The Geopolitics of Energy are Changing

Energy security is a core element of a country’s national security policy. However, what constitutes energy security is changing dramatically, which means governments must review and update their policies. Moreover, these policy reviews and updates must be ongoing, given the continuing, multifaceted evolution taking place in the global energy sector. Changes are afoot and it is imperative that policymakers are aware of this reality and are open to taking the necessary steps to take advantage of them. Just as a country keeps reviewing defense and other threats to its place in the world, so too must it reappraise and adjust its policies and tactics to ensure its energy security.

Regardless of whether a country is a net importer or exporter of energy, countries the world over are affected by today’s dynamic realities. Moreover, while trying to anticipate how future directions and new developments in the global energy picture will affect a particular country or region, policymakers need to think not only about how to adapt, but also about how a country might try to affect those changes so as to improve its well‑being. At the same time, a government must consider how others—whether friends or current or potential enemies—might try to shape these geopolitical changes. Passivity or simply just continuing policies that have been in place over the past few decades will not serve countries well.

Just as a country keeps reviewing defense and other threats to its place in the world, so too must it reappraise and adjust its policies and tactics to ensure its energy security.

This essay examines how new factors, such as climate change, new technologies, and resurgent weaponization of energy sources, affect countries’ energy security today and may affect it in the coming years. At the same time, it looks at the likelihood that some level of oil and natural gas will be needed for the foreseeable future and the reality that the demand for energy is not being met in many parts of the world. It also considers the actions that governments are taking, or need to take, in light of these developments and the resulting changes occurring in international relations.

Background

Energy security has traditionally been defined as the assured, continued, and predictable supply of adequate energy at an affordable price. Consumers— whether private individuals, businesses and industries, or governments—want assurances they will have all the energy they need, when they want it, and at a price they can afford. Over the past two or more decades, another imperative—sustainability—entered the equation as the world realized the climate and environmental impacts of energy generation and use. Therefore, the definition of energy security has to be updated to remain the assured, continued, and predictable supply of adequately sustainable energy at an affordable price.

For energy producers, there is another dimension: the need for adequate assurance that there will be sufficient demand to justify the often tremendous capital outlays essential to exploring for, developing, producing, and shipping energy oil, natural gas, or other energy sources.

Furthermore, government actions have been a key factor in advancing—or threatening—energy security. Geopolitics, thus, are integral to thinking about energy security. 

The oil crises of the 1970s and early 1980s brought this point home to government chanceries, corporate boardrooms, and the general public. The 1973 Arab oil embargo, which sought to reorient the policies of the United States and other countries regarding the Arab‑Israeli conflict, caused Western industrialized countries to take a number of steps to avoid again falling victim to a weaponization of oil supplies.

Working in concert, the United States, Japan, and Western Europe acted to lessen dependence on Middle Eastern oil, to increase energy production where possible at home, and to diversify types and suppliers of energy. These mature, industrialized OECD economies built strategic petroleum reserves to enable their economies to weather further supply disruptions. They explored and promoted energy‑saving technologies and cofounded the International Energy Agency as a means to understand better oil markets and other energy sector developments and to help develop sound energy policy options.

Higher oil prices in the 1970s and early 1980s also stimulated inflation and caused budgetary problems. These economic dislocations had a particular impact on lower‑income countries. Saudi Arabia, Kuwait, and Organization of the Petroleum Exporting Countries (OPEC) as a whole established development funds to help poorer countries suffering from higher oil prices and to ameliorate the political backlash that resulted as the massive spike in oil prices provided oil exporters with huge increases in revenues.

Ensuring oil shipping routes stayed open—especially the Bab al Mandab, the Strait of Hormuz, and the Straits of Malacca—was a top focus for the United States, the major Western European states, Japan, and, later, China. Another initiative designed to circumvent chokepoints and to keep needed oil moving to global markets was the construction of major strategic export pipelines, such as the Baku‑Tbilisi‑Ceyhan project that the United States worked with European governments, Azerbaijan, Georgia, and Türkiye to realize in the 1990s. China’s Belt and Road Initiative, first made public in October 2013, also seems to include decreasing dependence on the Straits of Malacca for its energy needs as one of its goals.

Oil producers also developed and acted upon their own plans in light of the then‑prevailing geopolitics of energy. Most Americans today would probably be shocked if they read mid‑1970s news reports that highlighted Iran’s role as a valued, important alternative oil source as the United States worked to overcome the 1973 energy crisis. Saudi Arabia and other OPEC producers strove to build and maintain oil supply arrangements in the 1980s with U.S. refiners and, despite their earlier actions during the 1973 Yom Kippur War, would engage the U.S. and other governments to be seen both as suppliers Americans could count on and as responsible parties interested in stable, predictable oil markets.

