By Ginggay Hontiveros-Malvar
Chief Reputation and Sustainability Officer, Aboitiz Group
President, Aboitiz Foundation
This article originally appeared on the author’s Daily Tribune column ‘On the G(ood) Side’.
Wars don’t just affect oil prices. They change how governments regulate carbon, how companies behave, and even what investors consider “credible climate action.” This new Middle East conflict is especially influential because it hits the energy system, and carbon markets are ultimately an energy policy instrument.
The first impact is energy shock—and this makes carbon markets move immediately. Almost every serious Middle East escalation (Israel-Iran tensions, Red Sea shipping disruptions, Strait of Hormuz risk) affects one thing first: oil and LNG security. When energy security is threatened, governments temporarily stop prioritizing emissions reduction and reprioritize keeping lights on and prices down.
When oil prices rise, governments move to protect consumers. When gas supply becomes uncertain, coal plants are reactivated. When inflation looms, politicians delay climate rules. Ultimately this leads to carbon prices weakening, emissions rising and the softening of compliance markets. We already saw this happen during the Ukraine war—EU restarted coal and delayed phaseouts.
So why would carbon prices fall? Ultimately carbon pricing only works when governments are politically comfortable imposing a cost on energy. War does the exact opposite—energy becomes a national security issue and not just an environmental issue. So, we might see some compliance carbon prices (EU Emissions Trading System, Korea ETS, China ETS) stall or drop short-term after war escalation.
Could there be a paradox? Perhaps. We might see fossil fuels rise—but long-term carbon markets could also strengthen structurally. Wars like this one don’t just raise oil prices. It reminds governments of something extremely uncomfortable and important—that energy dependence is geopolitical vulnerability.
Policymakers may then accelerate indigenous sources of energy, renewables, electrification, storage, nuclear and domestic energy production. It makes governments think about decarbonizing faster so we aren’t dependent on other regions. This is exactly why after the Ukraine crisis, the EU ETS cap tightening accelerated, CBAM (Carbon Border Adjustment Mechanism) was implemented and industrial decarbonization subsidies increased massively. This ME conflict may push Asia in the same direction.
Carbon moves from being a sustainability issue into one of national security and trade. Once that happens, carbon markets stop being optional. They become part of the economic system. And for companies invested in these ecosystems, carbon becomes a balance sheet asset class.
And for countries like the Philippines, the real question is no longer whether we participate in the transition—but whether we prepare early enough to benefit from it.