The energy market hit a new wartime high this week as reports of the United States considering renewed military options against Iran shattered hopes of a near-term diplomatic resolution. With the Strait of Hormuz remaining effectively closed and daily transits near zero, the global economy is grappling with what the IEA describes as the biggest supply shock in history. Amidst this volatility, the geopolitical landscape is shifting further with the UAE’s formal exit from OPEC, signalling a deepening rift in regional energy alliances.

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Macro and Others

Escalation Risks and Record Prices: Brent crude rallied to a wartime high above 124 dollars a barrel following reports that President Trump is being briefed on new military options, including the potential deployment of hypersonic missiles to the Middle East. The US administration has reaffirmed its naval blockade on Iranian ports, targeting a total forfeiture of Iran-linked oil tankers. In response, European natural gas futures climbed to 48.20 euros per megawatt-hour. Analysts warn that the "security blanket" of an imminent peace deal has been removed, forcing markets to price in a prolonged period of kinetic and economic warfare.

UAE and OPEC Realignment: The United Arab Emirates has officially exited OPEC and OPEC+, effective May 1. While Abu Dhabi ruled out immediate departures from other multilateral bodies like the GCC, the move highlights a growing rivalry with Saudi Arabia and a strategic pivot toward independent foreign and energy policies. Having faced attacks during the current conflict, the UAE is increasingly aligning its security and economic interests with the United States and Israel.

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Carbon Markets

EU ETS 2 Political Battle: In the European Parliament, centre-right lawmakers are urging the rejection of amendments aimed at abolishing or delaying the new emissions trading system for road transport and heating (ETS 2). While right-wing groups argue that the system exacerbates social inequalities during an inflation crisis, supporters maintain that the €45 price trigger and the Social Climate Fund are sufficient safeguards to protect vulnerable households while maintaining decarbonization momentum.

EUA Volatility and Negative Correlation: European carbon prices fell 2.5% this week, settling at 73.20 euros. The decline marked a resumption of the negative correlation between energy and carbon; as oil and gas prices surged on military escalation reports, EUAs tumbled below technical support levels. Traders noted a persistent lack of liquidity in the market, with the afternoon sell-off attributed almost entirely to the rapid run-up in oil prices.

Reforestation Investment: In the voluntary space, BTG Pactual Timberland Investment Group announced the close of a 1.24 billion dollar fund for Latin American reforestation. This represents the largest known fund of its kind, aiming to restore 330,000 acres of natural forest and generate high-integrity carbon credits for major corporate buyers like Microsoft and Meta.

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Renewables and Biofuels

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Nuclear and Asia-Pacific Shifts

• Belgium: The Belgian government has entered exclusive negotiations with Engie for the full state acquisition of the country’s nuclear activities. This strategic move aims to extend the operation of the existing seven-reactor fleet and develop new capacity under direct government ownership.

• Australia: EDP Renewables announced a 1 billion dollar investment push into the Asia-Pacific region through 2028, with a primary focus on Australian solar and storage projects.

Biofuel Policy and Subsidies: The European Biodiesel Board (EBB) has called for a more predictable annual mandate trajectory for sustainable aviation fuel (SAF) to replace the current five-year step increases. In the UK, the RTFA is advocating for the inclusion of domestic bioethanol in the SAF mandate to bolster national energy resilience. Meanwhile, the European Commission approved a 3.7 billion euro Czech subsidy scheme to scale biomethane production, utilizing two-way contracts for difference to support small and medium-sized farms.

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Corporate Sustainability and Regulation

SBTi and Decarbonization Trends: The Science Based Targets initiative (SBTi) updated its absolute contraction approach to help companies set more consistent emissions targets as they approach 2050. Despite political and economic headwinds, a PwC study of over 3,500 companies found that 82% are maintaining or accelerating their climate goals. The report noted that while Scope 1 and 2 targets are increasingly on track, Scope 3 remains a challenge due to rising competition for energy resources from AI and data centres.

France's Fossil-Fuel Exit: At a climate summit in Colombia, France unveiled a detailed roadmap for exiting fossil fuels, setting specific dates: 2030 for coal, 2045 for oil, and 2050 for gas. The plan focuses heavily on the electrification of transport and industry, though some advocacy groups argue the timeline should be more aggressive given France’s status as a leading industrialized nation.

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This week marks a definitive end to market complacency. With oil reaching 124 dollars and the US mulling combat operations, the energy transition is increasingly viewed through the lens of national security. Whether through Belgium nationalizing its nuclear fleet or the UAE exiting OPEC, the global response to the "biggest supply shock in history" is one of fragmentation and radical domestic pragmatism.