In just the past six years, the world economy has been jolted by three sharp rises in oil prices. First, during the pandemic. Then, after Russia’s invasion of Ukraine in 2022. And now, a war-battered Iran has begun to block the Strait of Hormuz, a choke point for ships carrying 20% to 30% of the world’s petroleum supply.
Such energy crises often bring short-term hardship, such as higher gasoline prices. Yet they also spark bursts of innovation that help soften the next disruption to the global oil supply chain. One historic model: The 1973 Arab oil embargo led many countries to create strategic oil reserves for coordinated release in times of emergency, such as now.
With the start of the Iran war Feb. 28, creative responses to the current crisis are starting to show up. “What is needed now is not alarmism but foresight,” wrote Christopher Long, head of intelligence at the security management firm Neptune P2P Group, in The National.
Some American farmers, for example, who are worried about rising prices for fertilizers derived from natural gas, are eyeing a switch to new types of biological sources, such as nitrogen-fixing microbes or fertilizers made with low-emission hydrogen.
In the European Union, the latest oil shock helped spur a decision this week to invest €200 million ($230 million) toward designing and building small nuclear power plants as reliable sources of low-emissions power for a continent highly dependent on fossil fuel imports.
And with Iran threatening ships crossing the narrow Hormuz passage, insurers in the maritime industry are coming up with creative ways to lessen fears of lost or damaged vessels. The U.S. International Development Finance Corp., for example, has offered a $20 billion reinsurance backstop to cargo carriers.
The spirit of innovative thinking is never in short supply. Billions of people now facing rising energy costs are on a steep learning curve to devise ways to operate more efficiently or to switch to non-oil sources, such as solar power. For all the limited progress made so far to reduce greenhouse gases, the Iran crisis might accelerate the energy transition.
Expensive oil has many benefits, writes Rita McGrath, a Columbia University business professor, in Fast Company magazine this month. It “accelerates the relative attractiveness of dematerialized products and services: software over hardware, streaming over shipping, local services over global supply chains, energy efficiency over energy consumption.”
Sweet are the uses of adversity, Shakespeare wrote. And just as sweet is releasing the fetters of material limits by reshaping the world with innovative ideas in energy.
