From oil dependence to hybrid energy systems

In the last 100 years, economic growth and oil consumption have moved closely together. When economies grow, production increases, more people travel within and across countries, and more goods are shipped across the ocean. Over the years, oil has become the invisible driver behind every percentage point of GDP.
The US-Israel war with Iran has weakened the foundations of this rule. The Financial Times has recently described how the oil industry now faces a “gruesome demand shock” as traffic through the Strait of Hormus is disrupted and oil prices swing wildly. Now the question to ponder is: in an era of digital transformation and shifts in consumer behaviour, does every increase in output still require more barrels of oil?
Is this link weakening, or is this a temporary reaction? Does this structural shift mean that production, consumption, and travel are going to become more dependent on electrons rather than liquid fuels?
The recent disruptions to the global oil supply and escalations around the Strait of Hormuz are widely viewed as another episode of energy price volatility. However, indications and experts suggest otherwise.
A closer look reveals an unfolding pattern with substantial global impact. The transport sector is the hardest hit by this crisis. Transport accounts for the largest share of global oil consumption at around 50-55 per cent, including road, aviation, and shipping. About 10 per cent of the global oil supply and nearly 20 per cent of seaborne crude flows have been disrupted.
Economists warn that a sustained move towards 150 dollars a barrel could push the world into recession. The impact of this crisis has gone beyond transport, spreading to the food supply, affecting access to services, and disrupting everyday life worldwide.
There are two major reasons the old link between oil and GDP is weakening. The first factor is electrification and efficiency. Global energy reports indicate that CO2 emissions rose by only 0.8 per cent in 2024, while the global economy grew by 3.2 per cent, suggesting that more output now comes from non-fossil, more efficient energy sources.
Today, one out of every five cars sold globally is electric. Oil’s share in the global energy mix has fallen to below 30 per cent. Around fifty years ago, it accounted for close to half of global energy use, even though the world economy has continued to grow since then.
The second factor is the decoupling trend in many advanced economies. In these countries, emissions and oil use have stabilised or fallen even as GDP has grown, showing that economic expansion no longer has to be tied as tightly to a barrel of oil. People are moving faster toward fuel-efficient options, teleworking, and localised consumption due to rising prices.
Oil prices and the economic situation could lock in lower oil intensity per unit of GDP. Global oil demand is expected to decline in 2026 due to the war.
Still, oil will continue to play a major role for decades, especially in sectors such as transport, petrochemicals, and heavy industry. Yet the emerging trend is that the world is moving into a hybrid phase of energy consumption, with over 90 per cent of new power capacity added worldwide in 2024 coming from clean energy, mainly from solar and wind, not coal or gas.
Worries about climate targets are driving investment in renewable, non-fossil energy sources. Geopolitical escalations, technological disruptions, and armed conflict are testing the fundamental historical link between oil and GDP. These unexpected global shocks are slowly accelerating a hybrid phase of energy dependency, in which growth will be driven by electricity, mostly from non-fossil energy sources; oil demand may plateau and decline, but will not disappear, and will have to share the spotlight with non-fossil energy sources.
This pattern, if sustained, will gradually weaken the historic link between oil consumption and economic growth and accelerate the adoption of cleaner energy sources.