Soaring oil prices may accelerate global green energy transition

• Oil price volatility may accelerate shift to renewables
• High oil prices incentivise investments in renewables
• Oil-producing nations may increase fossil fuel production

BEIRUT - When Israel attacked Iran last month, energy markets around the world held their breath.

Benchmark Brent crude prices, often considered a gauge for geopolitical risk, rose from less than $70 a barrel on June 12, the day before Israel's initial attack, to a peak of $81.40 on June 23 following U.S. strikes on Iranian nuclear facilities.

Direct U.S. involvement had investors particularly worried about the narrow Strait of Hormuz between Iran and Oman, through which nearly a fifth of global crude oil supply flows, highlighting the vulnerabilty of prices to geopolitical shocks.

But such shocks may encourage oil- and gas-importing countries to hasten their shift towards cleaner sources of energy, said Henok Asmelash, a law professor at Britain's Birmingham Law School.

"High oil prices provide the right incentive for investment in renewable energy technologies by making them relatively more competitive," he told Context.

But in some cases it could achieve the opposite effect.

The urgent requirement for energy might cause a "knee jerk reaction" in some countries to seek dirtier forms of energy like burning coal, said Guy Prince, an analyst at Carbon Tracker, an energy transition financial think tank.

"So short-term shifts might happen in some markets ... but long-term trends still point to fossil fuel decline, and that's kind of the picture that we see," he added.

Coal as a substitute energy source is becoming increasingly uncompetitive compared with cleaner energy forms like wind and solar, he added.

"Short-lived resurgences are just further proof of why countries benefit more from energy systems built on renewables," he said, "so that they're insulated from fossil fuel volatility."

Expensive oil driving transition

That process may already be underway in the United Kingdom.

Last month, Energy Secretary Ed Miliband reiterated commitments to decarbonising the economy and stimulating green business growth at London Climate Action Week, following Russia's invasion of Ukraine and consequent energy price hikes.

"Ours is ... a hard-headed determination to get off the roller coaster of fossil fuel markets with cheaper, clean, home-grown energy that we control," he said.

A better example could come from Ethiopia.

Last year, it became the first country to ban gasoline and diesel vehicles and is a "perfect example for how high oil prices help accelerate the energy transition," said Asmelash.

The policy came about because of the cost of fuel and Ethiopia's difficulty financing oil imports, he added.

"The government is trying to encourage electric cars as the country produces most of its electricity from renewable energy sources (hydro power) and this is having a significant and tangible impact on the transition," he said in emailed comments.

Ethiopia now has 100,000 electric vehicles, accounting for about 8% of registered vehicles, making it a global leader, said Energy for Growth Hub, a think tank seeking to end energy poverty, in a report citing government figures.

But for oil- and gas-producing countries, high prices mean higher profits, and they may double down on their fossil fuel production, analysts said.

Oil companies "had been betting on a slow transition," said Clare Shakya, Global Managing Director of Climate at The Nature Conservancy.

She said it may suit "laggard" countries to double down on investing in production expansion to sell more oil and gas.

"It'll be interesting to see what the impact of Iran has, because we were expecting with lower prices earlier in the year to see a reduction in oil and gas expansion," Shakya said.

(Reporting by Nazih Osseiran ; Editing by Jack Graham and Ellen Wulfhorst.)