The Iran War and Chinese Clean Energy in South America
Every Gulf oil disruption strengthens the case for alternatives to oil as security imperatives. South America is not insulated from oil supply shocks as the region is still a net importer of oil products and natural gas, even while exporting crude. As calls for renewable energy are revived, the demand for Chinese renewable technology in South America increases. While the rapid expansion of renewable energy is valuable from a climate viewpoint, it gives China a larger role in shaping the infrastructure and trade of South America’s emerging development model. If the U.S. cannot offer competitive investment options, its regional pressure campaign risks pushing South America to permanently diversify its partnerships away from the United States.
The energy crisis caused by the Iran war has been the most economically damaging on record, according to International Energy Agency Executive Director Fatih Birol. This shock has reinforced the dangers of oil dependency for governments worldwide and has accelerated a political reframing in which renewable energy and electrification are being treated as energy security investments rather than as climate commitments.
Although net crude exporters in South America are experiencing an increase in revenue thanks to spiking oil prices, the countries in the region have still been hit hard by this shock as they lack sufficient refining capacity to meet domestic demand for diesel, gasoline, and natural gas, meaning governments still face higher import prices for refined products.
The 1970s OPEC oil embargo and Russia’s 2022 invasion of Ukraine had generated global calls for clean energy transitions that stalled because the technology was not yet affordable or deployable at scale, but those constraints no longer apply. Chinese manufacturers have driven the costs of solar, electric vehicles, and energy storage so low that the transition looks viable as a practical, near-term option for global markets. However, this does not mean China will become a supplier for every region. European and other Western economies will likely keep trying to expand their clean energy capacities while limiting their dependence on Chinese products, even at a premium.
South America, however, has no comparable industrial policy or alternative financing architecture to draw on. This means that although adoptability across South America varies widely and is constrained by differences in policy, grid capacity, and access to financing, Chinese firms are structurally positioned to become central in leading South American renewable energy systems at precisely the moment its governments are motivated to expand them.
Washington should pair its political pressure campaign in the hemisphere with a clean energy financing offer, given that several Latin American governments have already canceled Chinese infrastructure deals under U.S. pressure but have no viable alternative for sourcing renewable technology at scale. More importantly, the revival of the Monroe Doctrine as a hemispheric organizing framework under U.S. President Donald Trump’s second administration has framed South American nations as a sphere to be secured rather than as sovereign partners with their own development needs. As the Iran war pushes South American governments toward accelerating renewable energy transitions, Chinese manufacturers and financiers are the only actors operating at the scale and price point the region would require.
Politics of Clean Energy
For most of the postwar era, energy security meant reliable access to fossil fuels, above all oil. The 1973 oil embargo, during which Arab oil-exporting nations belonging to OPEC cut production, was one of the first energy crises to expose the costs of oil dependency. The embargo left the world short 4.5 million barrels of oil per day at a time when the Middle East produced 36% of the world’s oil. Afterward, most countries continued to equate energy security with hydrocarbon access, but the shock broadened the range of responses, with some countries beginning to reduce their exposure.
Russia’s invasion of Ukraine in 2022 triggered another large disruption to the global energy market. Unlike in 1973, this crisis was driven by financial sanctions that rerouted Russian oil instead of eliminating it from markets entirely, which ultimately limited the crisis’s severity. Regardless, Western governments committed to the most ambitious clean energy acceleration in their histories, driving an 85% surge in their global renewable capacity. The EU launched REPowerEU, the United States passed the Inflation Reduction Act, and Birol declared that energy security had become the primary driver of the energy transition since the cost of dependence on oil was too high. However, these investments into renewable technologies failed to displace fossil fuel dominance, in part due to existing subsidies and a lack of renewable financing on a scale comparable to China’s.