Natural Gas, like Oil, Becomes a Geostrategic Commodity

In the twenty‑first century, natural gas would likewise come to assume geostrategic importance, with a realization that supplies of gas, like those of oil, could be weaponized as a foreign policy tool. In the early years of the past decade, there was talk of a “golden age of gas.” However, by the end of the decade, there were deep concerns over how Russia used Gazprom to advance state interests.

A number of major new discoveries, such as Azerbaijan’s giant Shah Deniz II field and the development of new technologies like hydraulic fracturing and horizontal drilling, have greatly increased natural gas supplies. These increased supplies were seen not just as energy sources, but also as a means to provide needed cleaner power in the United States, Europe, and the rapidly growing economies in China and elsewhere given that gas‑fired power plants produce far fewer pollutants than burning coal.

However, like oil, natural gas supplies and demand soon took on a geopolitical edge. As with oil, diversity of natural gas supply would prove essential to energy security. The prudence of building the Nord Stream II pipeline from Russia to Germany, which would bolster an over‑dependence on Russian gas, became a major foreign policy issue between Washington and Berlin and between Germany and a number of other EU member states. Efforts to ensure the diversity of Europe’s natural gas supply were important factors in U.S. diplomacy in the South Caucasus, where Ambassador Richard Morningstar and others worked with Azerbaijani President Ilham Aliyev, BP, and others to realize the construction of the Southern Gas Corridor.

It became apparent that assured supplies of affordable natural gas could not be taken for granted, especially as the world turned more and more to gas as a source for generating electricity and meeting other needs.

Russia briefly cut natural gas supplies flowing through Ukraine to EU customers in 2006 and natural gas supplies to Ukraine in 2009 and 2014. By 2020, what had been warned about in diplomatic discussions was becoming fact. Gazprom was charging different countries different prices for Russian natural gas. In addition to Russia’s efforts to cut off gas supplies to Ukraine and to build alternatives to the Soviet‑era pipelines that ran through that country to parts of the European Union, Gazprom’s policies served Russian foreign policy objectives, rather than acting on market signals. Better relations meant lower prices. Politics, not market forces, were setting the prices for Russian gas, in contrast to arrangements for gas from Qatar, Australia, the United States, and other exporters.

Russia’s 2022 full‑scale invasion of Ukraine caused Germany and the other EU member states to scramble for alternatives to Russian natural gas, both to be assured of the energy they needed for their publics and industries and to diminish income that Moscow could use to prosecute the war. The EU Commission’s president, Ursula von der Leyen, visited Baku in July 2022 to seek additional natural gas and sign a historic Memorandum of Understanding to that effect, as did leaders of several EU member states.

Looking to deprive Russia of gas export earnings that helped finance the war and to head off a possible Russian decision to halt supplies at a time of its own choosing as a means of wringing political concessions from the EU and others, some EU member states bought up liquified natural gas from the United States and Qatar. American companies were willing to sell, and the U.S. government saw these transactions as an important contribution to Europe’s energy security. 

While the geopolitics of oil and gas exploration, production, sales, and consumption are generally recognized, the need to fight climate change brings new strategic realities.

According to a recent Bloomberg report, European purchases of liquefied natural gas from the foregoing sources and others rose by 60 percent in 2022, replacing gas previously imported by pipeline from Russia. These purchases helped to ensure that consumers in the EU and to some extent elsewhere (e.g., the Western Balkans) would have the energy they needed as governments and companies scrambled to develop other long‑term supplies. However, they also drove up the price and pulled supplies from other consumers, including China. Due to deteriorating, tense relations between Beijing and Washington, China, for its part, was already questioning the wisdom of relying on natural gas from the United States despite growing U.S. gas production and the new American facilities brought on line to liquify and export it.

Expanded Geopolitical Equations 

While the geopolitics of oil and gas exploration, production, sales, and consumption are generally recognized, the need to fight climate change brings new strategic realities. Fighting climate change includes reducing carbon emissions worldwide and implementing ways so that countries—and here there is a particular focus on China, India, and other emerging market and lower‑income countries—can boost their economic well‑being without the carbon emissions that Western industrialized societies produced as they developed.

