Middle East crisis has split global power markets into winners and losers

Asia spot LNG prices have surged 94% and coal prices have jumped 17-31% since the Middle East conflict began—but the impact on global electricity markets is splitting dramatically between winners and losers. A new insight from Wood Mackenzie shows that while countries like Japan, South Korea, and Italy face potential cost increases of up to 80%, markets including the United States and Brazil remain largely insulated from the turmoil.

Wood Mackenzie's insight, "The Great Power Divide: The Middle East crisis is splitting global power markets into winners and losers ", available via Wood Mackenzie Lens Power & Renewables, analyzes how 13 representative power markets are being impacted by the ongoing crisis, with exposure determined primarily by generation mix and fuel import dependency.

"While some markets face significant cost escalation and potential supply constraints, others remain largely insulated from international fuel market volatility due to their reliance on strong domestic thermal supplies or a large network of renewable energy," said Peter Obaldstone, Research Director, Europe Power for Wood Mackenzie.

Vulnerability – most exposed to least exposed

In the study, Wood Mackenzie finds that Japan represents the most exposed major power market globally, with 64% of electricity generation dependent on imported coal and gas, followed by South Korea at 56%, while Italy leads European markets at 47%.

On the other end of the spectrum, United States and Brazil demonstrate minimal vulnerability at zero or 1%. Brazil's generation mix—approaching 80% renewable penetration dominated by hydro—substantially reduces fossil fuel dependency, while U.S. domestic natural gas and coal production insulates the power sector from international price volatility.

China and India, despite continued reliance on coal-fired generation, benefit from predominantly domestic coal supply and only 5-6% of power generation is exposed to imported fuel disruptions as week as rapid renewables growth in recent years.

The Cost Impact: From Manageable to Crushing

Under Wood Mackenzie's Base Case—which assumes geopolitical de-escalation enables fuel price moderation in the latter half of 2026—average cost of generation increases by $2.3/MWh across the 13 analyzed markets. Italy, Japan, and South Korea experience the highest absolute impact with $4.3/MWh in cost escalation.

A High Fuel Price Sensitivity case presents a materially different outlook. Should current elevated price levels persist through 2026, average generation costs would increase 26% on average or about $8.3/MWh, with the most exposed markets facing substantial cost escalation:

• Italy: $22.4/MWh (80% increase)
• Japan: $17.0/MWh (41% increase)
• South Korea: $14.4/MWh (74% increase)
• UK: $14.3/MWh (27% increase)

"These cost increases represent significant policy challenges, requiring governments and utilities to navigate difficult trade-offs between financial support mechanisms, regulatory interventions, and retail tariff adjustments," said Allen Wang, Vice President Head of Asia Pacific Power and Renewables Research for Wood Mackenzie. "For emerging markets with constrained fiscal capacity, elevated fuel costs also translate to heightened reliability risks as securing incremental fuel supplies becomes increasingly challenging during periods of market tightness."

Beyond financial impacts, fuel supply constraints present direct reliability challenges in markets where import-dependent thermal capacity is central to system adequacy. South Korea faces the most acute exposure, with import-linked thermal capacity equivalent to 87% of peak demand. The government has already implemented electricity conservation policies and emergency fiscal support to reduce peak demand. The crisis is also accelerating a strategic shift, with energy security now rivaling climate policy as a driver of generation investment decisions. Governments are fast-tracking domestic renewable deployment, nuclear capacity additions, and grid infrastructure to reduce import vulnerabilities.

"Repeated geopolitical supply shocks are fundamentally reshaping how countries approach energy planning," said Xizhou Zhou, Executive Vice President and Global Head of Power and Renewables for Wood Mackenzie. "Markets with diverse generation mixes and strong domestic resources are proving far more resilient than those dependent on imported fuels, reinforcing the strategic value of energy independence alongside decarbonization goals."