Mark Lacey (Schroders) || The effective closure of the Strait of Hormuz has caused a significant disruption in the global oil supply, especially in markets that were already being affected, as even before the current conflict in the Middle East threatened to cause an unprecedented interruption, there were already signs that available oil supplies would likely be insufficient.
This crisis also highlights the consequences of a decade of insufficient investment. The weight of the energy sector in global stock indices has fallen from around 14% from previous highs to approximately 3% by early 2026, as capital discipline and shareholder returns have prevailed over the creation of new supply. The lifespan of reserves has shortened (from 14-15 years in the early 2000s to about 7-10 years for many producers) and, beyond 2026, there are fewer confirmed projects that could significantly increase production. Meanwhile, the rapid “adjustment supply” that U.S. shale once provided seems less effective and more capital-intensive.
However, demand is changing rather than disappearing. Electricity demand in the U.S. is expected to grow by around 2-3% annually, driven by electrification and data centres supporting AI. In some cases, the latter increases gas demand through on-site turbines.
A more stable price environment can support cash flows and shares in the energy sector; and as governments prioritise energy security, the range of opportunities expands to include grids, storage, renewable energy, and enabling technologies.
Why renewables are important for security (and costs)
The conflict with Iran brings the focus back to renewables as a strategic means of ensuring energy independence. Solar and wind technologies do not require fossil fuels, so their generation costs are less exposed to fluctuations in global energy markets.
In European energy markets, the most expensive generator operating to meet demand—usually gas—typically sets the wholesale price of electricity by the hour. As electricity production expands from lower-cost technologies, such as wind and solar, these increasingly displace gas and coal, meaning that fossil fuel generation sets the price less frequently.
Spain provides a clear example. An analysis by Ember, the global energy think tank, reveals that the strong growth of solar and wind energy has contributed to electricity prices in Spain starting to decouple from gas prices. In the first half of 2019, electricity prices in Spain reflected the cost of fossil generation 75% of the hours; in the same period in 2025, this figure dropped to 19%. Even with the sharp rise in gas prices following the conflict with Iran, electricity in Spain remains among the cheapest in Europe and the United Kingdom.
