The clean energy industry recently emerged from a fight with inflation. Now, with energy prices surging, it may have to brace for another round.
Economic analysts are increasingly concerned about the potential effects of inflation as oil and gas prices soar due to the Iran war launched by the United States and Israel 12 days ago. Energy infrastructure such as storage tanks, refineries and natural gas facilities are increasingly being struck by forces on both sides of the conflict. Oil tankers have all but stopped passing through the Strait of Hormuz, driving U.S. gasoline prices to levels not seen in several years.
Some clean energy boosters argue that the war could aid in the adoption of alternatives like wind and solar, since they provide a hedge against fossil fuel supply disruptions. While the fighting may prod some countries to diversify their energy supplies, analysts said it also increases the economic risks for a clean energy industry that remains bruised from its last bout with high interest rates and disrupted supply chains.
A prolonged war with Iran could raise the cost of clean energy manufacturing, analysts said, pointing to the past effects of the pandemic and Russia’s invasion of Ukraine in 2022. Renewables are highly sensitive to interest rates because so much of their costs are tied to upfront capital investments.
Interest rates in much of the world remain above 2022 levels, when inflationary pressures prompted a round of rate hikes from central banks worldwide. Financial regulators might be more hesitant now to cut rates in the face of mounting uncertainty about the state of the global economy, analysts said.
“Right now, we’re going to go through a pretty big oil shock that’s not quite an energy shock, but the seeds for broader energy shock are clearly there,” said Joe Brusuelas, chief economist at the consulting firm RSM US. He expressed concern that the world could be hurtling toward a period of stagflation, where inflation rises even as economic growth slows.
Clean energy technologies like solar, wind and batteries have enjoyed considerable success in recent years, as money poured into green alternatives. Investments in renewables, nuclear energy and power grids were roughly twice as large as the amount of money that went into oil and gas production in 2025. That helped clean power sources like wind, solar and hydro generate more electricity collectively than coal last year, according to the International Energy Agency.
Spiking inflation between 2022 and 2023 blunted some of the industry’s long-term growth. Wind and solar costs, which fell consistently before 2022, jumped as the costs of inputs like steel and aluminum used in renewable developments increased. Higher interest rates compounded the problem, making it more expensive to finance new projects.
Wind was hit particularly hard, as turbine manufacturers locked in contracts for making new blades, towers and other components at low prices, only to see their input costs soar.
“Interest rates play a role in project financing, and inflation plays a role in the cost and the levelized cost of all this stuff,” said James West, an equities analyst who tracks the energy industry at Melius Research.
There are some important differences between the economic hurdles facing renewables today and four years ago. In 2022, interest rates were moving higher as central banks grappled with inflation. Today, the question is whether central banks will forge ahead with planned rate cuts or delay those decisions in the face of rising oil and gas prices.
Banking regulators traditionally viewed energy price spikes as transitory, but the experience in recent years has made some more sensitive to rapidly moving oil and gas prices, Oxford Economics said in a note to clients.
The consulting firm anticipates the Bank of England could delay rate cuts when it meets this month as it waits for more information about the economic toll of the war. In the U.S., the Federal Reserve is still expected by Oxford Economics to move ahead with rate cuts in June and September. But other analysts, like Brusuelas, said it would not be surprising if the Fed decides to delay cutting rates due to concerns over inflation. Oxford Economics said the European Central Bank could maintain its current rate of 2 percent, but noted that the bank’s policy could become more restrictive if energy prices remain elevated.
The discrepancy in monetary policy underscores a bigger point. The economic costs of the Iran war will have varying degrees of influence on the transition to cleaner energy in different parts of the world. Natural gas prices are a key factor in the pace of that shift. Higher gas prices encourage renewable energy development and support the expansion of coal, particularly in Asia.
The U.S, the world’s largest producer of natural gas, is relatively insulated from those pressures. Henry Hub, the U.S. gas benchmark, has risen from roughly $2.8 per million British thermal units before the conflict began on Feb. 27 to $3.1 per mmBtu this week.
In recent years, low natural gas prices, higher capital costs and rising levels of policy uncertainty have made clean energy less enticing to investors, said Alex Dewar, an analyst who follows the sector at the Boston Consulting Group. While a slight increase in gas prices would be supportive of renewables, the war with Iran “doesn’t necessarily inherently change a lot of the equation,” he said.
President Donald Trump’s opposition to renewables continues to create a long-term drag on clean energy, while a prolonged conflict could raise input costs for manufacturing, making wind, solar and batteries more expensive, Dewar said.
The story is different in much of Europe and Asia, both of which import large amounts of liquefied natural gas and are exposed to the energy repercussions emanating from the Persian Gulf. Qatar’s Ras Laffan LNG facility, the largest in the world, was shut down after being hit by an Iranian drone last week. It’s expected to be offline for at least a month. Europe’s gas benchmark has risen from almost $36 per megawatt-hour on the eve of the conflict to more than $55 MWh this week. Asia’s benchmark LNG price has risen from $10.70 mmBTU to more than $16 mmBTU.
Europe and China have made clean energy a key component of their energy security strategies, seeking to boost renewables as a means of limiting imports of oil and gas. In an interview with POLITICO on Monday, the chair of the European Parliament’s environment committee, Pierfrancesco Maran, said the conflict had validated the bloc’s efforts to boost renewables, while lowering its reliance on fossil fuels.
The war is likely to reinforce attempts to bolster energy security by expanding clean energy, said Sherri Goodman, a former deputy undersecretary of Defense during the Clinton administration.
“The more diversified an economy is, the better off its energy security for the medium to long term,” Goodman said.
The duration of the conflict, analysts said, will be the biggest factor in determining its impact on clean energy — and predicting that is difficult. Trump has moved between declaring the war ahead of schedule and threatening prolonged attacks in order to destroy Iran’s government.
The longer it plays out, the more likely countries are to see clean energy as an effective hedge against price spikes driven by oil and gas supply disruptions, said West of Melius Research.
“I think what the closing of the Strait of Hormuz does is it just once again shows you that it’s a fragile world,” he said. “And so the idea that you would base all of your power off of something you need to import makes it scary for countries.”
