By Daniel Zimmerer

Even if the Strait of Hormuz reopens to maritime traffic, the damage has already been done. According to a recent warning by the International Energy Agency (IEA), the blockade of the strategic waterway has left producers in the Middle East with a backlog of more than one billion barrels of crude oil. Observers such as Ember are already describing the situation as the largest oil supply shock in history.

The energy market had already been under pressure before this latest crisis. In 2022, Russia, the world's largest exporter of fossil energy, invaded Ukraine. The war forced Europe to wean itself off its most important energy supplier. With the Iran conflict, the continent then found itself cut off for months from the liquefied natural gas (LNG) imported from the Middle East as a replacement. In other words, Europe has been hit by a double shock.

Investment Is Shifting at High Speed

In our view, these developments underline the importance of the energy transition. The conclusion is straightforward: the more uncertain the supply of fossil fuels becomes in an increasingly unstable geopolitical environment, the more urgent the search for alternatives.

One such alternative offers remarkable potential, both for improving energy security and as a sustainable investment theme: replacing fossil fuels with electricity across systems and processes (electrification), together with the necessary expansion of electricity grids and renewable power generation capacity.

«The more uncertain the supply of fossil fuels becomes in an increasingly unstable geopolitical environment, the more urgent the search for alternatives.»

As we have analysed previously, the energy transition and electrification are mutually reinforcing. Investment has been shifting rapidly from fossil fuels to renewable energy for years. According to estimates by the International Energy Agency (IEA), investment in renewable energy increased from 374 billion dollar in 2015 to 780 billion dollar in 2025. Over the same period, investment in fossil fuels declined by around one-fifth to an estimated 1,1 trillion dollar.

At the same time, electrification is expected to drive a sharp increase in electricity demand. According to IEA projections, global electricity demand could double or even triple by 2050. The further electrification advances, the faster the world's dependence on fossil fuels is likely to decline (see chart below).

Electricity Consumption Is Rising with Electrification

Interestingly, this transition has been underway since the last major oil crisis in the 1970s. At that time, improving energy efficiency proved to be the most effective way of offsetting higher oil prices. Between 1960 and 1985, global energy productivity tripled and increased tenfold in industrialised countries. Since then, these productivity gains have primarily come at the expense of oil and gas.

Electricity consumption, by contrast, has kept pace with global GDP growth since the 1970s and has expanded three times faster than the consumption of fossil fuels.

Since the 1970s, electrification has moved in lockstep with GDP (growth in energy demand and GDP, indexed, Index = 1973; Source: Ember, The Twin Fossil Shock, April 2026).

The rapid growth in electricity consumption and electrification has gone hand in hand with advances in electrical engineering, which is now well positioned to further transform the global energy system.

Electrical Engineering as the Foundation of Electrification

This transformation spans the entire energy value chain, beginning with power generation, where renewable energy is already capable of meeting all incremental growth in electricity demand. It continues with energy transmission and storage through new grid and battery technologies. Finally, it extends to energy consumption, where electric vehicles and heat pumps are experiencing rapid growth.

Across all these areas, electrical engineering offers several important advantages.

• Physical advantages: In systems based on fossil fuels, around two-thirds of primary energy is typically lost as heat. This is one of the reasons why electrical technologies are approximately three times more energy-efficient.
• Economic advantages: Electrical technologies are generally modular in design. This supports technological learning curves, allowing costs to decline by roughly 20 percent each time deployment doubles. The economic case for renewable energy and electrical technologies would become even stronger if governments gradually reduced the subsidies that fossil fuels continue to receive in many parts of the world. According to OECD data, governments provided more than 900 billion dollar in direct subsidies for fossil fuels in 2024.
• Resilience to geopolitical risks: According to calculations by the think tank Ember, 80 percent of the world's population lives in countries that rely on imported fossil fuels. This creates dependencies that become painfully evident during periods of geopolitical crisis, particularly for lower-income countries. As a result, the large-scale transition to electrical technologies and renewable energy becomes increasingly compelling. More than 90 percent of countries worldwide possess renewable energy potential exceeding ten times their current energy demand.

Quality Growth

In our view, these advantages suggest that the growing adoption of electrical technologies could substantially strengthen energy security. This points to a market opportunity worth many billions, making it attractive for investors.

From an investment perspective focused not only on sustainable growth but also on quality, particularly strong returns on capital, we concentrate on selected segments of electrical engineering and renewable energy.

«According to calculations by the think tank Ember, 80 percent of the world's population lives in countries that rely on imported fossil fuels.»

For example, we focus on manufacturers of electricity transmission equipment, which currently benefit from considerable pricing power due to exceptionally strong demand. We also favour specialised engineering and construction companies involved in electricity infrastructure, as demand for their services continues to grow rapidly.

We are equally interested in technologies on the consumption side, including companies active in electric vehicles, stationary energy storage systems and heat pumps, as well as providers of intelligent energy management solutions that optimise electricity consumption.

Once established, electrification and the electrical technologies supporting it are likely to prove sustainable in the truest sense of the word by significantly strengthening long-term energy security.

Dr. Daniel Zimmerer is Lead Portfolio Manager for Thematic Investments at Zürcher Kantonalbank.

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