Iran war switches energy investment priorities from climate to security where electricity is king - IEA

The Iran war has switched up government’s priorities and energy investments are now driven less by climate targets than by security concerns, as governments respond to the second major energy crisis in five years.

Green goals have been downgraded as diversifying supply routes, strengthening electricity networks and accelerating investment into renewables and whatever domestically available energy resources exist have become the priorities, according to the International Energy Agency's (IEA) 2026 World Energy Investment report.

“The energy shock caused by the conflict in the Middle East and the effective closure of the Strait of Hormuz has fundamentally altered perceptions of energy security, reinforcing trends that first emerged following Russia's invasion of Ukraine in 2022,” the IEA said.

"We are in the midst of the largest energy security crisis the world has ever faced – and I believe this will reshape investment strategies globally, with parallels to the major changes the energy world witnessed after the oil shocks of the 1970s," said IEA Executive Director Fatih Birol.

"We are already seeing intensified efforts by both producer and consumer countries to diversify trade routes and energy sources – such as advancing new pipelines and other supply infrastructure, on the one hand, and turning more to domestically available resources, on the other."

"These range from renewables and nuclear to coal, oil and gas, in some cases – as well as broader measures to strengthen electricity systems, expand electrification and accelerate energy efficiency."

Rather than replacing fossil fuels outright, many governments are investing across a broader range of technologies to reduce dependence on vulnerable international supply chains, including coal’s unexpected comeback, which has seen demand and prices rise this year.

Electricity takes centre stage

We have entered the Age of Electricity, according to the IEA, led by China which is attempting to be the leading electrostate.

The IEA expects global energy investment to reach a record $3.4 trillion in 2026, a modest increase on last year despite heightened geopolitical uncertainty.

More than two-thirds of total spending—around $2.2 trillion—will be directed towards electricity infrastructure, including power grids, battery storage, renewables, nuclear energy, low-emissions fuels, electrification and energy efficiency.

By comparison, investment in oil, natural gas and coal is forecast to total approximately $1.2 trillion.

The figures illustrate how electricity systems have become the central focus of global energy policy. Governments are increasingly treating stronger grids, storage capacity and domestic power generation as strategic assets capable of reducing exposure to external supply shocks.

The renewed emphasis on electricity also reflects surging demand from data centres, artificial intelligence and electrification across transport and industry.

Diversification replaces dependence

The latest crisis has accelerated efforts already under way since Europe's break with Russian energy supplies after 2022.

Countries across Asia and the Middle East—those most exposed to disruptions in shipping through the Strait of Hormuz—are investing simultaneously in alternative trade routes, additional pipeline capacity, LNG infrastructure and domestic energy production.

Rather than relying on a single transition pathway, governments are broadening their energy mix.

For some countries this means accelerating renewable deployment and nuclear construction. Others are extending the lives of coal-fired power stations, increasing domestic oil and gas production or investing in strategic fuel reserves.

The common objective is resilience rather than optimisation.

Oil investment continues to weaken

Perhaps the report's most surprising conclusion is that higher oil prices have failed to trigger a new wave of upstream investment.

Despite the recent spike caused by the Gulf conflict, global investment in oil production is expected to decline for a third consecutive year, falling below $500bn in 2026.

The IEA says producers remain cautious because they believe the latest price rally will prove temporary.

Uncertainty over how long elevated prices will persist, combined with long development times for major projects, supply-chain constraints and tighter offshore drilling markets, has discouraged investment outside the Middle East.

That contrasts sharply with previous oil shocks, when higher prices typically led to rapid increases in exploration and production spending.

Gas becomes the transition fuel

Natural gas continues to attract growing investment as governments seek flexible alternatives to both coal and oil.

The IEA forecasts global gas investment will rise to $330bn in 2026—the highest level in a decade—driven primarily by a new wave of liquefied natural gas export projects in the United States and Qatar.

The expansion reflects continuing demand for LNG following Europe's shift away from Russian pipeline gas and growing Asian consumption.

The report suggests that while renewables remain the fastest-growing source of new electricity generation, gas continues to play an essential role in balancing increasingly renewable-heavy electricity systems.

A structural shift

Taken together, the figures suggest the recent Middle East crisis is reinforcing rather than reversing longer-term changes in global energy investment.

The first energy shock—Russia's invasion of Ukraine—forced governments to diversify away from Russian hydrocarbons. The second has highlighted the vulnerability of global shipping routes and concentrated supply chains.

Rather than betting on a single energy source, countries are increasingly investing across multiple technologies while strengthening domestic electricity systems and reducing reliance on critical import routes.

If that trend continues, the geopolitical shocks of the 2020s may prove as influential for global energy investment as the oil crises were half a century ago.