CAPE TOWN—The global fallout from the Iran war demonstrates once again that for investors, fossil fuels are not just another commodity exposure, but a geopolitical liability. Oil and gas prices have always been structurally unstable, such that supply disruptions anywhere can trigger sudden economic shocks everywhere. And because oil sits at the center of the global energy system, volatility spreads quickly through the financial system.
The consequences are particularly acute for African economies, whose currencies come under pressure whenever oil prices surge. Every additional dollar per barrel increases import costs and tightens foreign-exchange constraints. The South African rand, the East African shillings, and many other currencies bear the brunt of the shock.
The same dynamic then exposes a deeper problem for banks and institutional investors. Although financing for fossil fuels is often framed as a way of supporting energy security or economic development, it often produces the opposite effect, entrenching dependence on a volatile global commodity whose price responds to conflicts thousands of miles away.
The implications for fiduciaries are far-reaching. Trustees, directors, and asset managers must act in the best interests of their beneficiaries. They are required to manage risk prudently and protect long-term value, which in practice means building portfolios that can withstand geopolitical shocks and structural economic change.
Fossil-fuel exposure increasingly runs afoul of this obligation. After all, the volatility we have seen during this latest crisis is not an anomaly. It is a structural feature of the fossil-fuel system. Oil prices respond immediately to geopolitical tensions, sanctions, shipping disruptions, and political instability. Investors who rely on stable energy markets are therefore betting on continued geopolitical calm. That is not a responsible or sustainable investment strategy.
The Iran conflict highlights another growing risk: stranded assets. Investors often treat this as an issue that may arise decades from now as the energy transition proceeds. But recent events suggest the risk may materialize much sooner. When oil prices skyrocketed in early March, many African economies simply could not afford the imports. Energy costs rose sharply, utilities struggled to pay suppliers, and governments faced mounting fiscal pressure. Under these conditions, fossil-fuel infrastructure could become economically stranded long before the end of its expected life. If customers cannot afford the fuel, the asset stops delivering reliable returns today, not in 20 years.
A related challenge is financial stranding. Many major African banks—including Standard Bank Group, Nedbank Group, and FirstRand Limited—have already introduced limits on coal and oil exposure by 2026. As climate regulations and lending policies tighten, investors entering new fossil-fuel projects may struggle to exit them, because they will be trapped in illiquid assets that no one wants. In fact, according to Africa Energy Risk Signals, fossil-fuel investments in Africa have already fallen by more than half in the last decade.
These pressures accompany a broader legal shift. Around the world, financial institutions face rising scrutiny over climate risk and fiduciary duty. Shareholder resolutions increasingly challenge fossil-fuel financing, and climate litigation continues to expand. Regulators now expect detailed disclosures of climate-related financial risk.
In this environment, business as usual begins to look less like a strategy and more like negligence. Fiduciary duty today requires financial institutions to consider not only current returns but also the structural risks embedded in the global energy transition. Are directors, trustees, and managers who ignore these risks fulfilling their duty of care?
Of course, transparency is central to fiduciary responsibility. Investors cannot manage unacknowledged risks. Yet disclosure remains uneven. If financial institutions cannot fully account for their exposure to fossil fuels, they cannot properly assess the risks those assets pose to their balance sheets.
Source: Korea Times News
