Dr.Fawzy Younis: How Wars Are Redrawing the Global Energy Map and Carbon Markets

“A Reading on the Impact of Geopolitical Conflicts…

At the outset, it is essential to emphasize that, amid escalating geopolitical tensions in the Middle East, global concern is rising—not only about energy security but also regarding the implications of these conflicts for climate dynamics and carbon markets. An analysis of the relationship between geopolitical instability and energy transitions reveals a troubling pattern: major conflicts often reshape the global energy mix in ways that increase emissions and, consequently, drive higher demand for carbon credits.

This article, supported by scientific literature and international reports, examines the mechanisms linking Middle Eastern conflicts to carbon markets and provides a forward-looking perspective on the implications of this complex relationship.

1. The Nexus of Geopolitics, Energy, and Climate: An Entry Point

The Middle East constitutes the قلب of the global energy system. Strategic chokepoints—most notably the Strait of Hormuz—handle nearly one-third of global oil trade and about 20% of liquefied natural gas (LNG) flows. Any disruption to this critical passage not only threatens energy supply but also reshapes global emissions patterns and carbon markets.

Wars today extend beyond borders and sovereignty; their impacts reach the atmosphere itself.

Recent events—particularly since the Russia–Ukraine war—demonstrate that major geopolitical disruptions often lead to:

* Immediate volatility in energy markets and sharp price increases.

* A temporary return to more carbon-intensive fuels such as coal.

* A direct rise in greenhouse gas emissions.

* Increased demand for carbon credits as compensatory mechanisms.

2. Energy Supply Disruptions as a Central Driver: The Strait of Hormuz Case

Global markets—especially in Asia and Europe—depend heavily on oil and LNG supplies from the Gulf region. According to the International Energy Agency (IEA, Q3 2025), approximately 85% of LNG flows through the Strait of Hormuz are directed to Asian markets, with the remainder going to Europe. China and India alone account for nearly 45% of LNG imports from Qatar and the UAE.

Immediate impacts of military escalation include:

Sharp increases in gas prices (e.g., TTF and JKM benchmarks).

Potential supply losses of up to 330 million cubic meters per day.

Significant vulnerability in countries such as Bangladesh, India, Pakistan, and Taiwan.

Limited short-term alternatives, often forcing a shift toward coal or oil.

A study by the Barcelona School of Economics highlights the “carbon rebound effect,” whereby policy or market responses to energy shocks can unintentionally increase overall energy consumption and emissions.

3. The Return to Coal: The Fastest and Dirtiest Option

When gas becomes scarce or expensive, coal emerges as the most practical alternative—despite its environmental cost.

Implications for emissions:

Coal emits nearly twice as much CO₂ per unit of energy compared to natural gas.

Facilities exceeding emission caps in systems like the EU Emissions Trading System (EU ETS) must purchase additional carbon allowances.

This directly increases demand for carbon credits.

A March 2026 report by Clean Energy Wire described the Middle East conflict as a “seismic external shock” with deep internal consequences for Europe, intensifying debates over the future of carbon markets.

4. Emissions and Carbon Markets: How the Mechanism Works

Carbon pricing systems operate on a simple principle: the polluter pays. Thus, any increase in emissions results in:

1. Greater demand for carbon credits.

2. Upward pressure on carbon prices.

However, this relationship is not always linear. As highlighted by Aboitiz Eyes (2026), the impact of war on carbon markets is dual-directional:

Short-term effect: Governments may deprioritize climate policies, leading to temporary declines in carbon prices.

Long-term effect: Strengthened climate policies and energy diversification drive sustained increases in carbon prices.

Academic research also warns of “mitigation deterrence,” where excessive reliance on carbon offsets reduces investment in renewable energy and carbon capture while slightly increasing fossil fuel investments.

5. Lessons from the 2022 Crisis

The Russia–Ukraine war provides a reference framework:

Temporary return to coal in Europe.

Increased emissions after years of decline.

Significant volatility in EU ETS carbon prices.

By 2025, EU carbon prices fluctuated between €60–85 per ton, with expectations of reaching €90–100 by 2026 as climate priorities regain prominence.

