The Iran-Israel war related tensions in the Middle East are reshaping global electricity markets, creating a sharp divide between countries that benefit from energy independence and those heavily exposed to imported fuels.
According to analysis from Wood Mackenzie, surging fuel prices are driving a structural shift in how power markets operate worldwide.
Import-Dependent Economies Face Severe Pressure
Countries such as Japan, South Korea, and Italy are among the most vulnerable due to their reliance on imported coal and liquefied natural gas. Asia spot LNG prices have surged by 94 percent since the crisis began, while coal prices have increased between 17 percent and 31 percent, significantly raising generation costs.
Japan leads global exposure, with 64 percent of its electricity generation tied to imported fuels, followed by South Korea at 56 percent and Italy at 47 percent. This dependency is translating into steep cost increases, with some markets potentially facing up to 80 percent higher power generation costs if elevated fuel prices persist.
Energy-Independent Markets Emerge as Winners
In contrast, countries with strong domestic energy resources or high renewable penetration are far more insulated. The United States and Brazil show minimal vulnerability, with near-zero exposure to imported fuel disruptions.
Brazil’s power sector, driven by nearly 80 percent renewable energy, particularly hydropower, significantly reduces its reliance on fossil fuels. Meanwhile, the United States benefits from abundant domestic natural gas and coal production, shielding it from global price volatility.
Large emerging economies such as China and India also demonstrate relative resilience. Despite their dependence on coal-fired generation, both countries rely primarily on domestic coal supplies, limiting exposure to just 5 percent to 6 percent of total power generation. Rapid expansion of renewable energy capacity further strengthens their position.
Rising Costs Highlight Market Divergence
Under a base-case scenario where geopolitical tensions ease later in 2026, average power generation costs across 13 major markets are expected to rise modestly by about $2.3/MWh. However, a prolonged high-price environment paints a far more dramatic picture.
If current fuel prices persist, average generation costs could increase by 26 percent globally, or approximately $8.3/MWh. The most exposed markets would bear the brunt, with Italy facing an $22.4/MWh increase, Japan $17.0/MWh, and South Korea $14.4/MWh. The United Kingdom is also expected to see a notable rise of $14.3/MWh.
Energy Security Becomes a Strategic Priority
Beyond cost pressures, the crisis is exposing deeper risks related to energy security and grid reliability. Import-dependent systems, particularly in South Korea, face challenges in securing sufficient fuel supplies during periods of market tightness, increasing the risk of power shortages.
As a result, governments are accelerating investments in domestic energy capacity, including renewables, nuclear power, and grid infrastructure. Energy security is now emerging as a central policy priority, alongside climate goals.
A Structural Shift in Global Power Markets
The Middle East crisis is not just a short-term disruption but a catalyst for long-term transformation in global energy systems. Markets with diversified generation mixes and strong domestic resources are proving more resilient, while import-heavy economies face mounting financial and operational challenges.
BABURAJAN KIZHAKEDATH
