The Coming Oil Shock: Why the Strait of Hormuz Crisis Will Reshape the Power & Renewables Industry
Even in an electrifying world, oil chokepoints still ripple through grids, project economics and renewable supply chains, via transport, petrochemicals and the industrial base that builds power hardware.
A Fragile Global Energy System
It is tempting to assume that rapid electrification insulates the energy sector from oil. The reality is more complex: oil remains a foundational input to global logistics, petrochemicals and heavy industry. These systems underpin the build-out of renewables, grid reinforcement and the power electronics industry.
The Strait of Hormuz is a narrow maritime corridor between the Persian Gulf and the Arabian Sea. Because so much oil (and liquefied natural gas) must pass through it, and because bypass options are limited, it functions as a single point of failure for the global energy system.
- Approximately 20–25% of global seaborne oil passes through the Strait of Hormuz (often cited at ~20 million barrels/day including oil products).
- A large majority of that flow is destined for Asia (commonly estimated around ~80%).
In practice, a disruption at the Strait of Hormuz is not just a geopolitical problem. It is an infrastructure shock that can propagate quickly into the energy and renewables industry through multiple channels:
- Oil markets are global and tightly interconnected, meaning regional disruptions reprice global barrels.
- Renewable equipment and power electronics depend on oil-linked logistics, and petrochemical inputs therefore put the supply chain at risk.
- The energy industry often underestimates how deeply project delivery depends on shipping, trucking, and industrial feedstocks.
The common assumption is that a larger number of renewable energy projects connected to grid means less exposure to the oil industry. A more accurate view is that oil disruptions still ripple through the electricity supply chain, raising costs, constraining materials and delaying delivery. This will continue to happen unless and until the industrial base and logistics behind electrification are also made more resilient.
Strait of Hormuz Crisis: The Scale of the Shock
During the first sweep of lockdowns of the Covid-19 pandemic, restrictions on movement, industry, and commerce created a reduction in the use of fuel globally by about 20%. The fuel moving through the Strait of Hormuz totals approximately 20-25% of the global supply (in the range of 20 million barrels of crude oil a day). Without mitigation, the current shock as it stands would imply a similar economic contraction to that caused by the Covid-19 lockdowns on the global economy. There are mitigating factors such as oil reserves and the easing of sanctions on oil-producing nations such as Russia and, ironically, Iran, which could reduce the supply shock (and thus economic contraction) to about half of the impact of the Covid-19 lockdowns. However, these are temporary mitigations, and if the crisis continues, these mitigations will quickly lose their effect.
Why haven’t we felt the shock of the Strait of Hormuz Crisis yet?
At first glance, it may seem surprising that global oil markets and energy prices have not already reacted dramatically to hostilities around the Strait of Hormuz. Given that roughly a quarter of the world’s seaborne oil passes through this corridor, many would expect an immediate shock to supply, pricing, and industrial activity.
Along with the mitigations to oil prices, the last oil shipments from the Persian Gulf are still on the oil tanker ships en route to their destinations.
Global oil logistics operate on slow-moving physical infrastructure. Oil tankers move at the speed of maritime transport, typically 12–16 knots (around 20–30 km/h). This means that oil currently being consumed in Europe, Asia, and parts of Africa was loaded and shipped weeks before hostilities began.
According to J.P. Morgan Research, the last oil / liquid natural gas (LNG) shipments from the Persian Gulf will reach Europe by about mid-April 2026. This is not to say that the conflict will not ease by then, or that other mitigations will not be in force, but it is very likely that the impact of the crisis will not be felt fully until shipments start to dry up. Equally, even if the conflict were to end today, getting everything up and running again will take a very long time.
China’s Oil Dependence and the Renewable Supply Chain
This is where the story becomes most relevant for energy-system planners: the renewables industry’s exposure is not only about oil used on-site (diesel generators, construction fuel, etc.). The industry also has to consider the increasing costs due to the supply chain. This crisis is also about where clean-energy hardware is manufactured and what that manufacturing system depends on.
China (and Asia more generally) relies heavily on Middle Eastern oil. China also manufactures a large share of the world’s energy equipment. A Hormuz disruption, therefore, has a plausible pathway into renewable supply chains via industrial energy costs, petrochemical inputs, and logistics constraints.
Why China matters:
- China is among the largest importers of oil that transits Hormuz.
- China is a major manufacturing hub for critical power and renewables hardware, including solar modules, battery energy storage systems (BESS), inverters and other power electronics, transformers, and semiconductors.
