The Implications of the Oil Crisis for Israel’s Energy Economy
The Second Iran War illustrates the structural weakness of the global oil market – and the urgent need to develop credible alternatives for both the world economy and Israel. The rise in oil prices in recent days is not a one-off event, but part of a recurring pattern that has become especially common since the 1970s, after the Yom Kippur War and the rise of the ayatollah regime in Iran, later during the Gulf Wars and the subprime crisis, and more recently following the Russia-Ukraine war and the current confrontations in the Middle East. These events have repeatedly demonstrated that dependence on oil is effectively a bet on the stability of unstable states, as most of the world’s oil reserves are concentrated in non-democratic countries with long histories of conflict, violence, and authoritarian rule.
According to data on the world’s proven oil reserves, seven of the nine countries with the largest reserves are currently classified as “Not Free” by Freedom House, including Venezuela, Saudi Arabia, Iran, Iraq, the United Arab Emirates, Kuwait, and Russia. Together, these countries hold roughly 69 percent of the world’s proven oil reserves. In other words, a substantial share of the energy resources on which the global economy depends remains in the hands of autocratic regimes or within fragile political environments.
The enormous importance of oil in the global energy system, combined with the political instability of the countries that control it, should serve as a wake-up call for the international community and spur decisive action to accelerate the transition away from oil and other fossil fuels. Accordingly, the world – including Israel – must move urgently to expand renewable energy infrastructure, both to reduce emissions and help curb the climate crisis, and to prevent the next global energy shock.
The dangers facing Israel if it fails to transition to a decentralized, renewable-based energy system are particularly severe compared with those facing many other countries. The Swords of Iron war, together with the repeated confrontations with Iran and its proxies, has made it unmistakably clear that every fuel transport and storage site in Israel is exposed to an ongoing security threat. Israel must therefore adopt an even more assertive policy in this field than many other states and move as quickly as possible from an energy model based on imported fuels and geographically concentrated infrastructure to one grounded in decentralized, domestically produced energy.
Despite the urgency of the moment and the scale of the risk, Israel’s efforts in this field remain limited. The Israeli economy is still almost entirely dependent on fossil fuels, especially in transport and industry, even as a significant share of energy production in other countries is already based on renewable sources. To ensure true energy security, Israel’s energy policy must become more effective, set more ambitious targets, and allocate far greater resources to achieving them. Among the most important tools available to the state are increased support for research and development, the expansion of renewable energy generation facilities, greater energy efficiency, and a reduction in the country’s oil infrastructure and oil-related activity. More concretely, two of the most prominent steps that could move Israel toward renewable-based energy security – while also preventing ecological, economic, and humanitarian disasters – are refraining from expanding oil transport and storage by EAPC at the ports of Eilat and Ashkelon, and removing the Bazan petrochemical infrastructure from Haifa Bay.
The Iranian missile strike on the Bazan complex both this past week and in June 2025 underscores the security risk inherent in insisting on preserving outdated oil infrastructure in the heart of sensitive urban areas. Despite Government Resolution 1231, which mandates the closure of the petrochemical industry in Haifa Bay by 2030, we continue to see repeated government attempts to advance planning exemptions for the construction of temporary emergency facilities at Bazan. These moves, promoted under the cover of emergency conditions, may set back the evacuation of the polluting facilities and lock the Israeli economy into dependence on fossil fuels for many more decades. Investing public resources in the rehabilitation of vulnerable refining infrastructure, instead of directing those resources toward accelerating the transition to an advanced, decentralized energy system based on renewable sources, amounts to a failure to learn the lessons of war. It also perpetuates health, environmental, and security harms while undermining Israel’s energy security.
A similar logic applies in the Gulf of Eilat. An oil spill resulting from damage to EAPC infrastructure would pose an immense threat to the lives of hundreds of thousands of people, to economic assets worth billions, and to priceless natural resources. These dangers, together with the ongoing harm inflicted on the Gulf of Eilat even in the absence of a kinetic attack, should put an end to any effort to expand oil transport through the gulf. The scientific reports on the issue, together with the drone and missile attacks on the Gulf of Eilat over the past two years, leave no room for doubt: Israel must avoid increasing oil transport through the Gulf of Eilat.
Rather than entrenching polluting, centralized, and vulnerable infrastructure that serves narrow business interests, the government should direct public resources toward building a decentralized energy economy based on renewable energy and storage. Only a drastic reduction in the use of fossil fuels will ensure energy independence, security resilience, and a sustainable future for Israel.
