Middle East conflict: Why it raises climate reporting and energy transition issues – and how to respond

Beyond the devastating effects of the Middle East conflict and its energy security and supply chain implications, there are emerging ancillary issues relevant to businesses.

For Australian businesses entering the first years of mandatory climate reporting, it is rapidly becoming a carbon disclosure, assurance and transition credibility issue. More broadly, it sharpens the need for organisations to test, strengthen and, in some cases, accelerate energy transition plans to ensure they remain resilient under fuel and logistics shocks.

Emissions are rising due to military activity, damage to energy infrastructure, disrupted shipping routes and fuel volatility. Over the next 6 to 24 months, these dynamics are likely to translate into higher carbon exposure - particularly in Scope 3 – along with greater scrutiny of emissions disclosures and sharper tests of whether transition plans remain credible under stress.

In the latest insight in our Middle East conflict series, we explain how conflict‑driven disruption intersects with Australia’s new climate reporting regime, why emissions volatility creates legal, governance and assurance risk, and what boards and management should do now to protect transition credibility.

Tell me in two minutes

• Conflict‑driven disruption is increasing emissions across shipping, aviation and logistics, with direct implications for Scope 3 reporting.
• Mandatory climate reporting means unplanned emissions increases are no longer just operational issues – they are disclosure, assurance and liability issues.
• The conflict exposes the vulnerability of fossil-fuel-dependent business models and supply chains, strengthening the commercial case for renewables, electrification and energy diversification.
• Companies should identify supply chain exposures, review contracts for force majeure provisions, enhance emissions tracking and integrate geopolitical and climate risks into scenario planning.
• Companies should also consider the application of misleading conduct prohibitions and competition laws (note the ACCC has granted an interim authorisation for the petroleum industry to discuss supply chain management with competitors).
• Boards must ensure governance, controls and documentation are robust enough to explain emissions volatility without undermining transition credibility.

Did you miss our earlier insights on the Middle East conflict?

• Middle East conflict: Impact on construction & infrastructure projects
• Force Majeure, Frustration and Contract Renegotiation in Times of Geopolitical Turbulence

How the conflict is spiking emissions and reshaping ESG risk

Greenhouse gas emissions are estimated at roughly 5 million tonnes from the first two weeks of the conflict alone - equivalent to the annual emissions of a smaller country like Iceland. Military fuel use, damage to energy infrastructure, large‑scale fires and eventual reconstruction all generate emissions at scale.

Governments are already making security‑first energy decisions that may increase emissions and weaken environmental safeguards. In the United States, a rarely convened federal panel voted in late March to exempt offshore oil and gas drilling in the Gulf of Mexico from requirements designed to protect critically endangered marine species including whales, on national security grounds. 

Disrupted fuel supply and logistics also have flow-on effects for global emissions. Ongoing security risks in and around the Red Sea are forcing shipping lines to divert vessels around the Cape of Good Hope. These diversions add thousands of kilometres to key trade routes, materially increasing fuel burn and emissions.

What does this mean for Scope 3 emissions and climate reporting?

One of the clearest consequences for Australian companies is longer, more carbon‑intensive supply chains. For most Australian importers and exporters, this uplift will largely sit within Scope 3 emissions. Under mandatory reporting, Scope 3 feeds directly into reported emissions (which are mandatory for Scope 3 from the second reporting year), transition pathways and stakeholder expectations. 

The risk is not only compliance. It is misalignment – between what organisations have publicly said about their transition plans and what their emissions data now shows. For companies reporting on emissions and transition progress, the challenge is explaining this volatility clearly and consistently. This requires robust governance, controls and documentation, and sharpens focus on:

• the quality and consistency of emissions data received from logistics providers and suppliers
• contractual rights to obtain, verify and challenge emissions information
• how force majeure‑type disruptions interact with assumptions embedded in climate scenarios
• whether recalculations or explanatory disclosures are required when emissions spike.

For Australian corporates, this strengthens the commercial case for:

• accelerating renewable electricity procurement and on‑site generation
• electrifying operations where feasible
• engaging suppliers on lower‑carbon transport and logistics options
• stress‑testing transition plans against disruption, not just orderly decarbonisation pathways.

Long-awaited reforms to streamline environmental approvals for renewable projects are promising to cut red tape and accelerate projects like wind, solar, batteries and hydrogen.   While not removing all delivery risk, they signal a policy environment increasingly aligned with faster deployment of wind, solar, storage and hydrogen infrastructure.

