Global energy and carbon markets experienced heightened volatility this week as escalating geopolitical tensions in the Middle East disrupted major energy supply routes and pushed commodity prices higher. At the same time, developments in carbon markets, nuclear cooperation and biofuels policy highlighted how governments and industry continue to navigate the balance between energy security and the long-term transition to lower-carbon systems.

Macro and others

Geopolitical tensions intensified as the conflict between Israel and Iran entered its fifth day, with missile and drone attacks continuing across the region. The escalating conflict is raising concerns about a broader regional war and its potential consequences for global energy markets.

The disruption has already affected oil supply chains. Iraq has begun shutting production at major oil fields including Rumaila and West Qurna 2 as storage capacity fills due to export constraints. The closure of the Strait of Hormuz has halted much of the shipping traffic through the Gulf, leaving producers unable to move crude and forcing production cuts.

European gas markets have also reacted sharply. Prices surged to the highest level since 2023 after a drone attack forced the shutdown of a major LNG export facility operated by QatarEnergy. The facility accounts for around one fifth of global LNG supply, and the outage has intensified concerns about global gas availability just as Europe prepares for the spring storage refill season.

‍

‍

Carbon markets

European carbon prices moved higher during the week as utilities increased hedging activity. Rising natural gas prices have encouraged greater coal generation in the short term, which in turn has boosted demand for allowances under the EU Emissions Trading System.

International carbon markets are also coming into focus. New modelling suggests Australia may need to purchase between 102 and 250 million tonnes of Internationally Transferred Mitigation Outcomes between 2031 and 2035 to help meet its national emissions reduction target.

Within the European Union, Climate Commissioner Wopke Hoekstra ruled out suspending fertilisers from the Carbon Border Adjustment Mechanism. Instead, the European Commission plans to address concerns from the fertiliser sector through a dedicated policy action plan.

Renewables and biofuels

Energy security concerns are also influencing clean energy cooperation. Japan and the United States are exploring the addition of a nuclear power project involving Westinghouse Electric Company to a broader $550 billion bilateral investment package. The proposal reflects renewed interest in nuclear energy as a reliable low carbon power source.

In the biofuels sector, exports of biodiesel from Germany declined by around 11 percent in 2025 compared with the previous year. Industry groups have warned that this trend could reduce the sector’s contribution to emissions reductions in the transport sector and are calling for adjustments to the country’s greenhouse gas reduction quota.

Meanwhile, sustainable aviation fuel producers are urging policymakers to maintain open markets. EcoCeres warned that potential trade defence measures on imported SAF could increase costs and slow the uptake of lower carbon fuels under the ReFuelEU Aviation Regulation, particularly while global SAF supply remains extremely limited.