What the Largest Energy Disruption in History Reveals About Portfolio Risk
As we write this, Brent crude sits above $107 per barrel. Earlier this month it spiked to nearly $120, its highest level since mid-2022. The Strait of Hormuz—a 21-mile-wide waterway through which roughly 20% of the world’s oil and natural gas normally flows—has been effectively closed since late February, following the U.S.-Israeli strikes on Iran. Iraq has cut oil output by 60%. Kuwait and the UAE are shutting in production as storage fills. Qatar has throttled LNG exports. The International Energy Agency has coordinated the release of 400 million barrels from emergency reserves—about four days of global consumption.
This is, by most measures, the largest disruption to global energy supply in history. Larger than the 1973 Arab oil embargo. Larger than the aftermath of the Iranian Revolution. The human consequences are already severe: Pakistan has closed schools to conserve energy, Bangladesh and Myanmar have introduced fuel rationing, and the Philippines has moved to a four-day workweek. Fertilizer supply chains—which depend on natural gas feedstocks now in short supply—face disruption just as the Northern Hemisphere planting season begins, raising the specter of cascading agricultural impacts.
None of this is cause for celebration. People are hurting, and the pain is falling hardest on the world’s most vulnerable populations.
But if we are serious about preventing the next crisis—and the one after that—we have to be honest about what this moment reveals. And what it reveals is not new. It is, in fact, exactly what a structural analysis of the global energy system has been telling us for decades: concentrated dependence on fossil fuels transported through geopolitically fragile chokepoints is a systemic risk, and systemic risks eventually materialize.
What This Crisis Validates
The immediate reflex is to frame this as good news for renewables. And at a high level, the logic holds: solar, wind, and battery storage do not depend on maritime shipping lanes. They are not subject to the whims of a supreme leader deciding whether tankers may pass. Once installed, they generate power from domestic, inexhaustible resources. Every megawatt-hour of electricity produced from renewables is a megawatt-hour that cannot be held hostage by events in the Persian Gulf.
The more important validation, though, is strategic. Consider China. As Jason Bordoff of Columbia’s Center on Global Energy Policy recently observed, this crisis can be seen as a vindication of China’s long-term energy security strategy: curbing oil imports by electrifying its economy, producing more electricity from domestic sources including renewables and coal, and building a massive 1.4-billion-barrel strategic petroleum reserve. That is not an environmental strategy. It is a national security strategy. And it is working exactly as designed during the most severe oil supply shock in modern history.
Meanwhile, Japan—which sources 95% of its crude from the Middle East, with nearly three-quarters transiting the Strait of Hormuz—has been forced into the largest drawdown of its strategic reserves since the system was established in 1978. Analysts have noted that Japan’s longstanding reluctance to invest in renewable capacity has amplified its exposure to exactly this kind of event.
The contrast is instructive. Countries that invested in domestic, non-extractive energy generation are weathering this storm. Countries that didn’t are scrambling.
Why “Just Build Renewables” Oversimplifies
But honesty requires acknowledging the complications. The relationship between high oil prices and the clean energy transition is not as straightforward as the headlines suggest.
First, oil is not primarily an electricity fuel. Renewables displace natural gas and coal in power generation. Oil’s role is in transportation, petrochemicals, fertilizers, and aviation. The electrification of transport via EVs is accelerating, and this crisis will likely accelerate it further—but it does not solve the problem of $5.62-per-gallon gasoline in California today. The substitution is real but incomplete, and it operates on a timeline measured in years, not weeks.
Second, the inflationary shock from an oil crisis can actively impede the energy transition in the near term. When energy costs spike, central banks tighten monetary policy. Goldman Sachs has already pushed back its Federal Reserve rate cut forecast and raised recession odds to 25%. Higher interest rates raise the cost of capital for renewable projects, which are capital-intensive and rate-sensitive. Governments facing fiscal pressure from emergency energy subsidies and strategic reserve deployments may have less appetite for clean energy incentives. The political environment for programs like the Inflation Reduction Act—already under pressure—does not improve when voters are angry about fuel prices.
Third, the supply chains that build the clean energy future are themselves entangled in the global systems being disrupted. Shipping costs, insurance premiums, and materials sourcing are all affected. Building out the alternative requires navigating the wreckage of the old system in real time.
These are not arguments against the transition. They are arguments for having started it earlier and for accelerating it now with clear-eyed awareness of the obstacles.
The Investment Implication
For investors, the question this crisis poses is not “do I care about energy transition?” It is: “can my portfolio survive the next time a 21-mile-wide chokepoint closes?”
Because this will happen again. The specific trigger will differ—it may be the Strait of Hormuz, the Strait of Malacca, the Suez Canal, or something we haven’t anticipated. But the structural vulnerability is permanent for any portfolio whose returns depend on the uninterrupted flow of fossil fuels through geopolitically contested corridors. That is not a risk that can be hedged with a commodity overlay. It is embedded in the architecture of the portfolio itself.
This is what we mean when we say that every investment philosophy built on financing systemic degradation is self-terminating. Not because it is morally wrong—though it may be—but because it is structurally fragile. The thesis that fossil fuel dependency represents a mispriced systemic risk is not a prediction about any single event. It is a recognition that concentrated, extractive, geographically constrained energy systems will periodically fail, and that each failure imposes costs that compound over time.
Portfolios designed around what we call the Next EconomyTM—built on companies solving for energy independence, resource efficiency, electrification, and distributed infrastructure—are not immune to the dislocations of an oil crisis. No portfolio is. But they are structurally less exposed to the specific fragility that just broke the global energy market. Their underlying holdings do not depend on tanker traffic through a contested strait. Their growth trajectories are not leveraged to the geopolitical stability of the Persian Gulf.
That is not a values argument. It is a risk argument. And this week, the risk showed up.
Looking Forward
The Strait of Hormuz will eventually reopen. Oil prices will eventually normalize. The immediate crisis will recede from the headlines. And when it does, the same voices that have dismissed energy transition as idealistic or premature will resume their arguments as if nothing happened.
Don’t let them. What this crisis demonstrates—at enormous human cost—is that the debate over clean energy was never really about values versus returns. It was about whether you take systemic risk seriously or pretend it doesn’t exist. Today’s asset allocation is tomorrow’s production function. The question is whether that production function is built on a foundation that can withstand the world as it actually is—contested, volatile, and structurally shifting away from fossil fuel dependency—or one that requires everything to go right, every day, in a 21-mile-wide stretch of water between Iran and Oman.
The Next Economy is a risk management framework. And right now, it is being stress-tested in real time.
Garvin Jabusch, Co-Founder and CIO, Green Alpha Investments
Erika Karp, President and Partner, Green Alpha Investments
About the Authors
Garvin Jabusch is Co-Founder and Chief Investment Officer of Green Alpha Investments, and portfolio manager of the firm’s Next Economy strategies including the AXS Green Alpha ETF (NXTE). Erika Karp is President and Partner of Green Alpha Investments, a founding advisory board member of SASB (now part of the IFRS Foundation), and a veteran of institutional finance with decades of experience in sustainable investment strategy.
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Sources include reporting and analysis from the U.S. Energy Information Administration, the International Energy Agency, the Council on Foreign Relations, the Center for Strategic and International Studies, the Goldman Sachs Global Commodities desk, the Chicago Council on Global Affairs, Bruegel, Heatmap News, NPR, CNN, Fortune, and Al Jazeera. Hyperlinks are embedded throughout the text.
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