Moneycontrol Pro Panorama | War and the return of strategic diversification

The Iran war has come as a rude wake-up call on the perils of depending on external energy sources.

Dear Reader,

Just as the world is going slow on the green energy transition, the Iran war has come as a rude wake-up call on the perils of depending on external energy sources. The realisation is starker in Europe and Asia, two regions that source a significant amount of fuel from abroad.

The turbulence can influence government policies and reshape consumer behaviour. Automobile replacements and second vehicle purchases will increasingly tilt towards electric vehicles (EVs), even as the war and gas shortages dampen sales of traditional vehicles. Companies such as Tata Motors, Mahindra & Mahindra, VinFast, MG, TVS Motor Co and Hero MotoCorp already sell EVs at competitive prices.

“One beneficiary of higher oil prices could be a quicker shift in consumer sentiment towards EVs,” analysts at Nomura said in a note.

Sales of induction cooktops and electric kitchen appliances are flying off the shelves as households and consumers look to find alternatives to gas stoves. If the current war situation persists for longer duration, then induction cooktop sales can rise multi-fold this year even though supplies can become a constraint.

Shares of cooking appliances maker TTK Prestige rose sharply this week.

Whether households will maintain their heightened preference for electric kitchen appliances after the war has to be seen. Kitchens in commercial establishments will look to get electrified. Already quick service restaurants use higher levels of electric cooking equipment.

At the macro level, governments across the world are likely to give greater preference for self-reliance and energy procurement diversification. This can be achieved by harnessing natural resources, conventional energy and new technologies—hydro and nuclear power, biogas, solar and wind energy and energy storage systems.

Of course, countries across the world have been pursuing alternative energy sources even before the war. However, reducing import dependency, building self-reliance and diversification of energy and commodity sources will become an important policy strategy. The conflict will add an urgency that can accelerate adoption.

“The Iran shock has made the cost of dependence painfully visible. Countries that fail to diversify and stockpile will find themselves strategically bankrupt the next time a chokepoint is threatened,” writes Manas Chakravarty.

Pankaj Sharma, Former Additional Director, Petroleum Planning and Analysis Cell explains here how India’s ethanol blending program is displacing a large quantity of crude oil. Such programs become important in times such as these when an energy crunch is developing.

Sharma argues the ethanol success story can be expanded to compressed biogas and sustainable aviation fuel, helping build self-reliance mechanisms. This can open new opportunities for local enterprises and create income sources for the agriculture sector.

For others such as green power equipment makers and project developers, the current fuel crunch can open up new business opportunities in Europe, Asia and their home market India. The key is to remain competitive, invest in new technologies and embrace opportunities.

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