ROI-Everybody wants energy security post the Iran war, but how?: Russell

The Iran war has sparked a global debate on reducing fossil fuel dependence, with progressives pushing for accelerated renewable energy adoption and conservatives advocating for increased Middle East oil production.

The lasting legacy of the Iran war will likely be a renewed impetus for energy-importing nations to lessen their dependence on ​fossil fuels. The big question for these countries is how to accomplish this in a cost-effective, politically acceptable way that does not create new vulnerabilities. This ​is no easy feat. The debate is often framed along left- and right-wing political fault lines. Progressives typically ‌say the ​conflict underscores the need to accelerate the transition to renewables and electric vehicles (EVs), while conservatives argue it shows the need to develop more fossil fuel production outside the Middle East. The Iran war, launched by the U.S. and Israel on February 28, has effectively closed the Strait of Hormuz. The narrow waterway previously carried close to 20% of global crude, refined products and liquefied natural gas (LNG). Markets are still pricing in an eventual reopening of the strait, but the risks around the movement of crude and ‌fuel from the Gulf have shifted in the past five months, as Iran is likely to end up with some form of control over vessel movements through the chokepoint. For fuel-importing nations, the Iran war is the second crisis in four years. Russia's 2022invasion of Ukraine caused prices for crude, fuel, LNG and thermal coal to spike globally amid fears that exports from Russia would be curtailed. The status quo is clearly no longer acceptable, so the question is how energy security can be achieved moving forward. Australia - the world's leading diesel importer - offers a prime example of the dilemma facing fuel importers. Should the country revive its oil refining industry decades after shutting most of its plants down, or should it accelerate electrification ‌to cut its reliance on imported fuels? The answer is complex and offers some far-reaching lessons. REFINERY IDEA Australia relies on imports for about 80% of its liquid fuel needs. Its eight refineries operating at the start of the century have been reduced to just two - both relatively small, with processing capacities of just over 100,000 ‌barrels per day (bpd) each. The country imported about 861,000 bpd of light and middle distillates in 2025, with diesel accounting for about 60% of that, according to data from commodity analysts Kpler. The threat of ongoing supply disruptions and sharply higher prices led Australia's government to recently announce an A$4 million ($2.8 million) pre-feasibility studyfor a new oil refinery. If built, it would be the first such plant in 60 years. The basic plan is to build a plant in Western Australia to supply both the mining and agricultural sectors. The state, which is nearly five times the size of France but home to just 3 million people, imports around 200,000 bpd of light and middle distillates, according to Kpler.

The new refinery was proposed by fertilizer and urea maker Perdaman, which has described the plant as a "game changer for Australian fuel security." That might be true, but the ⁠question is who ​would pay for it. A modern, economically viable refinery requires a capacity of at least 300,000 ⁠bpd. It would also have to be complex enough to turn crude into mainly light and middle distillates, as there is little demand for residual fuels. A similar-sized plant being built in Ghana is estimated to cost around $12 billion, and would likely cost substantially more in Australia given higher labour and land charges. Any new plant would also need crude offloading and product export capability, as well as storage tanks capable ⁠of holding 90 days of crude imports as a strategic reserve. While it's entirely possible to build such a refinery, the question is whether the cost is worth it, especially since it doesn't exactly deliver fuel security. It would instead shift reliance from imported products to imported crude.

ELECTRIFY EVERYTHING Would it instead be better to encourage mining companies and farmers to electrify their operations? Fortescue Metals Group is ​doing just that,a move that Australia's third-biggest iron ore miner says is already paying dividends. Data from clean energy website Renew Economy shows that Fortescue's adoption of electric mining vehicles and renewable electricity generation provides a net annual benefit of A$1.2 billion ($840 million) over using diesel and natural gas power generation. It's not just miners ⁠and farmers that may benefit from going electric. Australian consumers are also shifting sharply towards electric and hybrid vehicles. Sales of EVs, plug-in and so-called "mild" hybrids - which have a small battery and electric motor but can't run on electric power exclusively - came close to half of all sales for a second month in July, according to data from the Federal Chamber of Automotive Industries. Sales of EVs more than tripled in July from the same ⁠month ​a year earlier, while plug-in hybrids surged 157% and mild hybrids jumped 206%, suggesting consumers are responding to fuel-security concerns. HYBRID TRANSITION It may sound like a contradiction, but it's possible that Australia could benefit from pursuing both paths to some degree. Despite the high costs of building a new refinery, having such a facility would offer some protection from the type of refined fuel crisis the world is currently experiencing. At the same time, pursuing a hybrid plan could reduce the political costof the transition, providing the country time to accelerate electrification where it makes economic sense. This strategy would acknowledge that fossil fuels are likely to be part of the energy mix for at least two more ⁠decades, while also working to lower dependence on them.

This is a lesson most energy importers will need to learn, and there are signs that this process is already underway. For example, Vietnam is adopting policies to boost the domestic production and sales of EVs, but also electric scooters, a major shift given motorbikes are the ⁠most popular form of personal transport in the Southeast Asian nation of 102 million people.

Similarly, Indonesia is ⁠targeting an all-electric bus fleet by 2045, while also promoting a shift to electric scooters and EVs, and Thailand is providing a subsidy of up to 100,000 baht ($3,020) for purchases of EVs as it is rapidly building public charging infrastructure. The answer to energy security will vary by nation, but the common theme is the need for diversification - both in where countries source their energy and the types they consume. (The views expressed here are those of the Clyde Russell, a columnist for Reuters.)

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