The Iran war and the ensuing oil shock have produced similar calls to reframe renewable investment as a matter of energy security. As the price of Brent crude soars, solar and wind infrastructure prices are at historic lows, driven largely by Chinese manufacturing and investment in solar, wind, and battery storage. World leaders are again urging governments to accelerate away from fossil fuels, and unlike in 1973 or even 2022, the technology to do so is widely available, affordable, and deployable at scale. Birol has said plainly that solar is now simply the cheapest way to generate electricity. Gonzalo Escribano of Elcano Royal Institute told CNBC that renewables are now perceived as a geopolitical asset driven by pragmatism rather than idealism, capable of appealing even to governments with no particular interest in climate for its own sake. That reframing applies especially for South American countries, where energy poverty and rising oil prices are making cheaper electricity a strategic priority.
The countries that moved earliest are already bearing the current shock better, setting a positive precedent. Pakistan’s solar expansion, driven partly by market forces and cheap Chinese panels, has shielded the country from more than $12 billion in fossil fuel import costs since 2020 and is projected to save another $6.3 billion from the war by the end of 2026. What made that possible is the same manufacturing investment that is now available to South American governments: Chinese production that drove solar costs down 90% from their 2010 levels and made 91% of new renewable power projects commissioned worldwide in 2024 cheaper than any fossil fuel alternative. Reducing oil dependency and building the cheapest possible energy system are now a part of the same demand, and the supplier positioned to meet that demand, particularly across South America, is China.
China’s Foothold in South America
The scale of China’s clean-energy position in South America is huge. Nearly all of Brazil’s solar panel imports come from Chinese manufacturers, and Chinese firms hold global market shares of 85% to 98% across the continent’s solar supply chain. Chinese manufacturers, including Goldwind and Envision, also command 60% of the global wind turbine market. In 2024, Goldwind took over GE’s American wind turbine factory in Brazil, a transfer that captures the aggressiveness of the expansion.
However, Chinese dominance is not simply in hardware sales. Chinese companies own, in whole or in part, 304 power plants in Brazil, constituting 10% of the country’s energy generation capacity. State Grid Corporation of China controls roughly 12% of Brazil’s electricity transmission infrastructure and built all three of the country’s ultra-high-voltage direct-current transmission lines, including the roughly 2,500-kilometer Belo Monte line serving 22 million Brazilians. In Chile, State Grid’s acquisitions of Chilquinta Energía and CGE gave it control over 57% of Chile’s regulated energy distribution. In Peru, China Southern Power Grid and China Three Gorges together control 100% of Lima’s electricity distribution.
These are not trade relationships that Washington can unravel with threats or a renewed commitment to a controversial doctrine. Chinese physical infrastructure has become embedded in the daily functioning of cities and economies and is governed by long-term contracts and regulations. If the Chilean government attempted to expel State Grid from Chile’s distribution system in response to a U.S. pressure campaign, for example, it would be disconnecting more than half the country from its electricity provider. This gives Chinese firms significant leverage.
South American governments also have interests in maintaining these relationships independent of any U.S. preference that they do otherwise. China is South America’s top trading partner and the top partner individually for Brazil, Chile, and Peru. Chinese outward foreign direct investment in Latin America amounted to between $8.5 billion and $14.7 billion in 2024, with over 300 Chinese companies having cumulatively invested close to $72 billion in Brazil alone. These numbers represent actual jobs, contracts, tax revenues, and supply chains within the economies of every major South American country. If U.S. officials ask those governments to distance themselves from China, they are asking for a concrete material sacrifice. Without a meaningful offer on the table, governments that comply are at a disadvantage.
China’s Economic Problems
To understand what Beijing gains from this system, it’s important to examine China’s own economy. China’s clean-energy export surge is partly a strategy play, but also partly a structural consequence of the government’s domestic economic failure. China’s real estate sector, which once drove much of its growth, has collapsed under the weight of roughly 80 million unsold homes. Consumer spending is weak, and growth targets for 2026 are the lowest Beijing has set since 1991. To compensate for slowing economic growth, the government has aggressively pushed exports of solar panels, electric vehicles, and batteries that were built to help Beijing dominate global clean energy markets. However, this has resulted in a staggering overcapacity. China’s solar module manufacturing capacity is roughly 500 gigawatts per year, compared with global demand in 2024 of approximately 270 GW.
