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Simon Dancer is a director at the iED and AMION Consulting. In this article, he considers whether history may once again be repeating itself, as conflict in the Middle East and rising energy insecurity begin to reshape Britain’s industrial future and regional economies.
The conflict in the Middle East may feel geographically distant from the UK, but its implications for economic development could prove profound and long lasting.
I was an economics student in the late 1990s and, even twenty years later, inflation and supply-side shocks were still being taught through the prism of the 1970s oil crisis. As the historians amongst us will know, the energy crises of that decade emerged when the Western world faced severe oil shortages alongside increasing prices. The two defining shocks, the Yom Kippur War and later the Iranian Revolution, triggered these major interruptions to Middle Eastern oil exports.
Karl Marx once said that history repeats itself, first as tragedy, then as farce. Given recent events in the same region, the comparison feels uncomfortably apt. But as with every historical event, context matters.
Familiar crisis, different economy
Much of the immediate commentary recently has focused on oil prices, inflation and geopolitical risk. All important. But from an economic development perspective, the more important question is what sustained energy insecurity means for the UK’s industrial future, investment competitiveness and net zero transition.
Even before the current escalation, the UK already faced some of the highest industrial energy costs in the developed world. This has been a persistent weakness in our economic model for years. For advanced manufacturing, chemicals, steel and other energy-intensive sectors, high input costs are not an abstract policy concern. They shape investment decisions, business survival and international competitiveness.
The current crisis risks making our already difficult position materially worse. The Chancellor does seem to have recognised this, with her recent announcement on protecting new clean energy projects from legal challenges. But more still needs to be done.
Even if hostilities ended tomorrow (though Trump has announced the war has been won several times already), energy markets will not simply revert to previous norms. Strategic uncertainty alone changes market behaviour. Questions around shipping security, supply resilience and whether key trade routes such as the Strait of Hormuz can operate normally again will continue to affect prices and investor confidence for some time.
The industries most exposed
At the same time, global electricity demand is rising sharply. Artificial intelligence, cloud computing and the rapid expansion of data centres are creating a new generation of highly energy-intensive infrastructure. The irony is that many of the sectors being championed as part of the UK’s future growth model are also among the most power hungry. Data centres, advanced manufacturing, battery production and semiconductor supply chains all depend upon abundant, stable and competitively priced energy.
Economic development practitioners therefore need to confront a difficult question. Can the UK realistically compete for the industries of the future while maintaining structurally higher energy costs than many international competitors?
Periods of energy shock often accelerate structural change. Cuba’s so-called “Special Period” during the 1990s forced a dramatic reconfiguration of transport, food systems and energy use following the collapse of Soviet support. Today, Cuba is again rapidly expanding solar deployment as it grapples with ongoing economic isolation and energy insecurity. Necessity, as the saying goes, remains the mother of invention and while the contexts are obviously very different, history shows that prolonged energy insecurity can fundamentally reshape economies, behaviours and political priorities.
Is the UK approaching its own inflection point?
One possible route out of this challenge is a significant acceleration in renewables and domestic energy generation, driven less by climate ambition and more by energy sovereignty and economic resilience.
As such, the political framing of net zero could shift accordingly. Rather than being presented primarily as an environmental agenda, decarbonisation may increasingly be justified through national security, industrial competitiveness and cost stability.
Across the UK and internationally, political support for net zero is already evolving, as rising living costs and electoral pressures create a more contested environment for climate policy. President Trump’s “drill, baby, drill” rhetoric and Reform UK’s increasingly vocal anti-net zero positioning reflect a wider political shift. There is a growing risk that governments begin recalibrating ambitions where they perceive tensions between decarbonisation and affordability. Recent political rhetoric suggests this conversation has already started. At the local level, the implications of that could be substantial.
What this means for places and regions
Higher energy costs could also further erode UK regions already vulnerable to deindustrialisation. Investment decisions may increasingly favour locations with lower energy exposure or stronger energy infrastructure. Some sectors may accelerate automation to offset rising operational costs. Others may simply scale back altogether.
Consumer behaviour may also change. For example, if aviation costs remain elevated, domestic tourism and “staycations” could strengthen further. Public transport demand could rise. Patterns of commuting and logistics may also shift again. These are not just marginal economic effects. They influence place competitiveness, labour markets and regional development trajectories.
For us economic development professionals, this means energy can no longer be treated as a secondary infrastructure issue. It is rapidly becoming central to discussions about productivity, resilience, inward investment and spatial inequality.
If the current energy insecurity persists, the political centre of gravity may shift faster than many currently expect. Debates around industrial policy, domestic energy generation and net zero could look very different in Parliament. One could easily imagine a future argument for a far more interventionist approach to energy sovereignty and industrial resilience than Westminster orthodoxy has traditionally allowed.
Will economists still be discussing 2026 in twenty years’ time? Almost certainly. Whether 2026 ultimately proves tragedy or farce, only time will tell.
