Geopolitical Turmoil in Iran: A Catalyst for Lower Long-Term Risk Premiums in Renewable Energy Investments

[OPINION]

March 12, 2026. We have officially entered Day 13 of the ongoing U.S.-Israeli military campaign against Iran, one marked by intense airstrikes on Tehran, drone attacks on Iranian checkpoints, and escalating disruptions in the Strait of Hormuz. Iranian forces have reportedly placed mines in this critical waterway and have engaged in projectile attacks on commercial ships. All of this has resulted in a virtual blockade of a chokepoint that handles 20% of the world’s oil transit.

The effects of this are being felt worldwide.

In the United States, gasoline prices are notably higher and climbing. In the first week alone, Brent crude surged more than 30 percent on Sunday to approximately $115 per barrel before falling to current levels in the mid-$90s. West Texas Intermediate (WTI) rocketed from approximately $70/barrel, to as much as $95. In Europe, energy prices are rising to such an extent, the EU is considering capping gas prices. But as concerns mount over a prolonged disruption to global energy supplies, it underscores the fragility of fossil fuel-dependent economies, specifically those of net importers.

This conflict, which targeted key military and oil infrastructure, has amplified longstanding geopolitical risks in the Middle East. For investors, the immediate fallout is clear: heightened volatility in oil markets, with prices soaring to levels not seen in years.

I write this short note to emphasize a very specific point: it is becoming increasingly clear these disruptions will paradoxically reduce the long-term risk premium associated with renewable energy investments. The logic flows like this:

1.        Energy disruptions (wars, supply shocks, geopolitical tension) create instability in fossil fuel markets.

2.        That instability highlights the strategic value of domestic renewable energy.

3.        Over time, investors may see renewables as more stable and predictable.

4.        Therefore, the risk premium investors demand for renewable projects declines.

Let’s unpack this a little bit more, starting with an explanation of the risk premium:

At its core, the risk premium represents the additional return investors demand to compensate for uncertainty. As renewables begin to shield sovereigns from the very same energy-related geopolitical instability now unfolding, solar, wind, and other clean technologies will become more attractive long-term strategies. Fossil fuels, by contrast, have historically carried a significant geopolitical risk premium due to their concentration in volatile regions like the Middle East- so much so that entire political doctrines have been constructed to ensure supply.

While Iran's effective blockade of the Strait of Hormuz has severed access to millions of barrels of oil daily, countries have been forced to scramble for alternatives, thereby exposing their economies to inevitable inflationary shocks the longer this conflict drags on. On the other hand, renewables offer "homegrown" energy sources that are less susceptible to international conflicts, supply chain chokepoints, or sanctions.

To summarize: over the long term, sustained oil price volatility stemming from the current Middle East crisis may enhance the economic appeal of the renewable energy ecosystem. Higher and more unpredictable fossil fuel costs, combined with the continued cost declines that accompany renewable scale-up, will accelerate the adoption of solar, wind, and energy storage technologies.

As deployment expands, markets may increasingly view renewables as structurally resilient to geopolitical shocks. That perception should gradually compress the risk premium attached to renewable investments.

Lower perceived risk translates into cheaper capital. Cheaper capital enables faster deployment, which in turn drives further cost reductions through scale and learning. The result is a virtuous cycle: greater energy security achieved through reduced dependence on fossil fuels and diminished exposure to future geopolitical volatility.

For policymakers, this dynamic promises greater energy security. For investors, it makes renewables an increasingly compelling strategic core of a resilient, diversified, and future-proof portfolio.

Disclaimer: The content contained herein is provided for general informational purposes and does not constitute a recommendation, offer, or solicitation to buy or sell any securities. The content reflects the writer’s views and analysis as of the time of writing and are intended to support investment decision-making by providing an analytical perspective and context. The content does not address every factor relevant to any particular investor’s circumstances, and investors should evaluate their own facts and circumstances before making any investment decision. Past performance is not indicative of future results.