Mideast War Reboots Energy Transition

The energy transition seemed to screech to a halt — in the US at least — with President Donald Trump’s inauguration on Jan. 20, 2025. Programs to encourage and accelerate the use of solar and other renewables were axed. Tax incentives for purchasing electric vehicles (EVs) were eliminated. Fossil fuel development was favored. US energy dominance through coal, natural gas and oil production became the administration’s mantra. But one year later, the Trump administration’s pivot to fossil fuels is unraveling, with the energy crisis caused by the Middle East war having exposed the structural fragility and geopolitical risk embedded in fossil fuel supply chains just as the technologies to replace them are now deployable at scale.

In 2025, US energy policy shifted decisively. The previous administration of President Joe Biden had embraced the Paris Agreement on climate change, negotiated in 2015 and signed in 2016, seeking to speed the energy transition that, until 2025, was seen as the process of reducing greenhouse gas emissions by cutting fossil fuel consumption. Biden’s Inflation Reduction Act (IRA) of 2022 provided financial incentives for expanded investment in renewables and energy storage, EV purchases and the reduction of fossil fuel use.

The Trump administration gutted the IRA and other programs adopted by administrations dating back to that of President George H.W. Bush. The new regime’s motto might be characterized as “burn baby burn” as it implemented policies that promoted oil and gas drilling and coal mining. US exports of those fuels surged. Senior executives in the global energy industry welcomed the Trump transition policy.

But now, Trump’s pro-fossil fuel agenda is in tatters. The war in the Middle East has called into question the future global prospects of these fuels, particularly natural gas. Jeff Currie, the Carlyle Group’s chief strategy officer of energy pathways, summarized the new situation succinctly, saying that “the main message is that we’re going to get the energy transition forced on us in a very painful way that’s going to happen very quickly.” Left unsaid was that the much higher oil and LNG prices would create opportunities for low-cost renewable technologies to displace traditional fuels in many applications.

Fossil Fuel Dominance

The key to the Trump administration’s energy policy was fossil fuel dominance. Its shutdown of most renewable energy projects was part of a strategy to sell more oil and gas. The goal of boosting oil was clearly expressed by Secretary of Energy Chris Wright in Davos earlier this year, where he declared that increasing oil production would improve the lives of billions in developing nations, explaining, however, that “we need way more than double global oil production to get the other 7 billion people just halfway to where our quality of life is.” Trump’s promotion of fossil fuels has been enhanced by his executive order requiring generating companies to keep operating coal-fired generating plants despite plans to close them.

Other executive orders halted the construction of offshore wind farms and mandated the repurchase of federal lands leased for wind development. Meanwhile, the Environmental Protection Agency prohibited the building of power lines from solar farms across federal lands.

The administration has further promoted US oil and natural gas by offering access to exports of these fuels while threatening efforts to advocate for renewables. The EU has been attacked repeatedly in this regard. Secretary Wright told an audience there in November 2025 that renewable energy “just hasn’t worked.” He then touted oil and gas “domination” as a central driver of the US economy and international influence and denigrated the development of renewables.

But the Trump administration’s claim of US energy dominance was always an illusion. Firms and countries that lead markets are almost always the low-cost producers. The US is the world’s highest-cost oil and gas producer. Qatar’s cost is one-tenth of the US’, and, before the war, the country had planned to double its LNG exports. Producing oil in the Middle East costs far less than in the US. Thus, the US can only achieve market dominance if the lower-cost producers with excess productive capacity restrain their output.

A Transition Resurgent

The Feb. 28 attack on Iran sparked a resurgence of the transition from fossil fuels to renewables, as oil and natural gas prices doubled or tripled in many countries. The price increases alone justify efforts to abandon oil and natural gas. The incentive was further boosted by the realization that supplies of oil, natural gas and fertilizer from the Mideast Gulf nations were insecure.

History suggests that price shocks alone do not drive rapid transitions; what matters is whether they coincide with the financial and technological conditions to scale alternatives. That alignment now appears to be in place.

While oil consumption as a percentage of total energy peaked in 1974 in the wake of the Arab oil embargo and then declined from 50% to 34% in 2024, the drop in oil use only really began following the oil shock of 1979. That slowness can be explained by a lack of entrepreneurship in the global economy. No Steve Jobs, Michael Dells or Elon Musks emerged to spur change in the global economy after the Arab oil embargo.

Instead, the global industry was dominated by legacy firms, including Exxon Mobil, Westinghouse, General Motors, Ford and Chrysler. As the late Harvard Business School professor Clayton Christensen explained, legacy firms that produced fossil-fuel-guzzling products had little or no incentive to introduce substitutes. The resistance to change in the industry allowed fossil fuels to continue their dominance of much of the energy economy.

In 1979, the passage of amendments to the Employee Retirement Security Income Act, followed by a reduction of capital gains taxes during the Reagan administration, altered the incentives for pension funds to support venture capitalists. Firms such as Dell, Apple and Tesla benefited from the resulting infusion of funds. Innovation accelerated, speeding the introduction of alternative products and hastening the demise of legacy firms such as Westinghouse.

Since then, the forces of change have spread across the globe. For example, the development of EVs and batteries, which began in the US, expanded to China, where firms now make products that are far superior and more efficient while promoting and selling them around the world. This trend will likely continue to gain momentum.

The increasing availability and decreasing price of renewable alternatives suggest that nations seriously affected by the staggering rise in oil and natural gas prices caused by the war in the Middle East can displace their fossil fuel use relatively quickly. Consumers across the world can do the same.

The difference now is not the shock itself, but the system’s readiness to respond — turning disruption into acceleration.

Philip Verleger is an economist who has written about energy markets for over 40 years. A graduate of MIT, he has served two presidents, taught at Yale and helped develop energy commodity markets since 1980. Kim Pederson is the editorial director of PKVerleger. The views expressed in this article are those of the author.