Lessons from war: Rethinking energy, supply chains, and resilience

As the Iran war has upended supply chains and energy markets globally, we are now facing the most severe supply chain disruption since the COVID-19 pandemic and the worst energy crisis since the 1970s. Yet even in this moment, there are clear lessons that can help shape the future:

1) Energy and critical infrastructure:

Currently oil and gas is expensive and physically scarce in some places. Demand destruction and fuel substitution are on many policy makers’ minds – which is understandable – but renewable energy, and electrification, while important, cannot substitute for all. Fossil fuels will be needed going forward and we should design our energy systems accordingly. Before the first oil shock in 1974 more than 80 percent of primary energy consumption came from fossil fuels. By the end of 2024 the percentage stood at just below 80 percent. A major factor is that the worldwide population more than doubled in the past 50 years. By 2050, another 1.5 to 2 billion people are expected to live on Earth.

Countries would be well advised to take a comprehensive and integrated approach when designing their future energy systems. Old dependencies for oil and gas may be replaced by new ones: For instance, on China when it comes to solar panels, batteries, EVs, or refining of critical minerals, etc., we need to be conscient of such facts when designing our future.

Both energy systems and critical infrastructure need redundancies. When an integrated electricity grid goes down in one place the whole grid comes down. Therefore, we need redundancies. The East to West pipeline in Saudi Arabia is a prime example. The Kingdom planned it in the 1980s and has upgraded it ever since. It might have looked like a waste of money at times, but now the concept more than proved its worth. Redundancy becomes more manageable when government entities are prepared to cover the costs, but it poses greater challenges in liberal systems where shareholders expect quarterly returns.

2) Supply chains

COVID-19 brought to us the concepts of near shoring and friendly shoring. We can expect supply chains to be realigned while we are experiencing the second supply chain shock in six years. The process will not be easy and takes time. Alas we hopefully have learned something the second time around.

3) Diplomacy and resilience

Whatever we do, we cannot change geography. Russia will always remain a near neighbor of Europe as will Iran to the Middle East. Therefore, lines of communication matter. We should applaud the GCC nations, who did not ask for this war, for their wisdom in not hitting back when Iranian missiles hit their infrastructure. This showed remarkable restraint, which cannot be taken for granted forever.

GCC countries were hit economically, but they are also remarkably resilient. Saudi Vision 2030 was designed to wean the Kingdom off its over dependence on the oil and gas sector. The years 2024 and 2025 showed such results. In both years the non-oil sector contributed more than 50 percent to GDP. The Vision also supported national champions like ACWA Power or Maaden.

4) Funding mechanisms

The sovereign wealth funds of the GCC nations are now giving them the wherewithal to withstand economic problems resulting from the war. In that context, it is important to note that the Public Investment Fund is justifiably shifting more of its focus to domestic investments.

5) Multilateral institutions

International waterways matter and they must remain open. There are other choke points beside the Strait of Hormuz like the Bab El Mandeb, the Suez Canal and Panama Canal, the Strait of Malaka and in future the Arctic, just to name a few. They should be free shipping lanes governed by the UN Convention of the Law of the Sea and the International Maritime Organization (IMO), which is the United Nations Agency responsible for regulating international shipping. The IMO or any successor institution needs to be adequately funded and equipped with enforcement mechanisms to fulfil its mandate.

Similarly, we need to look at multilateral and bilateral development assistance. In the wake of war, it is understandable that countries want to focus on their defense. Priorities have sadly shifted from funding multilateral institutions and overseas development assistance to purchasing weapons. Multilateral development institutions like the World Bank, the ADB and in our region especially the Islamic Development Bank matter. The blockade of Hormuz does not only deprive the world of 20 percent of oil and LNG supplies, it also curtails 30 percent of nitrogen-based fertilizers from leaving the Arabian Gulf. Developing countries will be the worst hit when they can no longer afford fertilizer. Reduced agricultural productivity can contribute to food insecurity and hunger in certain regions. Similarly, some developing countries will be priced out of receiving LNG at the height of the bidding war for the commodity between Asia and Europe. We need these aid institutions to be able cushion the blow.

In that context multilateral trade financing and insurance schemes like ITFC or MIGA and ICIEC as well as bilateral ECA need to be adequately funded. These mechanisms will allow the private sector to operate where it otherwise could not.
The above are just a few factors amid a myriad of things to look out for, when the guns are hopefully silenced.

Read more:

Inside Iran’s power structure: Negotiation without transformation

Iraqi attacks on the Gulf

The calculus of the blockade: Testing Trump’s power after epic fury