The World Council of Environmental and Resource Economists Associations – WCEREA, in collaboration with the International Association for Energy Economics (IAEE), hosted a policy webinar on “The implications of the ongoing war in the Middle East for climate policy and the green transition” on September 25, 2026. The session brought together distinguished experts to examine the structural energy disruptions caused by the 2026 conflict in the Middle East and its complex effects on global climate action, featuring contributions from Lutz Kilian (Federal Reserve Bank of Dallas and CEPR), Anne Neumann (NTNU), and Toshi H. Arimura (Waseda University).

The geopolitical crisis and the closure of the Strait of Hormuz in 2026 have severely disrupted international oil and gas trade, triggering concerns over energy security and price volatility. While higher fossil fuel costs inherently generate an implicit carbon price signal that could accelerate decarbonization, government interventions designed to cushion consumers often produce countervailing effects. The panel addressed how different economic blocs are navigating this dilemma, contrasting short-term emergency responses with long-term transition pathways.

Lutz Kilian assessed the macroeconomic magnitude of the oil supply disruption, noting that while the physical supply shock is more than twice the peak decline seen in historical crises such as 1973 or 1990, modern economies display greater structural resilience due to falling oil expenditure shares and dynamic inventory adjustments. He highlighted that the U.S., as a net exporter, remains considerably more insulated than oil-importing regions in Europe and Asia. Kilian pointed out that fuel and refined product prices have surged substantially more than crude oil due to refinery constraints and the loss of Middle Eastern diesel and jet fuel exports. He concluded that while high prices will economically spur demand for electric vehicles and heat pumps, economic and energy security priorities may temporarily overshadow climate policy, leading to a pragmatic resurgence of coal and fossil alternatives in the near term.

Anne Neumann evaluated European gas markets and the strategic policy lessons drawn from the 2022 energy crisis. She analyzed how the closure of the Strait of Hormuz directly affects global LNG flows and EU import reliance, especially concerning Qatari supplies. Neumann stressed that the current 2026 shock functions primarily as a scarcity price increase rather than an absolute physical cutoff as in 2022. In discussing policy instruments, she emphasized that targeted incentives for demand reduction remain critical, while warning that broad household price caps are economically inefficient, distort markets, and actively undermine carbon pricing mechanisms.

Toshi H. Arimura analyzed the Asian perspective, detailing the competing “acceleration” and “delay” channels across the region. On one hand, acute energy pressures have accelerated EV adoption (notably in China), boosted regional power grid integration, and prompted higher renewable targets (such as Malaysia’s 35% goal by 2030). On the other hand, urgent energy security concerns have led to the restarting of selected coal plants and discussions regarding the postponement of planned carbon taxes. Arimura reviewed Japan’s Green Transformation (GX) framework and transition bonds, concluding that while security-driven measures may cause near-term delays in implementing explicit carbon pricing, the long-term regional trajectory toward decarbonization, electrification, and efficiency remains intact.

The webinar concluded that energy shocks do not automatically propel or hinder climate policy; rather, regulatory design and political choices determine the outcome. Sustainable transition frameworks must successfully bridge the gap between emergency energy security measures and credible, durable investment incentives for clean technologies.

Report by EAERE Communication Support Team.

Watch the video recording on the WCEREA YouTube channel.

Access the panelists’ slides: