When the 1973 oil crisis struck, it dramatically changed the way that economies used fossil fuels such as petroleum. Economies are still fossil-fuel dependent, but much less than about 50 years ago. The West Asia war could prove another turning point in the story of dependence on fossil fuels. In a recent interview with the Guardian, International Energy Agency (IEA) executive director Fatih Barol said the US-Iran war had changed the fossil fuel industry forever.
“There will be a significant boost to renewables and nuclear power, and a further shift towards a more electrified future,” he said. Even now, IEA’s data bear witness to this shift.
Oil on boil
Till just a few months ago, the so-called ‘green transition’ had seemingly come to a standstill. The US government, under President Donald Trump, had swung away from incentivizing environmentally-friendly energy sources and back towards . Analysts widely expected an oil glut in 2026, with weak and falling prices through the year, further inhibiting incentives to switch away from crude oil.
All that has changed in a matter of months. The US-Israel invasion of Iran and the closure of the Strait of Hormuz—which handles critical volumes of oil trade—has sent prices soaring. Most analysts have revised their forecasts for the average crude price for 2026 upwards. The , in its April commodities outlook, expects it to be around $86 per barrel in 2026, up from a forecast of $60 per barrel made towards the end of 2025. Analysts at Goldman Sachs expect crude prices this December quarter to be around $90 per barrel.
Shock response
The problem is not just the spike in oil prices, but the extent to which it persists. It is currently anyone’s guess as to how long the war will extend, or when the Strait of Hormuz will reopen to normal shipping, or when oil prices will start declining. In that context, Birol’s comments implying a structural shift in global energy supplies become important. The 1973 oil shock is a case in point, even though the oil price spike during that crisis was much sharper than in the current crisis.
The so-called oil intensity of GDP—defined as the amount of energy derived from oil consumed per $1,000 of GDP—has declined dramatically over the last 50 years, with the key tipping point being the 1973 energy crisis. That crisis caused economies, especially in the West and even if they remained reliant on fossil fuels, to introduce major efficiencies in the use of oil. For example, switching to more fuel-efficient automobiles.
Power portfolio
Even before the crisis, despite the Trump administration’s attempts to turn back the clock, there was evidence of a shift away from fossil fuels. The IEA’s Global Energy Review, released this April, shows that about 50% of the growth in energy demand in 2025 (as compared to 2024) was met by renewables, with solar photovoltaic alone accounting for over a quarter. “Growth in solar PV met more than one-quarter of global primary energy demand growth, the first time on record that a modern renewable source contributed the largest share of the growth in global energy demand,” said the IEA in its review.
A major reason for this was China, which accounted for the largest share of that growth. Overall, global energy demand grew by just 1.3% in 2025, which was lower than in 2024. This was partly due to lower global economic growth. Higher average temperatures, which reduce the demand for energy used for heating, also contributed.
Renewable play
For the longer term, the IEA has forecast an increase in the share of renewable energy in total power generation for the world as a whole—from 32% in 2024 to around 43% in 2030 (the forecast was made in 2025). “Solar PV and wind account for 96% of all renewable capacity additions through 2030 because they are the most affordable options to add new capacity in almost every country in the world, and policies in more than 130 countries continue to support them,” said the IEA in its forecasts.
Both China and the European Union are set to make strong progress on renewables. The share of renewables in power generation in China is set to hit 50% by 2030, a rise of 16 percentage points over six years. For the European Union, the share of renewables in power generation is projected to rise by a similar amount over that time to 63%. In contrast, the US is expected to register relatively modest progress, to only 30%.
Chinese demand
One of the major themes of the latest IEA report is that the world is entering the ‘age of electricity’. Electricity demand is growing at a faster pace than overall energy demand. Artificial intelligence (AI) is a key emerging component of that demand growth.
“Although only contributing a small share of this total growth, demand from and data centres grew rapidly. In the US, data centres made up half of all growth in electricity use,” said the IEA report.
China is a core example. Since 2018, its electricity demand has grown at a faster pace than its overall GDP (both metrics were calculated as growth in 3-year moving averages). Further, even as overall Chinese growth slows, electricity demand remains strong. Within China, according to IEA, manufacture of new energy products, such as solar modules, batteries, EVs and related materials, is calculated to use over 300 TWh (terawatt hours) of electricity in 2024—roughly the amount of electricity consumed by Italy in a year.
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