GEOPOLITICS OF ENERGY INSECURITY

Energy politics have come to define current geopolitical tensions.

Suchitra Padmanabhan is the Policy Research Associate at Synergia Foundation and has Post Graduate Degree in Social Policy & Planning from the London School of Economics

Energy is an essential driver of every economy, big and small, enabling the formation of businesses, jobs, and the possibility of prosperity. Ironically, we tend to take it for granted because we are so richly blessed with energy.

In modern times, the world was first exposed to the vulnerability of energy supplies as an aftermath of the 1973 Yom Kippur War when Arab nations brought to bear the power of their energy monopoly. Then the world economies adapted themselves by tapping multiple sources of energy from across the globe, and complacency set in once until now when Russia, after being sanctioned for its Ukraine adventure, changed the rules of the game once again.

Global Friction Points

Energy security has historically been defined as the availability of sufficient supplies at affordable prices for individuals, businesses and nations. It is the essential role that energy security plays in economic development, social well-being, and national security, which has made it a key point of tension in world affairs. Geopolitical tensions can arise from energy dependence, resource competition, or disputes over energy transit routes, such as pipelines or shipping lanes.

The geopolitics of energy security refers to the in- terplay between politics, international relations, and energy markets. It encompasses the political and economic strategies nations use to secure access to energy resources and markets and the conflicts and cooperation that arise. A range of factors, including resource availability, infrastructure, technology, market competition, and environmental concerns, shapes energy security’s geopolitics.

Energy politics has come to dominate global concerns, and experts suggest we need a combination of diversification, integration, and resilience to combat potential snags in the supply chain.

Energy insecurity has added new dimensions through the revival of great-power rivalry in an increasingly multipolar and fragmented international system, the efforts of many countries to diversify their supply chains, and the realities of climate change.

The ongoing aggression in Ukraine exemplifies Russia’s confrontation with the West and displays the fragility of the energy ecosystem. The war is a potent reminder that great-power politics never really went away. In the energy ecosystem, the U.S.-Chinese contest is of great consequence as they both try to reduce dependence on each other to realign supply chains and reinvigorate industrial policy.

Although efforts to increase domestic clean energy production are underway, the United States and other countries may not see immediate results. Till then, they will continue to rely on China for critical minerals, clean energy components, and technologies for the foreseeable future, leaving them vulnerable to potential shocks caused by China.

Changing Geopolitical Equations

China has hinted that it may impose limitations on the export of solar energy materials, technologies, and expertise, in retaliation to the export restrictions that the U.S. imposed on high-end semiconductors and machinery to China in the past year. If China carries out this threat or reduces the export of advanced batteries or critical minerals to major economies, like how it halted rare earth supplies to Japan in the early 2010s, it could have a detrimental impact on significant portions of the clean energy industry.

This evolving energy landscape has also impacted traditional energy heavyweights, contributing to increased energy security risks. Alignments between the U.S. and the Middle East, particularly Saudi Arabia, have changed due to a perceived or actual decrease in U.S. strategic commitment to the Middle East. China has begun to play an important role in the region as the single largest customer for oil from Riyadh. Beijing’s role in the region has been bolstered by Riyadh’s acceptance of China as a guarantor of the recent Iranian-Saudi rapprochement.

Russia, too, has gained importance to Saudi Arabia. Despite the aggression in Ukraine, the Saudi government remains reluctant to take a strong position against Russia as it believes that the country is an essential economic partner and collaborator in managing oil-market volatility.

The pandemic and the move to diversify supply chains have also impacted this new phase of energy insecurity. In light of the current geopolitical climate, it is clear that relying too heavily on certain countries, particularly China, carries significant risks. Therefore, it is wise to take actions that reduce this dependence.

Politics Of Clean And Green

Climate change has proved to be an elevated concern of our times. This has prompted many policymakers and academics to make a strong push for a transition to cleaner, greener energy. Initially, it was commonly believed that transitioning to new energy sources would help combat climate change and eliminate the problematic geopolitical issues associated with traditional energy. However, the practical implementation of this transition has proven to be tumultuous, leading to new conflicts and risks in the short term. Recent events over the past 18 months have highlighted the complex interconnection between the energy transition and geopolitics.

Concerns among American officials about an accelerated energy transition potentially leading to increased dependence on China have led to Congress creating incentives for domestic production, refining, and processing of critical minerals. However, these moves have been seen as acts of U.S. protectionism by much of the world, sparking talk of climate-provoked trade wars.

The energy crisis of the past 18 months has widened the rift between rich and poor countries, with many developing countries objecting to pressure to diversify away from fossil fuels.

The rise in food and energy costs emanating from a European war has made this pressure even more difficult for these countries to bear. European countries have also been criticized for their perceived hypocrisy in responding to the crisis, with developing countries questioning why the developed world has not done more to finance climate change adaptation and clean energy outside its borders.

