A crude oil tanker in El Segundo, Calif., on Wednesday.Damian Dovarganes/The Associated Press
If you were under the impression we were well on our way to decarbonizing the global economy, the conflict now engulfing the Middle East should serve as a dose of old-world reality.
Oil still powers the world. And when its supply is seriously disrupted, financial and economic turmoil is never far behind. Evidence of our hopeless oil dependency is there in the financial markets’ latest disturbance, which on Thursday dragged the TSX in Canada and the Dow Jones Industrial Average in the U.S. down by a further 1 per cent and 1.6 per cent, respectively.
We may fool ourselves into thinking we’ve evolved since the oil-crisis days of the 1970s, when oil embargoes and shortages sparked a Canadian recession, inflation as high as 12 per cent and one of the worst stock-market crashes in TSX history.
How the closing of the Strait of Hormuz is affecting global oil markets
But how much has really changed? In 1973, fossil fuels accounted for about 87 per cent of total global energy supply. That number today: 81 per cent.
Six lousy percentage points. That’s the sum total of half a century of technological progress, climate commitments, emissions reductions and the buildout of clean, renewable energy sources.
“Fossil fuels are projected to retain a large share of the energy mix beyond 2050,” McKinsey said in its latest Global Energy Perspective report. “Crucial alternative fuels are not likely to achieve broad adoption before 2040 unless mandated.”
Something else that hasn’t changed since the 1970s – how much we need oil from the Persian Gulf.
In 1973, the region was responsible for supplying 34 per cent of global crude oil. Today, it’s 31 per cent.
“This share has remained high despite the fracking-based rise in U.S. production … which has made America self-sufficient in oil but hasn’t changed the fact that Middle Eastern oil remains crucial for the world economy as a whole,” Nobel Prize-winning economist Paul Krugman wrote in a newsletter this week.
Horsemen ride through the streets of Amsterdam on a 'motorless day', when cars were prohibited due to the oil crisis in the Middle East in November, 1973.Keystone/Getty Images
Hence, the panic creeping into the oil market. The conflict that began with the United States and Israel bombing Iran and killing its senior leadership now involves at least 17 countries, and has choked off the crucial Strait of Hormuz, through which 20 million barrels of oil travel every day.
The clock is ticking. Crude oil prices have already spiked by 25 per cent in just a week. There is a very limited amount of time to secure the global supply chain before an oil price shock begins to take shape.
Clearly, such things have not been relegated to the 1970s. Oil shocks remain potent economy-killers.
While there has been urgency to weaning the world from its oil dependency in recent years, much of that momentum has been lost.
Tanker attack in the northern Persian Gulf boosts oil and gas prices, signals Iran war is widening
U.S. President Donald Trump has loosened pollution controls and revoked the scientific ruling that greenhouse gas emissions endanger human health, which was the basis for all federal climate-change initiatives.
Mr. Trump refers to climate change as a “hoax” and has declared an “end to the war on beautiful, clean coal.”
The use of coal in Western economies has been in decline for decades. But the same is not true on a global scale.
In fact, coal’s share of the global supply mix has increased slightly since the 1970s, and was at about 28 per cent in 2023, according to data from the International Energy Agency.
The intensity of the attacks, the killing of Iranian Supreme Leader Ayatollah Ali Khamenei, and the lack of any apparent exit plan indicates the conflict would not end anytime soon.
The Associated Press
The phasing out of coal in the West has been more than offset by rising demand in Asia-Pacific countries, primarily China – the world’s largest coal consumer.
Also relatively unchanged in the overall energy mix is the minimal importance of renewable sources of energy. Their piece of the pie accounted for 12 per cent of overall supply in 2023. And most of that is biofuels. Solar, wind and other renewables made up a paltry 3.2 per cent.
The bigger change has been the rise of natural gas, which has displaced coal and oil use in many contexts. Natural gas emits as much as 50 per cent less carbon dioxide than coal. So it’s often described as a “transition” fuel because it provides an immediate cleaner alternative during the long-term green energy shift.
But still, emissions continue to rise despite all the global efforts to decarbonize energy systems.
Welcome to the brave new world. It looks a lot like the old one.