- Petrochemical by-products such as plastics are largely produced in China, further increasing prices for electronics and insulation more generally in the event of a disruption.
China receives approximately 35-40% of the oil moving through the Strait of Hormuz. The renewable energy industry is indirectly exposed to Middle Eastern oil through the Chinese industrial base that manufactures large volumes of global energy equipment. If energy, shipping, or petrochemical feedstocks become constrained, the impact can show up as longer lead times, higher prices, and delivery risk for clean-energy projects.
Some examples of oil-linked inputs across grid and renewable hardware include:
- Plastics, resins, and insulation materials
- Packaging materials and protective films
- Cables, coatings, and composite materials
- Specialty chemicals used in semiconductor processing and electronics manufacturing
- Cooling fluids and other industrial consumables
When petrochemical supply tightens, the impact can surface in:
- Inverter and power-electronics production
- Battery energy storage systems and balance-of-system components
- Solar module materials and encapsulants
- Industrial electronics and grid infrastructure hardware
China does have significant oil reserves and has been preparing and stockpiling crude oil in significant quantities in recent years, so is not likely to run out of supply. However, the effect of increased prices will still have a significant effect, and reserves will not last forever.
What this Means for Renewable Developers
The most immediate risk of a global oil shock is not simply higher fuel prices, it is system-wide cost inflation and supply chain instability across the entire energy industry.
Oil sits at the foundation of modern industrial production. When oil prices rise or supply becomes uncertain, the impact propagates far beyond transportation and electricity generation. Equipment costs increase, logistics become more expensive, petrochemical materials become constrained, and procurement timelines begin to stretch. The result is a gradual but persistent increase in project costs across the board.
The first risk to new developments is rising costs.
For developers and utilities, this creates a challenging and uncertain environment. Power system infrastructure depends heavily on oil-linked industrial inputs. Increased oil prices typically lead to:
- higher equipment manufacturing costs (inverters, transformers, switchgear, BESS systems)
- increased transport and shipping costs
- rising petrochemical prices for plastics, insulation, and cabling
- higher semiconductor and power electronics costs
- more expensive construction and EPC contracts
- increased energy costs for industrial production
Even renewable energy infrastructure is affected. Solar panels, battery systems, and grid equipment all rely on global industrial supply chains that depend on energy, petrochemicals, and shipping.
This creates a broad inflationary pressure that pushes up both CAPEX and operational costs for power projects.
A second major risk is for developers is supply chain volatility.
When oil markets become unstable, logistics networks and industrial production slow down. Manufacturers become more cautious, shipping routes change, insurance costs rise, and procurement timelines extend.
This often leads to:
- longer lead times for transformers and power electronics
- delays in battery and inverter deliveries
- unpredictable shipping schedules
- reduced manufacturing output
- increased minimum order quantities
- prioritisation of large customers by suppliers
In practice, this means developers may find that equipment which previously took 8–12 months to procure now takes 16–24 months or more, with limited pricing certainty.
This creates several challenges:
- cost estimates become less reliable
- project budgets require larger contingency margins
- financing becomes more complex
- investment decisions become riskier
- project timelines become harder to guarantee
Developers may find themselves in a situation where a project that appeared economically viable during planning becomes significantly more expensive by the time procurement begins.
This uncertainty can slow down deployment, delay investment decisions, and increase overall project risk.
Navigating The Oil Shock Implications
In a volatile global energy market, successful project development increasingly depends on accurate procurement insight and realistic pricing estimation.
Understanding how supply chains are evolving, where pricing pressure is likely to emerge, and how lead times are changing becomes critical for making informed decisions. Developers need clearer visibility into equipment markets, industrial costs, and procurement risks to plan effectively in an uncertain environment.
This is where specialist consultancy support becomes valuable.
How Blake Clough Consulting Can Help
At Blake Clough Consulting, we focus on helping power and renewable developers navigate complex and uncertain supply chain environments.
Our approach combines:
- procurement insight into power system equipment markets
- pricing estimation and cost modelling
- realistic lead time and supply chain assessment
- technical understanding of power infrastructure
- strategic planning support for developers and investors
This allows developers to make more accurate cost forecasts, better procurement decisions, and more resilient project plans, even in volatile global market conditions.
Rather than relying on static pricing assumptions, we help clients understand how geopolitical risks, supply chain constraints, and industrial market dynamics affect real-world project costs and timelines.
In an environment shaped by oil shocks, logistics constraints, and global uncertainty, better procurement intelligence and pricing visibility can significantly reduce project risk.