Navigating Turbulent Geopolitics to Stay the Course on Sustainable Investment

The forcing function has arrived

For years, the case for accelerating Asia's energy transition was made in the language of climate policy — emissions targets, carbon taxonomies, net-zero commitments by mid-century. That framing, always somewhat abstract to a finance minister facing a budget shortfall, has now been overtaken by something far more visceral. As of mid-March 2026, the Strait of Hormuz was effectively closed. Zero ships transited it in a 24-hour period, compared to over 100 on a normal day.

Brent crude averaged $103 per barrel in March — $32 above February's average — with daily prices reaching almost $128 on April 2. The quarterly price increase was the largest on an inflation-adjusted basis since at least 1988. The market was not pricing geopolitical risk in the abstract. It was pricing the physical absence of 20 million barrels a day.

What makes the current disruption different from every prior Middle East shock is its magnitude. The Yom Kippur War, the Iranian Revolution, and the Gulf War each removed 4 to 6 percent of global oil supply from the market. The Hormuz closure is closer to 20 percent — three to five times larger than anything the modern energy system has absorbed. The world built its fossil fuel infrastructure assuming the Strait would remain open. That assumption has been stress-tested to breaking point, and no combination of emergency reserves, pipeline bypasses, or diplomatic workarounds closes the gap in the near term.

Asia's exposure — geography as destiny

Asia's vulnerability to Hormuz disruption is not incidental. It is structural, built into decades of energy architecture that treated cheap Middle Eastern oil as a permanent feature of the geopolitical landscape.

The exposure is not evenly distributed. Japan and South Korea hold strategic reserves covering 200 or more days of net imports, shielding them from immediate physical shortage — their challenge is financial rather than logistical, absorbing elevated import costs without eroding industrial competitiveness. India has diversified across more than 40 supplier countries and holds roughly 70 days of reserves. Southeast Asia — Thailand, Vietnam, Bangladesh, Pakistan — sits in a more precarious position, with thinner reserve cover, higher LNG dependency, and less fiscal room to absorb a sustained price shock.

Thailand is the most instructive case. The country relies on natural gas for nearly 66% of its power generation, with LNG accounting for about 27% of total gas supply. A significant portion of those LNG cargoes transited the Strait of Hormuz. Energy economists had flagged this concentration risk for years. The Hormuz closure turned the warning into a live event.

The policy signal — emergency responses that point in one direction

The speed of government action across the region since the Strait closed has been notable. In every case, the short-term crisis response and the structural pivot point in the same direction.

None of these are long-cycle policy commitments navigating legislative process. They are emergency responses enacted within weeks of the crisis beginning — and they happen to point in exactly the same structural direction that patient capital has been positioned for years. The distinction between climate policy and security policy has effectively collapsed.

The political label problem and why it doesn't matter here

Much of the noise around sustainable investment over the past two years has been about branding. In the United States, the Trump administration spent 2025 systematically rolling back climate initiatives, and US-domiciled sustainable funds bled money for eleven consecutive quarters. European asset managers stripped "ESG" and "sustainable" from fund names to navigate regulatory friction. The label has taken damage.

The label problem, real as it is, is largely irrelevant to the Asia thesis. No government across the region accelerating wind approvals, cutting solar tariffs, or scrapping LNG projects is doing so because of a UN framework. They're doing it because they've just experienced the most severe energy supply shock in recorded history, and the domestic renewable alternative — solar at current costs — is cheaper, faster to deploy, and requires no maritime choke point to function.

The longer-duration data reinforces the point. Despite three consecutive years of outflows from US sustainable funds, global sustainable fund assets reached approximately $3.7 trillion by September 2025, supported by market appreciation. ESG funds still account for 20% of the European fund universe. And on the performance measure that matters most for long-duration investors, a $100 investment in a sustainable fund in December 2018 had grown to $136 by early 2025, against $131 for a conventional fund over the same period — through a pandemic, a land war in Europe, the fastest rate-hiking cycle in four decades, and a full reversal of US climate policy.

