Four years on from Russia’s invasion of Ukraine, we are again reminded of just how fragile the global energy supply chain is. The US-Iran war is a signal that the geopolitical backdrop underpinning global markets is increasingly unstable, and we are unable to estimate the frequency and severity of these shocks. We are now watching the slow unravelling of the globalisation narrative that has defined economic thinking for three decades.
Although the UK imports very little oil from the Middle East directly, we are affected by the volatility in global energy prices. When supply chains are disrupted and prices spike, the consequences do not respect geographical borders – higher inflation, pressure on interest rates and a drag on economic growth are all potential outcomes of this conflict, to which we are exposed. This is why energy independence belongs at the centre of economic planning as a strategic priority, not on the periphery as an abstract policy goal.
Renewables can provide the solution
Global economies are increasingly recognising the need to reduce their dependence on the international oil supply chain. Historically, that recognition ran ahead of any realistic means to act on it. Energy systems were built around the transportation of oil and gas along the world’s trade routes, which, as we are again seeing, are vulnerable to conflict, sanctions and geopolitical brinkmanship. But this is changing, and we see two key areas that we believe may make genuine energy independence achievable.
The first is energy efficiency – the unsung hero of the energy debate. The energy you don’t consume is, by definition, the cheapest energy available. Advances in building insulation, industrial processes, smart grid management and low-energy technologies are reducing the energy that economies need to function. Every unit of demand destroyed is a unit of supply vulnerability removed.
The second is renewable energy. Wind and solar power are now among the cheapest sources of electricity, but their significance goes beyond cost. Unlike oil or gas – which must be extracted, refined, transported and traded across global networks – renewable energy can be generated where it is consumed. The wind blowing across the North Sea does not pass through a chokepoint in the Strait of Hormuz. Solar irradiance over the Iberian Peninsula is not subject to tanker insurance markets. Renewables are inherently domestic and independent. They sever the link between a country’s energy security and the instability of global commodity supply chains, especially when combined with batteries to allow greater flexibility.
The question of fuel
There is a further dimension to this that we believe investors should consider alongside energy generation: fuel for transport. EdenTree’s investment team are long-term subscribers to the view that electric vehicles will represent the dominant transport solution of the coming decades. And this isn’t purely on climate grounds – though those matter – but on the grounds of energy independence and, critically, economics. An economy that has transitioned its vehicle fleet to electric power, charged from domestic renewable energy sources, has effectively removed its transport sector from exposure to oil price volatility.
The direction of travel here is illustrated starkly by China. Beijing’s economic strategy is a deliberate transition from “petrostate” to “electrostate”, as it systemically builds out its domestic renewable energy generation, battery manufacturing capability and electric vehicle adoption at scale.
The contrast with the US is notable. Washington is moving in the opposite direction, doubling down on domestic fossil fuel production and retreating from clean energy policy. From the perspective of long-term energy independence, the electrostate model is the more defensible destination. Fossil fuel wealth does not insulate a country from oil price volatility in global markets – domestic renewable energy sources and electrified transport do.
Our long-term thesis, reinforced
The human toll of conflict is real, and we do not view the events in the Middle East purely through a financial lens. But our responsibility – as investors and as stewards of our clients’ capital – is to look well beyond the immediate shock and understand its long-term implications.
What this moment reinforces for us is a thesis we have held and increasingly built into our investment strategy for some time: that energy efficiency, renewable energy and the infrastructure of energy independence are not niche or ideological positions. The events of the past four years have not weakened our conviction in this thesis – they have strengthened it.
We will continue to seek out the companies and technologies positioned to benefit from this transition because understanding where the world is going – and investing accordingly – is precisely what we are here to do.
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