One school of thought argues a dramatic shift can be made almost immediately to renewables and other low‑carbon alternatives. Proponents argue that such a shift—while benefiting the environment—would also boost a country’s energy security by lowering, if not ending, the need for oil and gas imports. Besides being highly questionable as to whether a complete move away from oil and gas is possible, the geopolitics surrounding the photovoltaic (PV) panels essential to the harnessing of solar power are instructive in evaluating this proposition.

A July 2022 International Energy Agency (IEA) special study found that 

_{China’s share in all the manufacturing stages of solar panels (such as polysilicon, ingots, wafers, cells, and modules) exceeds 80 percent. This is more than double China’s share of global PV demand. In addition, the country is home to the world’s 10 top suppliers of solar PV manufacturing equipment}

Moreover, that study found that with the additional manufacturing capacity under construction in China, Chinese firms would soon command a 95 percent share of world markets for PV equipment. While Chinese engineering and manufacturing certainly brought about numerous changes that greatly reduced the price and increased the availability of solar power, such a concentration of sources of supply presents a significant vulnerability. As the world found first with oil and later with natural gas, diversification of sources of supply is a core factor in any country’s energy, and hence national, security.

Even hydroelectric power— another of the technologies that can help move the world to a lower carbon future—can have a geopolitical dimension. A dam and hydroelectric plant in one country may depend on upstream water sources located in another. Moreover, that hydroelectric plant may affect the water supplies needed in another country downstream from the project. The new Grand Ethiopian Renaissance Dam on the Blue Nile is such an example. Ethiopians see the project, which they financed, as providing electricity and water for greater economic growth and well‑being. In Sudan and Egypt, by contrast, the project is characterized as an existential threat because of fears it will reduce the water supplies on which both of them depend.  

There have been similar concerns over hydroelectric projects in Central Asia (not to mention the South Caucasus), where managing transboundary river flows for agriculture and other uses, in addition to power generation, has been seen at different times as either a potential cause for conflict or as a vector for greater regional cooperation. Moreover, fears concerning higher temperatures and the resulting changes in the Himalayan ice packs that give rise to Central Asia’s rivers add to the energy security/regional geopolitical mix.

New Sources, New Challenges

Renewables also bring another increasingly high‑profile factor into the geopolitical mix: the need for rare earths, lithium, and several other critical materials. 

Lithium, nickel, cobalt, manganese, and graphite are essential for the rapidly growing demand for batteries as the world shifts to lower‑carbon, electrified systems. Rare earth elements are essential to motors in both wind turbines and electric vehicles. Copper, silicon, and silver are needed for photovoltaic systems, and miles of copper and aluminum wiring will be required for expanding updated electricity systems as well as for electric vehicles. Where these metals and minerals can be found, extracted, and processed for use in the lower carbon economy is a geopolitical and commercial concern.

Rare earth supplies are an increasingly high‑profile item on the energy geopolitical agenda. In 2010, China halted supplies of rare earth minerals to Japan because of a territorial dispute between the two countries. Immediately following that event, the U.S. government examined the situation, considered re‑opening domestic mines and processing facilities, and perhaps establishing strategic reserves of rare earths and other critical minerals along the lines of what had been done with crude oil in the 1970s and 1980s. The issue drifted off Washington’s radar until the general disruptions in global supply chains that accompanied the COVID‑19 pandemic, which in turn led to a reappraisal of an over‑dependence on a single source, namely China. Rare earth supplies are now one of the ongoing themes in U.S. discussions about the extent to which America should allow itself to rely on Chinese production and supply sources.

Recent reports show that China accounted for 70 percent of the world’s mining of rare earths in 2022. However, it is also the processing of these elements that is geopolitically important. Here again, China has a clear preponderance. Reports show that 85 percent of the world’s capacity to process rare earths is located in China. On top of these figures is an apparent renewed move by China’s government to restrict exports of rare earths, ostensibly to ensure that Chinese industry has the supplies it needs.

The Trump and Biden administrations, as well as Japan and others, have made access to rare earths and other materials integral to the evolving energy picture important pieces of their geopolitical thinking. A 2022 White House Fact Sheet notes that

_{Critical minerals […] such as rare earth elements, lithium, and cobalt […] are key inputs in clean energy technologies like batteries, electric vehicles, wind turbines, and solar panels. As the world transitions to a clean energy technology, global demand for these critical minerals is set to skyrocket by 400‑600 percent over the next several decades, and for minerals such as lithium and graphite used in electric vehicle (EV) batteries, demand will increase by even more—as much as 4,000 percent.}

In addition to a broad range of steps to boost the mining and processing of these materials domestically and strengthening stockpiling, the United States has pursued a number of diplomatic initiatives in this context over the past two years. As a 2023 Aspen Institute study reports that “the United States cannot solve the critical minerals challenge on its own. Regardless of the reforms taken [domestically], the United States will be unable to fully reach self‑sufficiency for critical mineral mining and processing in the time frame available.

