- Import dependent markets such as Japan, South Korea and Italy face cost increases of up to 80%.
- Domestic resource rich economies including the United States, Brazil, China and India remain more insulated.
- Power generation costs could rise by 26% on average if elevated fuel prices persist through 2026.
The ongoing Middle East crisis is driving a sharp divergence across global electricity markets, creating a clear split between high risk import dependent systems and more resilient domestic energy producers. New analysis from Wood Mackenzie highlights how surging fuel prices are amplifying structural differences in generation mix and energy security.
Since the onset of the crisis, Asia spot LNG prices have surged by 94% while coal prices have increased between 17% and 31%. These price shocks are translating unevenly across power markets, with countries heavily reliant on imported fuels facing the most severe cost pressures.
According to Wood Mackenzie, Japan is the most exposed major power market globally, with 64% of its electricity generation dependent on imported coal and gas. South Korea follows at 56%, while Italy leads in Europe with 47% exposure. These markets are particularly vulnerable to sustained volatility in international fuel markets.
In contrast, the United States and Brazil show minimal exposure at 0% to 1%. Brazil’s power system, with close to 80% renewable penetration largely driven by hydropower, significantly limits fossil fuel dependency. The United States benefits from substantial domestic coal and natural gas production, shielding it from global price swings.
China and India also demonstrate relative resilience. Despite their continued reliance on coal fired generation, both countries depend primarily on domestic coal supplies. Only 5% to 6% of their power generation is exposed to imported fuels, supported by rapid renewable energy expansion in recent years.
Under a base case scenario that assumes easing geopolitical tensions and moderating fuel prices in the second half of 2026, the average cost of power generation across the 13 markets analysed would increase by US$2.3 per MWh. Italy, Japan and South Korea would see the highest absolute increases at around US$4.3 per MWh.
However, a prolonged high price environment would significantly intensify the impact. If current elevated fuel prices persist, average generation costs could rise by 26% or approximately US$8.3 per MWh. The most exposed markets would experience steep increases, with Italy facing US$22.4 per MWh or an 80% rise, Japan US$17.0 per MWh or 41%, and South Korea US$14.4 per MWh or 74%. The United Kingdom would see costs rise by US$14.3 per MWh or 27%.
Beyond cost escalation, supply security is emerging as a critical concern. South Korea faces the highest risk, with import linked thermal capacity equivalent to 87% of peak demand. Authorities have already introduced electricity conservation measures and emergency fiscal support to manage demand pressures.
The crisis is accelerating a broader shift in energy strategy. Governments are increasingly prioritising energy security alongside decarbonisation, fast tracking investments in renewable energy, nuclear capacity and grid infrastructure to reduce reliance on imported fuels.
The findings underscore a growing reality in global energy markets. Countries with diversified generation portfolios and strong domestic resources are proving significantly more resilient, while those dependent on imports face mounting economic and operational challenges in an increasingly volatile geopolitical landscape.
Link to the full report HERE
Author: Bryan Groenendaal