Six of China’s largest solar manufacturers lost a combined $2.8 billion in the first half of 2025 doing just that. Those losses are essentially a subsidy to every government that buys their product. China is not just performing a global utility to help the world achieve climate goals, since this export surge is also a result of overproduction and the need to offload inventory by whatever means necessary.
For South American governments, the prices are impossibly attractive: Solar at 7 cents per watt is revolutionary for countries struggling with energy poverty. However, it comes with risks. Beijing began pulling back and restructuring its solar manufacturing sector in mid-2025, restricting new factory construction and canceling the tax rebates that made exports so cheap. Prices are ticking back up. Governments planning major clean-energy expansions at today’s prices should be wary that they are organizing around conditions that are part of China’s manufacturing crisis. The sustainability of these low prices in the future cannot be guaranteed.
China’s state banks also used to loan developing countries money to build major infrastructure, while simultaneously selling them the hardware to build it. Between 2008 and 2016, they provided approximately $500 billion, making Beijing the largest bilateral creditor to much of the developing world. That model has also dried up, with more money flowing back to Beijing in debt repayments than going out in new loans. Instead, Chinese companies are investing their own capital directly in South American countries. This investment is more durable and sustains Chinese presence in the region.
South America also has leverage within these deals. The continent contains some of the world’s largest reserves of lithium and copper, elements used in every battery and motor in the clean-energy transition, and China needs them to fuel its economy. Brazil has used that leverage through economic rules, pushing BYD to open a battery plant in Manaus and expand electric bus productions in Campinas so its products could qualify for Brazilian financing instead of remaining fully import-dependent. However, without strong domestic policies like Brazil’s, South American countries risk becoming simply exporters of raw materials who import finished products, with the valuable work happening somewhere else.
Washington Dismantled Its Tools
What South America lacks is a second serious bidder, as it’s been decades since Washington deprioritized the region. In 2008, a Council on Foreign Relations task force described how U.S. attention had already shifted elsewhere, especially to the Middle East. More recent assessments still describe the region as an afterthought in U.S. strategy and consider the absence of sustained capabilities for hemispheric engagement. The second Trump administration has refocused attention on the region through security interventions and assertive diplomacy but has intensified the development finance vacuum by slashing infrastructure investment that would provide an economic alternative to Chinese engagement.
In 2025, the United States actively dismantled the tools that would have made competition with China in energy transition infrastructure possible. The legislative rollback has been comprehensive. The “One Big Beautiful Bill,” signed in July 2025, eliminated the tax credits that had driven domestic clean-energy investment, including the $27 billion Greenhouse Gas Reduction Fund and the clean vehicle credits that were beginning to make electric cars affordable for working families in the U.S. The U.S. also withdrew from the Paris Agreement on Inauguration Day and did not send a delegation to COP30 in Belém, Brazil, the first U.S. absence in 30 years of U.N. climate talks. The signal to the governments of the world was that the United States had left the arena.
The Development Finance Corporation (DFC), the U.S. agency responsible for backing U.S. investment in developing countries, saw its authorization lapse in October 2025 after Congress failed to act. When it was eventually reauthorized in December 2025, it approved just two projects at a board meeting, whereas the previous year, it had approved 42. For context, China has invested $446 billion into energy projects globally since 2015, versus $45 billion from the United States. In Brazil alone, the investment ratio gap is more than 100 to 1, with China having deployed $60 billion in public energy finance against America’s $472 million.
At the same time, the Trump Corollary to the Monroe Doctrine declared that the U.S. would deny outside powers the ability to own or control strategically vital assets in the Western Hemisphere. The practical application has forced Chinese-linked operators out of Panama Canal ports; a $20 billion financial package to Argentina was reported as conditioned on political alignment; and in January 2026, the U.S. launched a military intervention to capture Venezuelan President Nicolas Maduro. These actions were taken without any accompanying offer of financing, infrastructure investment, or development partnership for the countries expected to fall in line.
Washington frames its posture as defending South American sovereignty from Chinese influence, while China’s own 2025 policy paper toward the region reads more like the language of the Good Neighbor Policy than anything coming out of Washington right now. The irony is jarring, with the U.S. strategy now appearing to be evening the playing field with China by reducing U.S. commitment rather than raising it. Brazilian President Luis Inácio Lula da Silva has made clear that no external pressure will stop Brazil from deepening its relationship with China. His posture reflects a mindset shared by governments across the region.
