Hidden GEMs: Why the oil shock could accelerate the energy transition

A sustained oil price shock would have major impacts across the global economy – including on the energy transition. Oil prices have risen sharply since the start of the year. More worryingly from a consumer perspective, “No Diesel” signs have started to appear at filling stations from Australia to South Africa. The situation in the Middle East is evolving rapidly and oil prices are volatile. But even with an end to the conflict, oil is likely to include a higher geopolitical premium, while the risk of further potential energy-supply disruptions will remain front of mind.

Fuelled by rapid clean-tech adoption in emerging markets and the urgent need to power AI, the demand for clean technology was already accelerating. Now, with energy security under heightened threat, we would not be surprised to see the countries most reliant on oil & gas imports use additional policy measures to further accelerate the shift away from fossil fuels, by encouraging energy efficiency, electrification and increased renewables usage.

This is particularly true for economies in Asia, which are most at risk from the closure of the Strait of Hormuz: over 80% of the oil and liquefied natural gas shipped through the strait is destined for Asian markets.

At the same time, higher oil & gas prices increase the cost advantage of clean technology (such as electric vehicles and renewable power), which were already cheaper than fossil-based technology in many parts of the world. This is reinforcing the economic and strategic rationale for reducing dependence on imported hydrocarbons and accelerating electrification.

There is a clear example to follow: China, the world's first 'electro-state'. As well as supplying the clean-tech enabling other countries to industrialise more cheaply than ever before, China is moving faster than any other nation towards an electrified economy and society. Over 50% of new car sales in China are electric, 10% of the entire vehicle fleet is already electric (International Energy Agency, 2025), and electric vehicles dominate the two-wheeler market. This seismic shift in the Chinese auto sector is almost entirely driven by cost. China has built vast manufacturing scale and invested in developing leading technology, resulting in electric vehicles that are already cheaper than internal combustion engine equivalents in Asian economies. Rising petrol and diesel prices only increase that cost benefit, and have the potential to drive further support through policy incentives to encourage economic resilience against fossil-fuel shocks.

China is in the vanguard, but the economics it has pioneered – falling technology costs, an expanding export base of affordable clean-tech – are taking hold across emerging Asia, Latin America and Africa. Critically, the transition in these emerging markets is being driven by cost and superior technology, rather than policy, which makes it more durable. We think this is greatly underappreciated by a market that remains focused on European regulatory cycles and US tax incentives as the primary drivers of decarbonisation investment.

From a public-equity investment perspective, the new energy backdrop accelerates demand across the emerging markets clean-tech value chain we invest in: from Chinese electric-vehicle batteries and energy storage enabling more stable renewables generation, to the physical grid infrastructure (being manufactured for example in Brazil and deployed in India) required to connect new capacity to where it is needed. In our view, these areas are underappreciated by global equity investors given the electrification trajectory now underway. A sustained oil shock is likely to bring forward additional policy and the capital commitments needed to increase energy independence in Asian economies in particular.

The same dynamics reinforce the case for transition-focused investments in private markets, such as private loans. Our own pipeline includes private loans to fund generation, biofuels, data centres and sustainable real estate across Asia, Latin America, Africa and the Middle East. Sponsors and developers are rapidly moving forward with these transactions. Unlike segments of private credit, where valuations are tied to technology-sector growth expectations, these are senior secured loans against real, revenue-generating infrastructure assets. They are insulated from the volatility reshaping other parts of the private credit market, and direct beneficiaries of the increased focus on renewables in light of the oil shock.

At the total portfolio level, an accelerating emerging markets transition underpinned by higher oil prices creates a set of growth drivers distinct from those of the Western decarbonisation value chain: i.e., domestic infrastructure needs, the economics of technology adoption, and rising EM energy demand. Vital oil & gas supply routes may be under threat, but EM transition opportunities remain wide open.