Why Big Oil Is Shifting Away From Renewables Amid Geopolitical Tensions

Major oil and gas conglomerates have dramatically scaled back their financial commitments to renewable energy projects, marking the first annual decline in such spending since 2017. This strategic pivot back towards traditional oil and gas operations comes as profitability in these sectors outweighs renewables and as escalating geopolitical instability in critical Middle Eastern shipping routes poses a significant threat to global energy supply.

Market Context

In 2025, the world's largest oil and gas firms collectively slashed their investments in low-carbon energy solutions by over one-third, dropping from $38.2 billion in 2024 to $25.7 billion. This marks a significant reversal from the early 2020s when many of these 'supermajors' pledged to gradually reduce fossil fuel production and channeled billions into green initiatives. Companies like BP and Shell, which had previously committed to reducing oil and gas output by the end of the decade, have now reversed these pledges. This shift reflects a realization that the energy transition is proving more challenging and less profitable than anticipated, especially in light of the 2022 energy crisis which highlighted vulnerabilities in conventional energy supply.

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Analysis & Drivers

Several key factors are driving this change in investment strategy. Firstly, the core oil and gas business currently offers more attractive profit margins and shareholder returns compared to renewable energy ventures. The recent significant reduction in green energy spending, by more than 33% year-on-year, underscores this prioritization. Secondly, regulatory headwinds, such as opposition to offshore wind projects in the United States, have dampened enthusiasm for certain green energy sectors. Moreover, geopolitical developments are adding a new layer of risk and urgency. The effective closure of the Strait of Hormuz by Iran, a critical chokepoint connecting the Persian Gulf to global markets, has sent shockwaves through energy markets and sent oil prices soaring. Analysts warn that any disruption to the Bab al-Mandab Strait, another vital shipping route controlling passage to the Red Sea, could exacerbate market volatility. This strait accounts for approximately 6% of the world's seaborne traded oil, and the potential involvement of Houthi rebels, backed by Iran, in disrupting traffic poses a substantial threat.

Trader Implications

For traders, the confluence of reduced green investment and heightened geopolitical risk in the Middle East presents a complex trading environment. The renewed focus on oil and gas exploration and production by major energy companies suggests a potential increase in the supply of fossil fuels over the medium term, which could cap upside price potential if geopolitical tensions de-escalate. However, the immediate threat to shipping routes, particularly the Bab al-Mandab Strait and Saudi Arabia's Red Sea port of Yanbu, creates significant upside risk for crude oil prices. Traders should closely monitor developments in the Red Sea and the Persian Gulf. Key technical levels to watch for Brent crude include resistance around the $90 per barrel mark and support near $80 per barrel, with any sustained disruption in shipping lanes potentially pushing prices sharply higher, possibly towards $100 per barrel if supply is severely curtailed. The redirection of millions of barrels of Saudi oil via its East-West pipeline to the Red Sea offers a partial buffer, but a direct attack on the Yanbu terminal could disrupt up to 7 million barrels per day, according to market analysts.

Outlook

The energy landscape is at a critical juncture. The retreat from green investments by major oil firms, coupled with escalating geopolitical tensions, points towards a period of heightened volatility in oil markets. While the long-term energy transition remains a global objective, the immediate future appears anchored in traditional energy sources, making supply disruptions a primary concern for traders and policymakers. Upcoming economic data releases and any further escalation or de-escalation in the Middle East will be crucial in shaping market sentiment and price direction in the coming weeks and months.