Looking Forward
The Iran war has done more than disrupt oil markets. By launching a major military campaign in the Middle East without consulting its allies, Washington has created the perception that the United States is itself a primary source of geopolitical instability. China has moved quickly to occupy the contrasting position, presenting itself as a stable commercial partner with a long time horizon and no interest in shooting wars. The consequences are already visible. Canada’s decision to ease restrictions on Chinese EV imports and sign a formal energy cooperation agreement with Beijing was driven as much by frustration with Washington as by enthusiasm for China. European leaders making repeated visits to Beijing to deepen clean energy ties are doing the same arithmetic. With the United States behaving unpredictably and failing to produce meaningful financing for development infrastructure, its allies need to find other arrangements. In South America, where the United States has now added military intervention in Venezuela to its list of recent unilateral actions, that tendency to hedge will only deepen.
The most likely near-term trajectory is Chinese clean-energy infrastructure becoming more deeply embedded across the region, not because South American governments are choosing China over the United States out of ideological affinity but because China is available with affordable technology, financing, and a consistent commercial offer while Washington is not. Chancay Port in Peru, inaugurated in late 2024, already gives China a direct logistics corridor into South America that reduces shipping times and costs substantially. China has already overtaken U.S. economic influence in South America, and the infrastructure it has built or operates is only growing deeper.
However, any clear projection is complicated by the fact that across the region, five countries are navigating elections or government transitions between now and mid-2027. All these countries are now in economic conditions made significantly harder by these supply disruptions. The governments most committed to clean energy are either leaving office or under severe political pressure, while the rightward shift in Chile, Bolivia, and likely Colombia is happening at a time when this oil shock is providing voters with the most compelling reasons to want an alternative to fossil fuels. A right-leaning, fossil fuel-expansionist government that comes to power still has to explain rising energy costs to its constituents, and the solution to that problem involves Chinese solar.
If oil market volatility shifts intuition about energy dependency in ways that persist, then voter demand for clean alternatives may last – though demand alone cannot create legislation. Europe’s response to the 2022 oil supply disruptions held in part because the EU could pass binding regional targets that no single member government could later alter. South America has no EU equivalent, which means clean energy commitments remain only as durable as the government that made them. When the administration changes, so does the policy.
Policy Recommendations
For the United States:
Restore the DFC and target clean energy in South America: Washington needs to restore the DFC and direct it explicitly toward clean energy investment in South America, with a mandate to match Chinese financing terms on strategic projects. Pressure campaigns without a competing financial offer cannot displace Chinese investment.
Make multilateral institutions the primary pathway for engagement: The United States should stop treating multilateral institutions as secondary to bilateral leverage and start using them as the primary vehicle for engagement with South America. The Inter-American Development Bank and the development bank of Latin America and the Caribbean have the regional trust and the project architecture to mobilize clean-energy investment at scale. There is a financial constraint, but increasing capital costs Washington far less than the diplomatic damage the current approach is accumulating.
For South America:
Use local manufacturing requirements to extract more developmental value from Chinese investment: For South American governments, the highest-leverage move available right now is making local manufacturing an explicit condition of Chinese deals. Brazil has demonstrated this is achievable, securing commitments from BYD and Goldwind to produce locally rather than simply export into the market. Development outcomes are determined by the quality of host-country governance rather than who is doing the investing. Larger economies with established renewable energy markets, like Brazil and Chile, are best positioned to extract these concessions. For smaller or less institutionally capable countries, the more realistic path is coordinating regionally to pool negotiating power rather than bargaining alone against one of the world’s largest exporters.
The views expressed in this article are those of the author and not an official policy or position of New Lines Institute.
Photo: Aerial view of solar panels at the Belem City Park, the venue of the COP30 U.N. climate conference, in its final phase of construction in Belem, Brazil, on Aug. 25, 2025. (Photo by ANDERSON COELHO/AFP via Getty Images)
