Hormuz is Making Energy a Prisoner of Geography

In the months since the outbreak of war in the Middle East, on 28 February 2026, the limitations of geography for oil and gas supply have become apparent. Before the conflict, around 20 million barrels per day of crude oil and oil products flowed through the Strait of Hormuz, roughly a quarter of seaborne oil trade¹. But since Iran discovered its power over the Strait, the vulnerability of this critical trade has been exposed.

Flows fell to an average of 2.7 million barrels per day between March and May, a decline of more than 85% that the International Energy Agency (IEA) called the largest supply disruption in history². Under US military protection, shipping has since recovered somewhat but remains erratic.

With no resolution in sight, the global energy system is a prisoner of geography — in this case the geographic bottleneck of Hormuz. Fuel importing countries are responding by accelerating electrification for many end-uses that burn fossil fuels directly today — such as road transport, industrial heat, and space and water heating. Beyond decarbonization, they are seeking to reduce exposure to imported oil and gas.

Hormuz has exposed the vulnerability of the world’s major economies. Governments have drawn hundreds of millions of barrels from reserves to avoid an oil shock, leaving stockpiles wafer thin. Notably, the U.S. Strategic Petroleum Reserve held 285.0 million barrels in mid-September, its lowest level since November 1982, while U.S. refineries were running at close to 98% of capacity³.

That cushioned the blow. Even so, Brent crude oil prices rose from about $60 a barrel at the beginning of 2026 to around $100 at the beginning of October. And U.S. average retail diesel price almost doubled to reach a record $6.285 per gallon⁴, with average diesel prices in the EU also setting new highs⁵.

The Price of Oil and Refined Products March Higher

US Retail Fuel Prices vs. Brent Crude (2026 YTD)

Past performance figures refer to the past and past performance is not a reliable indicator of future results.
Source: Bloomberg L.P., daily data 1/1/2026–23/09/2026 (as of September 23, 2026). Diesel = AAA US average retail diesel price (3AGSDIES Index); Gasoline = AAA US average regular gasoline price (3AGSREG Index); Brent = ICE Brent crude front-month futures (CO1 Comdty), last price.

Switching to Electricity

Expecting the disruptions to persist, major economies are acting. The European Commission published an Electrification Action Plan on 17 July 2026, aiming to double electricity’s share of final energy consumption to 46% by 2040, up from 23%. In the Commission’s words, “an energy independent Union powered efficiently by clean, abundant, and affordable energy is a matter of sovereignty.”⁶

A surge in European investment is expected. Announced financing includes a €100 billion Industrial Decarbonization Bank and more than €75 billion of European Investment Bank lending over three years, with grids as a priority, alongside an ambition to expand battery storage tenfold from around 55 gigawatts (GW) in 2026 to 500 GW by 2040⁷.

Even in the United States, with its focus on fossil fuels, the Department of Energy’s $10.5 billion GRIP program⁸ now includes a $1.9 billion SPARK round for advanced transmission technologies⁹. Investor-owned electricity companies are projected to invest $1.4 trillion between 2026 and 2030¹⁰, and an April Defense Production Act determination prioritized transformers, conductors and substations for national defense.

Turning to China, there are plans to invest RMB 4 trillion ($574 billion) in the state grid over four years to 2030¹¹. And the United Kingdom, India, Canada and Australia have all announced multi-year grid programs¹².

2026 Public Financing Commitments to Grid Infrastructure (USD bn-equivalent)

Source: International Energy Agency. (2025a, April 10). Increase in electricity demand by sector, base case, 2024–2030. Please note that these figures are estimates and forecasts based on current assumptions and available information. Forecasts are not a reliable indicator of future performance. Actual results may differ materially, and there is no guarantee that these projections will materialize.

Power’s Bottlenecks

Like Hormuz, though, the ability to build out generation and transmission capacity is proving a bottleneck — albeit with less severe consequences. Cables, transformers, substations, power electronics, energy storage, cooling systems and grid software are all in demand. Everyone is drawing on the same supply chain and adding manufacturing capacity takes years, with skilled labor often in short supply. As a result, new electricity generating and transmitting capacity may take longer to add than anticipated.

In a 2025 estimate, long before the Iran conflict, the IEA estimated global power demand would rise by an average of 3.6% a year to 2030¹³. Data centers catering to AI were projected to more than double their consumption from 415 terawatt hours (TWh) in 2024 to about 945 TWh by 2030¹⁴. Electric vehicles, heat pumps and industrial reshoring were all adding to the load.

Illustrating the scale of the problem, more than 2,500 GW of renewable energy, large load and storage projects sit in grid connection queues globally, according to the IEA, which estimates annual grid investment must rise from about $400 billion to roughly $600 billion by 2030¹⁵.

Increase in electricity demand by sector, Base Case, 2024-2030

FX rates are illustrative. The chart includes only public investment announcements made in 2026 and uses approximate mid-2026 exchange rates solely to facilitate cross-market comparison. Source: Official documents from the European Commission, SASAC, U.S. Department of Energy, CEA, Ofgem, CEFC and Natural Resources Canada. Please note that these figures are estimates and forecasts based on current assumptions and available information. Actual results may differ materially, and there is no guarantee that these projections will materialize.

Looking Ahead

The Hormuz disruption has revealed the extent to which energy markets are prisoners of geography. Just as with countries, choices are limited by mountains, rivers and seas.

Already, energy importers plan to bolster their investment in electrification. Low-carbon energy generation including nuclear power, modernized grids, storage and power electronics can all help to relieve exposure to hydrocarbons and their maritime chokepoints. These sustainability benefits are not guaranteed and are subject to risks including the reversal of electrification mandates, changes to clean energy regulatory frameworks, the possibility that decarbonization targets may not be met, and the risk that government financing commitments may not materialize.

Without a crystal ball, it’s hard to tell whether diplomacy will ease the Hormuz and related Red Sea crises. It’s also worth noting that some forecasts cited in this blog may not prove accurate. What’s certain, though, is that troubles in Hormuz have reminded governments of their energy vulnerabilities and the part electrification can play in alleviating them.