Asia's Ukraine moment — and why this time the technology is better

Europe's experience after February 2022 offers the closest available parallel. Russia's invasion forced a reckoning with decades of gas dependency, and the result was an acceleration — uncomfortable, expensive, politically fraught — of the European energy transition. Solar and wind buildout was pulled forward. The continent's structural exposure to Gazprom declined materially within two years. The transition happened not because green policy prevailed in Brussels, but because the alternative was intolerable.

Asia is arriving at an equivalent inflection point with a materially better toolkit. Solar and battery storage costs in 2026 are significantly below where offshore wind was when Europe began its post-Ukraine acceleration in 2022. China has already demonstrated what deployment at scale looks like: newly installed renewable energy capacity reached 373 GW in 2024 alone, accounting for 86% of total new power capacity added that year. The cumulative installed capacity of renewable energy in China climbed to 1,889 GW by end-2024 — a 25% increase from 2023. Solar power saw a 45% rise within that single year.

The rest of the region is moving in the same direction, with less preparation and more urgency. ASEAN operating utility-scale solar and wind capacity grew 20% in a single year to over 28 GW. The Philippines and Vietnam alone hold 185 GW of prospective utility-scale solar and wind projects in various stages of development. The Hormuz crisis has not created this pipeline — it has accelerated the political will to build it.

One analyst framed the parallel with precision: "This is Asia's Ukraine moment. In the same way Ukraine compelled Europe to cut gas dependency, Hormuz will push Asia to cut oil dependency — but with even cheaper technology available." The convergence of strategic, economic, and environmental logic that is now driving Asian renewable investment may prove to be the most durable policy environment the sector has seen.

Country by country — who benefits, who absorbs

The investment case, reframed

For family offices and long-duration investors, the question was never really whether the energy transition would happen. It was always about the speed and the path. Geopolitical shocks of this scale tend to compress timelines, create political permission for investments that would otherwise face years of regulatory friction, and shift the conversation in the boardrooms that matter — not from ESG advocates to skeptics, but from ministers of energy to ministers of finance, which is where capital allocation decisions actually get made.

The gap between where Asia's energy system is today and where its governments now want it to be — for security reasons, not climate reasons — represents one of the largest capital deployment opportunities of the next decade. The assets in question are familiar: utility-scale solar and storage, offshore wind, grid infrastructure, EV charging networks, and domestic clean manufacturing capacity. What the Hormuz crisis has done is remove the assumption that the political pathway to those assets would be slow, contested, and uncertain.

Several asset classes stand out as the clearest expression of the thesis. Utility-scale solar and battery storage — where costs are now firmly below new gas capacity across most Asian markets — offer the most direct exposure. Grid infrastructure, which is the binding constraint on deployment speed in most markets, represents the less visible but equally critical opportunity. Offshore wind in Japan, South Korea, Taiwan, and Vietnam carries higher development risk but commensurately higher return potential. And across the region, the electrification of transport — already accelerating on economic grounds in China — is acquiring security justification that materially expands the addressable policy support.

The risk to the thesis is a rapid resolution of the Hormuz crisis followed by a return to the pre-February 2026 policy environment. That scenario cannot be ruled out. But the structural vulnerability it has exposed — Asia's decades-long dependence on a single maritime chokepoint for 20% of its energy supply — does not disappear when the Strait reopens. The policy responses already enacted across the region reflect a durable reassessment of risk, not a temporary reaction to short-term prices.

Gallium's view

We have held the view at Gallium that the energy transition in Asia would ultimately be driven less by climate conviction than by economic necessity and strategic interest. That view has been validated faster than we anticipated, and through a more acute mechanism than we modelled. The Hormuz crisis has done in six weeks what a decade of climate policy could not — it has made energy diversification a matter of national survival for the region most dependent on the world's most fragile chokepoint.

For investors positioned on the right side of that structural shift, the dislocation is not a reason to retreat. It is the clearest signal of where the decade goes from here. The sustainable investment thesis was always structural. What has changed is that the forcing function has arrived, and it is not a carbon price or a regulatory framework. It is a closed strait, a $128 oil price, and fuel rationing from Bangkok to Karachi.

The window for positioning ahead of the repricing exists precisely now — while emergency responses are being enacted, before the structural capital redirection reaches its full scale, and before markets have fully priced the durability of the policy shift across the region. We are in the phase line.