Oil shock and critical minerals: the West's twin energy vulnerability

The period has been marked by a series of major alerts from the International Energy Agency (IEA) regarding the risk of a historic oil shock, against a backdrop of renewed tensions between the United States and Iran. The agency warns of a supply disruption that could wipe out the anticipated market surplus and trigger acute global instability.

This threat to fossil-fuel energy security is compounded by heightened vulnerability in the transition's supply chains. A new IEA report highlights the twin threat of persistent underinvestment in critical minerals and the risk of Chinese restrictions on rare-earth exports, jeopardising entire swathes of Western industry. Finally, the climate diplomacy process is itself being caught up in geopolitical tensions, with a controversy between Turkey and Cyprus that threatens to disrupt preparations for COP31.

The IEA warns of a major oil shock in the event of an escalation in the US-Iran conflict

Global energy security is under severe strain this month, with the International Energy Agency (IEA) issuing repeated warnings about the consequences of an escalation in the conflict between the United States and Iran. According to the agency, a fresh flare-up could reverse the oil surplus expected for 2027 and trigger a major supply crisis (Reuters, 10/07). Oil traffic through the Strait of Hormuz, although it has resumed following a ceasefire, remains precarious, and fresh strikes are reviving fears of a closure of the strait (The Economic Times, 12/07).

The IEA has warned that the confrontation could lead to a shortfall of up to 9.4 million barrels per day next year, a volume that would put global markets under severe stress (Futu NiuNiu, 10/07). These warnings, issued throughout July, have highlighted the risk of a supply disruption that would seriously compromise the stability of global energy markets (Moneycontrol.com, 10/07; Majorwaves Energy Report, 13/07). These tensions are seen as a wake-up call for energy security, particularly for the highly import-dependent economies of South-East Asia, which are especially vulnerable to such a crisis (mypanhandle.com, 16/06).

Critical minerals: the twin threat of underinvestment and Chinese restrictions

Alongside the risks in oil markets, the IEA published an alarming report on 16 July concerning the security of supplies of critical minerals essential to the energy transition. The agency notes that the risks it had identified in the past became realities in 2025 (Industrial Info Resources, 22/07). The report highlights a growing concentration of supply, export restrictions and a decline in investment that jeopardise supply security (IEA, 16/07).

Two major trends are particularly worrying. First, despite sharply rising demand, global investment in critical minerals fell by 9% in 2025 (BusinessLine, 19/07). Second, the IEA has assessed that a possible restriction by China of its rare-earth exports could threaten up to $6.5 trillion in Western industrial activity (Bloomberg.com, 16/07; The Edge Malaysia, 16/07). Geopolitical tensions around the Middle East are further aggravating the situation by also disrupting the logistics chains for these materials (trend.az, 16/07).

Geopolitical tensions ahead of COP31 amid the Cypriot controversy

The multilateral climate process is not spared from international tensions. Preparations for COP31, which is to be hosted by Turkey, are being tarnished by a heated diplomatic controversy. On 25 June, the Cypriot government firmly condemned "Turkey's attempt to exclude Cyprus from the informal preparatory processes of COP31" (Hellasjournal.com, 25/06).

This situation has prompted a reaction at the European level. Press reports indicate that European Union member states could consider not participating in the summit if Cyprus were indeed excluded from the preparatory events organised by Turkey (Philenews, 26/06). Such a decision would set a precedent and threaten to fragment participation in a crucial climate conference. This affair highlights how regional conflicts can directly impact and politicise the global climate agenda. Moreover, the management of these events is under scrutiny, as evidenced by the controversy in Australia over a $4.2 million hotel bill for the delegation led by Minister Chris Bowen at the previous COP, which is fuelling a broader debate on the costs and organisation of climate summits (7NEWS, 20/07).

To watch

For the month ahead, the following signals will warrant close monitoring:

• Developments in the Strait of Hormuz and any statement from the IEA or OPEC+ in response to instability in oil markets.
• Beijing's official communications regarding its export policy for rare earths and other critical minerals, following the IEA's warnings.
• Diplomatic developments between Turkey, Cyprus and the European Union concerning participation in COP31, and any statements by the secretariat of the United Nations Framework Convention on Climate Change (UNFCCC) on this matter.
• The publication of new reports by the IEA or other institutions assessing the impact of current geopolitical tensions on investment and the trajectories of the energy transition.