The U.S. and Iran reached a deal of sorts to open the Strait of Hormuz. That’s a huge relief for energy markets, and the task of getting ships moving through the Strait of Hormuz is already underway.
Yet the main issues President Trump and Israeli Prime Minister Benjamin Netanyahu cited for starting the war remain.
The Islamic Republic still has a large stockpile of near-bomb grade uranium. The ceasefire comes despite Iran retaining a formidable ballistic missile capability. The country remains a vocal enthusiast of allied militias in Lebanon (Hezbollah), Iraq (the Hashed al Shabi), Yemen (Houthis) and even Gaza (Hamas).
Iran agreed to discuss the first of these concerns — its nuclear program, as it did with the Obama administration — as part of a 60-day negotiations period while the cease fire remains in place. Israel, a primary instigator of the war, was not included in the negotiations and is deeply unhappy with the framework.
It’s really more an attempt by Trump and Iran’s leadership to try to reach an actual deal over the next 60 days — but with the strait open in the meantime. That’s something both sides need. The next 60 days, and well beyond, will likely prove to be a very tough slog, the threat ever-present of the conflict between Iran and Israel reigniting and throwing the Gulf back into turmoil
So we’ll see just what “open” means when applied to this new reality.
Iran has not backed off its claim of “control” over the passageway, or sworn off shutting it again in the future if it, or its regional allies, are attacked.
Trump says the strait won’t have a “toll.” But don’t be surprised if the new Hormuz reality includes a fee of some sort — environmental protection, reconstruction, maintenance, whatever it’s called — some of which goes to Iran.
Meanwhile, there’s the colossal task of re-starting the flow of stuff from the Gulf — crude oil, liquified natural gas, refined hydrocarbon products like naphtha, fertilizer, helium, etc. Although oil and gas prices fell sharply after the deal was announced, it will take many months for energy flows to return to pre-war levels, even longer in the case of liquified natural gas. Assuming it ever does.
Whatever “open” turns out to mean, the strait won’t be anything like the no-fees, low-risk, never-really-worry Strait of Hormuz that existed before the war in the minds of shippers, insurers, oil and gas producers and buyers around the world.
So the question we’ve been digging into over the past few posts remains critical: how will the crisis — the largest disruption to energy markets in history — shape the energy system over the long term?
Asia remains the place to watch.
As the first and hardest hit by the Hormuz shutdown — about 90% of shipments from the Persian Gulf go to Asia — Asia’s response, especially now that the strait has reopened, remains the key to understanding the shifting landscape.
First we looked at China. Its renewable energy capacity helped absorb the shock and leaves China poised to capitalize on it. We looked at Southeast Asia, the region hardest hit and least prepared. And we looked at North Asia — Japan and South Korea — where the crisis has raised big questions about the viability of their fossil-fuel based energy plans, even as they have weathered the crisis fairly well to date.
Now we look at India, returning to where this substack began five years ago. My thesis then — launching a six-month, 5,000-mile rail journey across the subcontinent — was that India is the single most important country for the energy transition.
This is more true today in the aftermath of the Persian Gulf crisis. India has the renewable energy resources, the financial and technological wherewithal, and the incentive to now shape the global energy transition in ways few countries, or even collections of countries such as the European Union, can do.
The closure of the strait underscored to Indian leaders — and regular Indians — the vulnerability India’s current energy policies impose on the country. India imports well over 80% of its crude oil, a large share of its fertilizer and virtually all of its natural gas.
When commodity prices soar — whether due to Russia’s invasion of Ukraine in 2022 or the conflict in the Gulf today — India pays through the nose.
The government has been forced to cut taxes on fuel use to help consumers, forgoing $12 billion in revenues. India burned through more than $174 billion to import oil and gas last year, the bulk of it from the Gulf. The country is the world’s second-largest net importer of oil, after China.
”We must curb our use of petrol and diesel,” Prime Minister Narendra Modi told a crowd of supporters recently.
Modi has urged Indians to use public transport and work at home to help stem oil and gas imports. He even implored them to avoid purchases of gold for weddings and celebrations — cultural bedrock in India — as a way for the country to preserve foreign exchange for energy purchases.
But Indians increasingly understand that the long-term route to reducing dependence on foreign imports, and building a sustainably growing economy, lies in growing the share of cheap domestic energy they use.
That means electrifying transportation, from the massive Indian railways to the motorcycles and rickshaws most Indians use to get around. And it means meeting nearly all new energy demand with renewable energy, especially solar power, now far and away the least expensive source of new electricity in the country, including compared to domestically mined coal.
When I first visited India in 2015, solar power was virtually non-existent. Over a decade, this has changed dramatically. Last year, solar power provided almost one-tenth of India’s electricity generation and the share is rising steadily with rapid growth in the amount of electricity India uses.
Meanwhile, coal-fired generation, still more than two-thirds of the country’s electricity, has leveled off. It actually fell last year, by 3%, for the first time in history, not counting the covid pandemic. This is happening even as the country builds more coal-fired plants and mines more coal to assure its energy security, as the facilities are actually used less and less.
Still India’s go-to domestic energy resource, coal may yet get a boost from the Gulf crisis as India boosts coal-fired generation during and in the aftermath of the strait closing.
Yet increasingly, the country is choosing to install batteries on a massive scale to soak up free solar power during the day and distribute it after the sun goes down. The price of these batteries, along with the cost of solar panels, has fallen stupendously in just the last few years, to the point where they provide electricity even cheaper than coal plants that have already been built and paid for in some cases.
Gautam Adani, whose corporate empire is closely aligned with the Modi government, is building the world’s largest battery outside of China to augment what’s planned to be the world’s largest solar facility in northern India.
Surfing the tsunami of cost declines in renewable technology — solar, batteries and electric vehicles — over the past decade, is achieving greater levels of electrification at far earlier levels of economic development than China, the current global clean-tech leader, the think tank Ember has pointed out.
This chart shows how India is turning to electricity far earlier in the development of its energy system than either the U.S. or China.
As the urgency of the Gulf crisis dovetails with the dirt-cheap prices for solar power, batteries and electric vehicles, the pace of this evolution is very likely to gain momentum in the world’s largest fast-growing economy.
That, in many ways, will not just move the needle of the global energy transition. It will also make India a critical model for the other emerging economies generating much of the world’s new energy demand.
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