For businesses, that has practical implications for project sequencing, investment timing and the assumptions embedded in climate disclosures.

What does this mean for misleading and anticompetitive conduct?

Misleading conduct prohibitions and competition laws apply during times of disruption. Businesses should consider:

• The ACCC is already monitoring fuel prices to assess the flow-through of the fuel excise reduction and statements made by retailers regarding fuel price increases.
• Parties can seek authorisation to engage in conduct that would otherwise be anticompetitive. For example, authorisation to discuss supply chain management with competitors (which might otherwise amount to cartel conduct) was commonly sought during COVID and is the subject of a current application before the ACCC. In late March, the ACCC granted an urgent interim authorisation to members of the petroleum industry to coordinate to manage fuel supply chain impacts.

What next? Steps to mitigate risks and increase resilience

1. Secure supply chains and contracts

Map exposure to fuel, critical inputs and shipping routes; put contingencies in place (alternate suppliers, routing options, buffer stock).

Review force majeure/termination and notice provisions and engage counterparties early to preserve options and avoid disputes.

2. Manage energy and carbon

Use the shock to accelerate diversification - renewables procurement (including PPAs) and on‑site generation, plus efficiency and electrification where feasible.

Uplift emissions data processes so reporting and assurance can explain volatility from day one of the new reporting periods.

3. Strengthen governance and compliance

Brief the board on incoming climate disclosure requirements; clarify accountabilities; and strengthen controls, audit trails and verification over climate data.

Run a targeted gap analysis against the standards and address weaknesses before first reporting. Keep an eye on regulatory review expectations (including ASIC scrutiny from 2026).

4. Scenario plan for compounding risks

Refresh ERM and climate scenarios to include geopolitical disruption alongside physical and transition risks (for example, extreme weather plus supply chain breakdowns; regulatory shifts plus fuel volatility). Use the outputs to stress‑test continuity plans and transition pathways.

5. Tailor by sector

Prioritise the transition levers that match your exposure...

• aviation/shipping: fuel volatility and lower‑carbon fuels where feasible
• mining/heavy industry: firmed renewables, critical minerals and process‑decarbonisation tech
• financial institutions: portfolio impacts (credit risk and green‑finance opportunity) and updated risk models.

What next for boards?

Emissions and reporting

• Are recent disruptions already affecting our Scope 3 emissions profile?
• How sensitive are our published targets and transition plans to transport and fuel volatility?
• Do we have clear internal triggers for when emissions variability needs to be disclosed, explained or reassessed?

Supply chains and resilience

• Which parts of our supply chain are most exposed to fuel‑intensive routes or unstable energy markets?
• How robust is the emissions data we receive from logistics providers and key suppliers?
• Do we understand where our supply chain or projects intersect with sensitive habitats/species, and could conflict‑driven policy shifts increase controversy or litigation risk?

Strategy and governance

• Do our climate scenario analyses reflect geopolitical shock alongside climate risk?
• Is there clear management ownership for monitoring these impacts and escalating disclosure issues?
• Are we planning for ‘security‑first’ regulatory shifts that may change energy costs, approvals pathways or stakeholder expectations during the reporting period?

Looking ahead

Geopolitical conflict is now a live variable in climate risk management. For Australian businesses, the Middle East conflict is a reminder that emissions trajectories can shift quickly - and that credible transition strategies must be resilient as well as ambitious.

The organisations best placed for the period ahead will be those that plan for instability, treat emissions volatility as a business risk, stress-test transition plans against geopolitical shock, and invest early in renewable and lower carbon energy pathways.

Despite the urgency of the moment, the overarching message for Australian businesses is one of confidence and opportunity. Companies that act decisively now – protecting their operations while strengthening their transition foundations – will emerge more resilient, more credible and better positioned for a carbon‑constrained world.

Want to know more about the mandatory climate reporting regime and the future of Australian energy?

• Get Ready to Report: Australia’s New Climate Rules Are Coming and They’re Not Just for Tree Huggers!
• Ready or not: Mandatory Climate Reporting commences 1 January 2025
• Green tape to greenlight: Streamlined approvals, stronger standards & smarter planning to power Australia’s renewables
• Power Play: Labor's Win and the Future of Australian Energy