6. Indirect Effects on Emissions

Beyond fuel switching, conflicts produce indirect impacts:

1. Expansion of LNG production

Countries such as Qatar and the United States are scaling up LNG capacity, potentially adding 300 bcm annually by 2030—leading to increased lifecycle emissions, including methane.

2. Supply chain disruptions

Longer shipping routes increase fuel consumption and scope 3 emissions.

3. Delayed energy transition

Geopolitical shocks often redirect investment from renewables toward securing fossil fuel supplies, slowing decarbonization efforts.

7. Infrastructure Disruptions: A Shock Scenario

Any disruption to major Gulf energy facilities—particularly in Qatar—would trigger:

Immediate supply shocks in Asia (Japan, South Korea, China, India).

Increased reliance on coal and oil.

Rapid and significant spikes in CO₂ emissions over short periods.

8. Why Carbon Credit Demand Will Rise

Three main drivers explain the increase in demand:

1. Higher actual emissions due to fossil fuel substitution.

2. Tighter climate policies (medium term) despite temporary relaxation.

3. Lack of immediate alternatives, as renewables can not quickly replace lost gas supply.

9. Future Outlook: Scenarios (2026–2030)

Short-term escalation (3–6 months):

Moderate emission increases (5–10%) and temporary carbon price volatility.

Prolonged conflict (>12 months):

Sustained price increases (+30–50%) and significant emission growth (15–25%).

Accelerated transition scenario:

Expansion of carbon markets and long-term emission reductions.

Strategic opportunities for developing countries:

Attract climate finance through nature-based solutions.

Promote green economic development.

Strengthen climate diplomacy roles.

However, reliance on forest offsets may create moral hazards and weaken incentives for real emission reductions.

10. Conclusions and Policy Recommendations

The evolving crisis highlights the deep interconnection between geopolitics, energy, and climate. Wars reshape not only borders but also atmospheric outcomes. While fossil fuel fallback and carbon offsets may offer short-term relief, they risk exacerbating the climate crisis.

Key recommendations:

1. Diversify energy sources, prioritizing local renewable systems.

2. Design resilient carbon markets with stabilization mechanisms.

3. Distinguish between temporary offsets and permanent emission reductions.

4. Invest in sustainable energy systems in vulnerable regions.

Final Reflection

The central question remains:

Will the world remain trapped in the cycle of “crisis → fossil fuels → emissions → offsets,” or will these shocks accelerate the transition to a low-carbon economy?

Evidence suggests that the answer depends on the duration and severity of crises. Short shocks tend to delay progress, while prolonged crises may catalyze structural transformation—provided policymakers seize the opportunity to convert disruption into long-term change.

Finally, we can say geopolitical conflicts—particularly in energy-sensitive regions such as the Middle East—are no longer isolated political or security events; they have become powerful drivers shaping the trajectory of global energy systems and climate outcomes. This analysis demonstrates that such conflicts trigger a chain reaction: disrupting energy supplies, forcing a Returning to the most polluting fossil fuels، increasing greenhouse gas emissions, and ultimately intensifying demand for carbon credits.

However, the relationship between war, energy, and carbon markets is inherently dynamic and non-linear. In the short term, crises tend to weaken climate ambition, create volatility in carbon markets, and delay decarbonization efforts. Yet, over the longer term, these same disruptions can act as catalysts for structural transformation—accelerating investments in renewable energy, strengthening carbon pricing mechanisms and reinforcing the strategic importance of climate policies.

The critical insight is that carbon markets, while essential, cannot substitute for real emissions reductions. Overreliance on carbon offsets risks perpetuating a cycle of temporary compensation rather than systemic change. Therefore, the effectiveness of global climate action in times of geopolitical instability depends on maintaining a careful balance between energy security and environmental integrity.

Ultimately, the future pathway will be determined by policy choices. If governments respond to crises with short-term fixes alone, the world risks becoming locked in a recurring loop of “conflict-driven emissions and compensatory markets.” Conversely, if crises are leveraged as opportunities for deep structural reform, they can accelerate the transition toward a resilient, low-carbon global energy system.

In this context, geopolitical instability should not be viewed solely as a risk—but also as a turning point that can redefine priorities, reshape markets, and potentially fast-track the global transition to sustainability