The global economy is currently experiencing significant pressures. Oil prices are around $110 a barrel, with forecasts suggesting a rise to $150. Food prices are increasing due to a fertilizer supply crunch, leading the World Food Programme USA to warn of record global food insecurity and an additional 45 million people facing acute hunger. Industries such as steel and chemicals report shortages and rising costs, while households worldwide are implementing energy-saving measures.
Global Economic Shocks and Energy Dependence
The recent US-Israel war on Iran represents the third major global shock in six years, following Russia's invasion of Ukraine and the Covid-19 pandemic. These events have profoundly underscored economies' continued reliance on fossil fuels.
Simon Stiell, the UN climate chief, stated in March that "fossil fuel dependency is ripping away national security and sovereignty and replacing it with subservience and rising costs."
Analysis of the 10 countries most responsible for greenhouse gas emissions reveals two distinct approaches: some nations remain committed to fossil fuels, while others are pursuing a low-carbon future to reduce oil dependence and mitigate climate change. This divergence is described as the "electrostates" of the future versus the "petrostates" of the past.
John Kerry, former US secretary of state, highlighted the importance of electricity, calling it the "holy grail" for future energy systems.
Divergence in Global Energy Trends
The war in Iran has intensified this divergence. Global trends already favor renewables; last year, low-carbon sources generated more electricity than coal for the first time, and clean energy investment now doubles that in fossil fuels. Coal-fired power generation saw a decline in China and India, a first since the 1970s.
However, conflicts have also revealed that several powerful countries and major emitters benefit from high fossil fuel prices. The US oil and gas sector is projected for a $60 billion windfall. Russia's economy has been supported by soaring commodity prices, with some sanctions lifted. Saudi Arabia, despite missile attacks, has seen its national oil company, Aramco, surge in share price, reaping bumper returns from accessible reserves. Iran's oil revenues have increased despite infrastructure attacks. High prices bolster petrostates, enabling further hydrocarbon extraction.
Key Emitters and Their Energy Strategies
China
China, the world's largest emitter and second-biggest economy, is advancing towards an electrified future. The country's emissions have been stable or declining for nearly two years. Renewable energy capacity is expanding significantly, both for domestic use and export.
Green technology, including electric vehicles, batteries, and wind/solar components, now constitutes over 10% of China's export business and overall economy. In 2024 and 2025, China added 360GW and 430GW of new solar and wind capacity, respectively. Clean energy contributed a third of China's GDP growth last year, with over $1 trillion invested in clean energy compared to $260 billion in fossil fuels. Analysts suggest that increased battery manufacturing could lead to a reduction in coal use.
India
India, the world's most populous nation and fourth-biggest economy, is also progressing in the energy transition. A new nationally determined contribution (NDC) under the Paris agreement targets 60% electricity from low-carbon sources by 2035 and a 47% cut in emissions per unit of GDP. India added a record 45GW of renewable capacity last year, with forecasts suggesting the 60% target could be met by 2030.
This NDC indicates that India is integrating climate action into its broader development and economic strategy. While a complete phase-out of coal is not imminent, India is pursuing a "hybrid developmental path," maintaining fossil fuels for energy security during economic growth.
Challenges in Transition
Not all transitions are straightforward. Germany, a pioneer in renewables, retains an attachment to gas and has scaled back low-carbon heating reforms, while some carmakers are revising electric vehicle plans. Japan's NDC has been deemed inadequate by analysts.
Indonesia, the world's third-largest coal producer, embraced a "just transition" plan in 2021 with $20 billion in promised aid to shift from fossil fuels. However, efforts to close coal plants faced resistance from vested interests, and a resurgence in mining occurred due to high coal prices. Investment in clean energy jobs has also encountered bureaucratic issues. While the government shows renewed interest, challenges persist, including significant deforestation for agricultural projects.
Iran's situation is complicated by the recent conflict. The war could lead to an increased focus on fossil fuels for economic reconstruction. There is a potential opportunity to rebuild Iran's fossil fuel infrastructure, which currently loses an estimated 40% of its natural gas (methane) to leaks and flaring. Improving this infrastructure could significantly reduce Iran's methane emissions, as methane is 80 times more potent than carbon dioxide as a greenhouse gas over a 20-year period.
The United States and Russia
United States
The United States, under President Trump, has presented contrasting approaches to energy policy. Emissions were decreasing until last year, and low-carbon sources generated over half of the country's electricity in March 2025. The green economy saw a boost from the Inflation Reduction Act, leading to nearly $500 billion in green economy investments.
However, Trump has expressed intentions to dismantle these policies, promote oil and gas, and support the coal market. His administration agreed to pay $1 billion to France’s Total Energies to halt the building of two offshore windfarms, with the funds designated for reinvestment in oil and gas projects. While some US states (e.g., California, Texas) continue to advance clean technology, experts suggest this may be insufficient to counter national policy shifts.
Russia
Russia, led by Vladimir Putin, has utilized oil and gas as geopolitical tools. As the third-largest global producer, Russia benefits significantly from current high oil prices, reportedly gaining an additional $150 million daily during the war in Iran. Russia shows little interest in climate action, and its oil and gas infrastructure is known for extensive methane leaks with minimal abatement efforts. Less than 1% of Russia's power comes from wind and solar, with about a third from aging nuclear plants.
Future Strategies and Government Intervention
To encourage petrostates, particularly non-democracies, to transition, one strategy proposed is to reduce demand for their fossil fuel products. While countries like Saudi Arabia are investing in domestic renewable energy, they intend to continue oil exports.
Durwood Zaelke, president of the Institute for Governance and Sustainable Development, suggests focusing on methane reduction as a critical short-term measure to slow warming.
Satellites can precisely identify methane sources (coalmines, landfills, leaking infrastructure), providing opportunities for targeted interventions. High prices incentivize oil and gas companies to capture methane for resale, while coalmines may require government action. Zaelke believes a mandatory methane agreement is inevitable.
Experts emphasize that a green transition cannot occur without government intervention.
Jayati Ghosh, an Indian development economist, highlights the Chinese example and argues that effective uptake requires electrification of transport, subsidies for producers and consumers, creation of charging infrastructure, and increased renewable electricity generation.
Conclusion
The Iran war's duration and aftermath will significantly influence the global future. The 10 largest emitters, which collectively account for about two-thirds of the world's annual carbon output and include major fossil fuel exporters (Russia, Saudi Arabia, Iran, US, Indonesia), will largely determine whether the world moves towards a low-carbon path or deeper into fossil fuel dependence. Regardless of the war's outcome, the current economic shock is considered minor compared to the looming climate crisis. Reaching 2°C above preindustrial levels, potentially within two decades, could result in economic impacts equivalent to a new oil war every year.