Today’s evolving energy geopolitics demand engagements among a broader range of countries on a broader range of commodities than in the past.

The United States is now engaging other consuming and producing countries to address the situation. In March 2023, for example, the United States and Japan signed a bilateral agreement to strengthen critical mineral supply chains. Also, in July 2023, the EU Commission authorized negotiations with the U.S. on a critical minerals supply chains agreement, one of the goals of which is “to prevent distortive and protectionist practices in critical minerals supply chains,” as  both sides pursue a lower carbon future.

The United States is also signing a number of agreements with critical mineral producers. In June 2023, America signed a Memorandum of Understanding with Mongolia “to jointly advance secure and resilient critical mineral supply chains in the Indo‑Pacific region.” This document includes a framework “to work together on technical areas of support to further Mongolia’s efforts to develop capacity to encourage investment in its mineral resource sector, which is vital to the global clean energy transition.” The United States has also signed similar such agreements with the Democratic Republic of Congo and Zambia. One motive is U.S. awareness of the outsized role Chinese firms can often play in mining and processing these key minerals in Africa and elsewhere.

Today’s evolving energy geopolitics demand engagements among a broader range of countries on a broader range of commodities than in the past.

Thus, today’s evolving energy geopolitics demands engagements among a broader range of countries on a broader range of commodities than the energy security policies of the 1970s and 1980s.

Non‑State Actors Matter

Energy geopolitics, like other security issues today, includes non‑state actors. First and foremost is the role of international energy companies and other private sector actors. Boardroom decisions have long been crucial to exploration and development moves affecting the production and supply of oil and natural gas. Government interactions with these companies to develop the resources in their countries are an ongoing dimension of the energy world. 

At the same time, non‑state actors can also have a distinctly negative impact. For example, hackers have used computer systems to disrupt grids and other means of supplying energy. Notable examples of this new reality are the cyberattacks on Ukraine’s electrical grids in 2015 and the shutdown of the Colonial Pipeline in the United States in May 2021. The 2015 cyberattacks on Ukraine’s electrical grids meant 200,000 people lost power. Not Petya’s attack on Colonial Pipeline’s operating systems meant the pipeline had to be shut down for five days, and the firm paid 75 BitCoin, approximately $4.4 million, to get the pipeline back online. Federal authorities reportedly recovered 63.7 BitCoin, about $2.3 million, but not until severe localized gasoline, diesel, and jet fuel shortages occurred in the southeastern United States. 

The increased role of computerization and IT in the energy sector makes cybersecurity very much part of the global energy security equation.

Energy Poverty 

Geology, the geographic placement of resources, the actual or potential weaponization of the supply of those resources, and the broadening range of technologies are not the only factors in the changing geopolitics of energy. A key, but too often overlooked, factor is the immense unmet need for energy in developing countries. As a result, one of the UN’s sustainable energy goals is ensuring access to clean and affordable energy, which is essential to the development of agriculture, business, communications, education, healthcare, and transportation. All this bears witness to the essential role access to energy plays in economic and human development.

A key, but too often overlooked, factor is the immense unmet need for energy in developing countries.

There has already been a massive shift in who drives world energy demand. The global reality is that, with their explosive growth and large populations, emerging market countries—especially China, but also India—and developing countries have replaced the industrialized countries as the world’s top energy consumers and key determiners of energy demand trends. Importantly, the rising energy‑related demand in China, as noted above, includes demand for lithium, rare earths, and other critical minerals connected with a low carbon future, as well as the need for oil and natural gas.

However, the growing energy needs of China, India, and other emerging market and middle‑income countries—as critical as they are to the shift in the geopolitics of energy—are just part of the story. A few facts underline the need to take a closer look at energy poverty when thinking about global energy politics.

Over 2.6 billion people today do not have a safe way to cook their food, replying daily on wood, charcoal, dung, or other means to cook. All these methods harm or threaten to harm the health of the mainly women who cook the food, as well as those living with the toxic fumes. Moreover, despite efforts to achieve progress, the UN reports that it seems likely that 2 billion people will still depend on polluting fuels and technologies for cooking in 2030.

