US record, beating gas on the grid for the first time in the month of March:
March was the best-ever month for wind in terms of electricity output.
But perhaps more impressive is that renewables are growing their market share while overall electricity demand climbs. Put simply, clean energy is taking a bigger slice of a growing pie.
Gas power plants, for their part, remain difficult to build due to supply chain bottlenecks. Meanwhile, solar, batteries, and wind together will once again make up the overwhelming majority of new energy capacity added to the grid this year.
The same was true last year. And the year before. And the year before that…
Even as the Trump administration creates obstacles to building renewables, a key pair of facts will hold: The US needs more electricity, and renewables are the easiest way to get it. In other words, don’t expect this to be the last month in which renewables conquer gas.
Before this latest conflict, global economic growth was already weakening, and as in 1973, 1979, 1990 and 2007, oil shocks tend to accelerate downturns, especially where debt levels are high.
Profit margins are hurt as companies struggle to pass on rising costs amid weakening demand and rising layoffs. Inflation fears drive bond yields higher and make central banks less likely to offer monetary easing. All of this further reduces economic activity.
No surprise then that the International Monetary Fund has downgraded its global economic outlook as the Mideast war drives an oil shock:
In its latest World Economic Outlook, published Tuesday, the IMF projects the global economy will grow 3.1 percent in 2026, 0.2 percentage points slower than its January forecast and below the 3.4 percent pace achieved in 2025. Global inflation is expected to average 4.4 percent in 2026, up from a projected 3.8 percent in the January forecast.
“Once again, the global economy is threatened with being thrown off course – this time by the outbreak of war in the Middle East at the end of February 2026,” the IMF said in the report, which was published as central bankers and finance officials from around the world gather in Washington for the biannual meeting of the IMF and World Bank.
Alongside its “reference forecast,” the IMF published two downside scenarios which see significantly worse outcomes for global GDP growth and inflation if the ceasefire between the United States, Israel and Iran breaks down and oil prices once again surge.
In the adverse scenario, where the benchmark price for a barrel of oil stays around US$100 through 2026 and US$75 in 2027, the IMF sees the global economy growing only 2.5 per cent this year, while global inflation would hit 5.4 per cent. In a severe scenario, where oil costs US$110 a barrel in 2026 and US$125 in 2027, global growth would slow to around 2 per cent. “This would mean a close call for a global recession,” the IMF said.
Although Canada is a major oil exporter, trade uncertainty and weakness in the domestic economy are ongoing headwinds that the IMF predicts will reduce Canada’s GDP growth to 1.5% in 2026 from 1.7% in 2025.
Imagine how much further ahead we would be if the resources being blown up in the Middle East were directed towards making us more resource-efficient. Nevertheless, high fuel costs are ultimately a cure for high costs, so the smarter energy evolution will proceed either way.
