Rising tensions in the Middle East sent natural gas prices sharply higher, creating complex and far-reaching implications for the global energy transition.

In the near term, several countries turned back to coal to manage gas supply risks. But analysts and industry executives said the crisis could ultimately accelerate the shift toward cleaner energy by reinforcing the need for energy security and independence.

Short-term return to coal

As gas supply uncertainty grows, parts of Asia and Europe have reverted to coal, a more stable but higher-emission fuel.

In Asia, Thailand restarted coal-fired power plants, while Japan and South Korea eased restrictions on coal generation to offset potential gas shortages. In Europe, Italy delayed its coal phase-out deadline by more than a decade to 2038, while coal-fired generation in Germany overtook gas.

This is not the first time coal staged a comeback during an energy crisis. Following the outbreak of the Russia–Ukraine war in early 2022, countries including Germany also increased coal use after cuts to Russian pipeline gas. Historical patterns suggest, however, that such rebounds tend to be temporary.

Long-term boost for renewables

Despite the short-term shift toward coal, the longer-term outlook points to an acceleration in renewable energy deployment, as countries seek to reduce dependence on fossil fuel imports from geopolitically sensitive regions.

"From a macro perspective, this is positive for renewables," said Miguel Stilwell d'Andrade, chief executive of Portuguese utility EDP. "It reinforces the need for energy independence, and renewables offer greater resilience to external shocks."

Renewables are expanding at a faster pace than coal. Data from the International Renewable Energy Agency (IRENA) show global installed renewable capacity rose by around 50% since the end of 2022, reaching 5.1 TW.

According to energy think tank Ember, global wind and solar generation in 2025 increased by roughly 800 TWh from a year earlier, equivalent to the UK's annual electricity consumption.

By contrast, additions to coal-fired capacity have been limited. Global coal capacity rose by just 6% in 2025, with closures in Europe largely offsetting growth in Asia. Analysts at Global Energy Monitor (GEM) noted that, aside from steady expansion in China, there has been no significant surge in new coal plant construction elsewhere. Instead, countries mainly increased utilization rates or delayed retirements of existing plants.

For countries such as Italy, a large-scale return to coal remains impractical. Many plants have been idle for years and would require fresh environmental permits and significant investment to restart, said Luca Bergamaschi, co-founder of Italian climate think tank ECCO.

Meanwhile, the cost competitiveness of renewables continues to improve. Solar panel prices fell nearly 70% between early 2022 and the end of 2025, driven largely by capacity expansion in China, while battery costs dropped 36% over the same period, helping to address intermittency challenges.

Ember noted that while fossil fuel prices have been artificially elevated, renewable costs remain on a long-term downward trajectory, enhancing their economic appeal. However, competitiveness still depends on regional gas prices, carbon pricing and resource availability.

Demand-side signals strengthen

Early signs from consumers and businesses also point to growing interest in clean energy solutions.

Octopus Energy, Britain's largest household energy supplier, reported a 54% increase in solar panel sales in the first three weeks of March compared with the previous month. Italy's solar industry association said rising electricity bills, in some cases up 50% to 100%, are prompting consumers to install rooftop systems.

U.S.-based consultancy Thunder Said Energy raised its global solar installation forecast for this year by 100 GW to 830 GW, citing higher gas prices linked to Middle East tensions.

Headwinds remain

Despite the positive long-term outlook, the path of energy transition faces several challenges.

Higher financing costs are a key concern. Renewable projects are capital-intensive and sensitive to interest rates, which may remain elevated or rise further if central banks seek to contain inflation linked to geopolitical shocks. "Higher power prices improve project economics, but debt costs are also rising," said Ben Guest, fund manager at Gresham House Energy Storage Fund.

Grid connection and permitting bottlenecks also remain persistent constraints. Mark Dooley, a green investment executive at Macquarie Asset Management, said project pipelines are progressing, but resolving planning approvals and grid access issues requires long-term strategic commitment.

Political risks could further complicate the transition. Economic disruptions may strengthen populist movements that oppose rapid fossil fuel phase-outs. Some European countries, including Italy and several in Central Europe, called for reforms to the EU carbon market, while policymakers are revisiting gas price caps and electricity market design.

EDP's chief executive warned that policy uncertainty remains the biggest concern for investors, who require stable and predictable frameworks.

In the short term, coal's role as a backup fuel has regained prominence, but this largely reflects crisis management. Structurally, higher fossil fuel prices are reinforcing the drive for energy independence and accelerating investment in renewables, though not without significant challenges along the way.