Moreover, the UN’s 2023 Sustainable Development Goals Report shows that 733 million people—about one in ten of all people worldwide—still lack access to electricity, with 548 million of them living in Sub‑Saharan Africa. There are probably many millions more whose electricity supply is inadequate for their current and future needs. The supply of electricity and the way it is produced is not only important for economic development, education, and other aspects of an individual’s wellbeing but, as noted above, is also important for combating climate change. The UN reports that $25‑ $40 billion needs to be invested annually between 2021 and 2030 to reach universal access to energy.

The geopolitics of energy should consider not just the needs of today’s global population, but also the needs of those who will be born in the coming years.

There is another statistic that too often seems to get overlooked in energy security conversations, but which is extremely relevant: the global population continues to grow. Expectations are that another 1.8 billion people will come into the world by 2045, 80 percent of whom will be born in the developing world. Thus, the geopolitics of energy should consider not just the needs of today’s global population, which we are already failing to meet, but also the needs of those who will be born in the coming years.

Meeting the Geopolitical Challenge

Having laid out the problem, it is incumbent to offer thoughts on how it might be addressed. What follows are ten steps governments can consider in deliberating how to address the evolving geopolitical challenges of the world’s ongoing need for energy.

One, be aware of and keep current with the evolving global and regional energy security pictures. Today’s realities mean energy security requires more than just getting enough hydrocarbons out of the ground and then delivering them to world markets. It is imperative that governments and their constituents look at the broadening range of factors affecting the energy needs of their countries and the overall evolution taking place in the energy sector.

Two, in concert with developing and maintaining this ongoing awareness of energy sector developments and their implications comes a need for a continuous re‑evaluation of policies— both to utilize those developments to enhance national well‑being and to be prepared for developments in the energy space that could harm a country’s national security.

Three, realize the need to take different time horizons into account. Climate change, for example, is an urgent threat, and steps need to be taken now and in the coming years to address it. However, as the world re‑learned after Russia’s full‑scale invasion of Ukraine, we continue to need hydrocarbons for our energy security and must ensure immediate and short‑term supplies.

Four, realize that different countries are at different points in shifting to a lower carbon energy future and have different levels of capacity to make the necessary shifts.

Five, recognize that diversification—both in terms of types of energy and in terms of suppliers— remains an essential core factor in energy security. Governments and businesses need to act to ensure the diversification of energy sources and technologies. There is much to be said in favor of an “all of the above strategy” when it comes to developing a country’s energy portfolio. At the same time, the same type of focus that went into diversifying oil or natural gas suppliers in past years needs to be applied into ensuring the diversity and integrity of systems for supplying lithium, rare earths, and the other minerals and metals critical for greater electrification and a lower carbon future. Moreover, all should expect suppliers to also keep an eye out to ensure adequate diversification in their customer base.

Six, pay attention to private sector actors and market forces. Companies will not invest and produce oil, natural gas, or copper and lithium unless it is profitable to do so, the necessary financing is available, and there is adequate demand for the product. In short, when governments are thinking about energy security, they need to be aware of market realities and allow market forces to work.

Seven, a corollary to the foregoing is that—as the world looks to lowerand middle‑income countries to help build a lower carbon future and not simply repeat the route the mature industrialized economies took—the ability to attract and utilize financial capital is crucial. If, however, a country has challenges attracting capital in general, it will likely also be hard to attract funding for a solar or wind farm or for a needed upgrade to the electrical grid.

Eight, revise regulatory impediments to ensuring energy security. The prohibition against enabling its regional financial institutions like the EBRD or the EIB to finance new gas pipeline projects—even if these could later be converted to transport hydrogen—is one such example.

Nine, keep an open mind and keep all options open. There is a tendency not only for government leaders and agencies to stick with what has been done in the past, but also to be swept up in enthusiasm or focus on one or two energy technologies which may seem to be “the answer.” Pursuing a particular technology that experts or international conferences highlight at a particular moment may or may not be the right course. It can also blind policymakers to other alternatives that might be available or developing that could prove more effective in a particular country or region. 

Ten, energy security is not something any government can realize on its own. As my own country found recently, even with a tremendous increase in U.S. oil and natural gas production, the prices for oil and natural gas are determined by global markets—a reality that meant Americans faced higher gasoline prices in 2021 despite record oil production. Americans are also learning that a lower carbon future will mean reliance on African and other producers of cobalt and other minerals, even if the United States can dramatically increase domestic mining and processing activities. This reality will also confront other countries and will continue to be an important factor in the geopolitics of energy.