The Middle East conflict is fracturing global power markets, driving dramatically different outcomes worldwide based largely on each region’s generation mix and reliance on fuel imports.
“Asia spot LNG prices have surged 94% and coal prices have increased 17-31% since the conflict began, yet the impact on electricity systems worldwide varies substantially,” analysts at Wood Mackenzie said in the report.
Energy security in markets
In the cohort of 13 power markets Wood Mackenzie analysed, Japan represented the most exposed major power market globally, with 64% of electricity generation dependent on imported coal and gas – all of which must be sourced internationally.
South Korea also shows a high level of exposure, at 56%, with Italy being the top European market at 47%, according to the Wood Mackenzie report.
While some markets face significant cost escalation and potential supply constraints, others remain largely insulated from international fuel market volatility.
In contrast, both the US and Brazil show minimal vulnerability in their power sectors, according to the analysis.
Brazil’s generation mix, which is nearly 80% renewable and heavily reliant on hydro power, significantly limits its dependence on fossil fuels.
Meanwhile, the US benefits from its own substantial domestic production of natural gas and coal, which shields its power sector from the volatility of international prices.
Despite their continued reliance on coal-fired power, China and India maintain a low exposure to imported fuel disruptions because they predominantly use domestically sourced coal.
In both nations, over 90% of their coal supply is domestic, and gas-fired generation makes up only 1–3% of total power output, Wood Mackenzie said in the analysis.
Consequently, only 5–6% of their power generation is exposed to risks associated with imported fuel disruptions, it added.
Global power price increases
In Wood Mackenzie’s base case scenario, which projects that geopolitical tensions will ease and fuel prices will moderate in the second half of 2026, the average cost of generation is anticipated to rise by US$2.3/MWh across the 13 markets studied.
The most significant absolute cost increases, reaching US$4.3/MWh, are expected in Italy, Japan, and South Korea.
“Our High Fuel Price Sensitivity case presents a materially different outlook,” the global research company said.
Should current elevated price levels persist through 2026, average generation costs would increase 26% on average or about US$8.3/MWh..
The markets most exposed to this cost escalation would face substantial increases, such as Italy with US$22.4/MWh (an 80% increase), Japan with US$17.0/MWh (a 41% increase), South Korea with US$14.4/MWh (a 74% increase), and the UK with US$14.3/MWh (a 27% increase).
These significant cost increases pose substantial policy challenges, forcing governments and utilities to make difficult choices among financial support, regulatory interventions, and adjustments to retail tariffs, the company said.
For emerging markets that have limited fiscal resources, higher fuel costs also lead to increased reliability risks, as procuring additional fuel supplies becomes more difficult during periods of tight market conditions.
Grid reliability risks
In energy markets heavily reliant on imported fuel for thermal power, limitations in fuel supply pose an immediate threat to the reliability of the system’s ability to meet demand.
“South Korea faces the most acute exposure: import-linked thermal capacity equivalent to 87% of peak demand provides substantial baseload and mid-merit generation, meaning fuel disruptions directly threaten operational reliability,” Wood Mackenzie said.
To curb peak demand and mitigate the impact of elevated fuel expenses, the government has already put in place electricity conservation policies, demand-side initiatives, and urgent fiscal aid.
The interconnected nature of Europe’s market architecture adds another layer of complication, the analysis noted.
Supply disruptions or sudden price shocks can quickly spread across national borders, escalating what might start as a localised issue into a regional concern for the entire supply chain, according to the report.
“Emerging markets like Vietnam that have a lower ability to pay for high fuel prices may also struggle with reliability should thermal units run low on coal stocks or gas storage and yet can’t compete with richer nations for limited fuel supply in the global market,” the company said.
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