While the energy crisis may have eased in recent months, there is still cause for concern. According to the IEA, there is a projected increase in global demand for oil in 2023, nearly twice as much as the expected rise in supply due to the increasing risks to Russian oil output.

Climate change will also be a major threat to energy security in the coming decades. The IEA estimates that to reach the goal of net-zero carbon emissions by 2050, 50 per cent of global energy consumption will need to be met by electricity produced from zero-carbon sources, up from only 38 per cent today. The warming of waters and more intense droughts will pose challenges for cooling power plants, transporting fuels, and relying on hydropower.

The Three Mantras

Energy politics has come to dominate global concerns, and experts suggest we need a combination of diversification, integration, and resilience to combat potential snags in the supply chain. One solution to these problems is diversifying supply to improve energy security. However, diversifying the inputs of clean energy is no easy task. The concentration of essential technology and components, including critical minerals for batteries and solar panels, is more pronounced than oil.

Australia, the world’s largest lithium supplier, accounts for approximately 50 per cent of the global supply, while the Democratic Republic of the Congo and China, the leading cobalt and rare earths suppliers, each control about 70 per cent of these resources. Processing and refining these minerals are even more centralized, with China responsible for 60-90 per cent of these operations. Chinese companies also manufacture over three-quarters of electric vehicle batteries and a similar proportion of the wafers and cells utilized in solar energy technology.

Another critical area requiring diversification is enriched uranium, which will become more important as the use of nuclear power increases globally to meet low-carbon electricity needs. However, there is a pressing need for diversification in this area. Given the current geopolitical situation, Russia’s position as a prima- ry supplier of nuclear fuel services to several countries creates discomfort and vulnerability. It is essential to boost uranium production, conversion, and enrichment in the United States and its Western allies to maintain the existing nuclear power plants and meet decarbonization goals.

Ensuring a secure energy system requires the ability to withstand and quickly recover from unforeseen shocks and disruptions. The foundation of this resilience lies in reliable energy infrastructure. Over the years, governments and private companies have endeavoured to safeguard energy infrastructure from various hazards, including but not limited to terrorist attacks and natural disasters such as hurricanes.

As we transition to cleaner energy sources, it is imperative that we intensify these efforts. Additionally, with the increased digitization and electrification of the clean energy sector, there is a growing risk of cyberattacks. Therefore, it is essential for private companies and governments to collaborate and coordinate efforts to prevent and respond to threats like the 2015 cyberattack that devastated significant portions of the power grid in western Ukraine.

Flexibility is another crucial component of resilience, particularly in the energy sector, where it is assessed by the capacity of each part of a system to manage losses in other parts. Given the variability of renewable energy sources like wind and solar power, alternative sources must either store or support the energy they produce. The delivery systems must also make real-time adjustments to ensure a consistent energy supply.

To address this challenge, policymakers must ensure that ample balancing resources and storage capacity complement the power grid’s expanding portion of renewable energy. This necessitates the implementation of mechanisms like “capacity markets,” which compensate energy producers for their availability to meet peak demand, even if their output is minimal most of the time. Such frameworks are essential to support a consistent and dependable electricity supply, even as the grid shifts towards decarbonization, by ensuring that companies whose resources are only occasionally required remain operational and viable.

Energy Independence

The pursuit of “energy independence” has been driven by the need for enhanced security, a goal that has persisted for several decades in the United States and other nations. Despite being vulnerable to geopolitical risks, the country remains susceptible to supply shocks globally, with impacts on prices that transcend borders. While transitioning to a net-zero carbon system is expected to reduce the influence of geopolitics, at least over the next few decades, energy security will be improved not by achieving greater autonomy but by increasing integration, as shown in the past.

The effectiveness of energy markets can be enhanced by establishing connections and ensuring their smooth functioning. This approach strengthens energy security by allowing supply and demand to react to price signals, thereby improving the system’s ability to cope with unexpected shocks. For instance, when Hurricanes Katrina and Rita ravaged the U.S. Gulf Coast in 2005, disrupting extensive production and refining operations, energy firms averted fuel shortages by swiftly importing supplies from the global market. Similarly, after the Fukushima nuclear disaster in 2011, Japan temporarily shut down its nuclear power sector, thanks to its ability to import other fuel sources from the international market.

Maintaining and nurturing interdependence in today’s context is more challenging than at any other time in recent history. Countries worldwide increasingly adopt industrial policies that entail greater state intervention in markets, which poses a significant obstacle.

While these interventions can offer benefits such as reducing markets’ vulnerability to geopolitical adversaries, some policymakers seek to advance these policies, seeing them as a way to boost domestic employment and build political coalitions to strengthen environmental action. Paradoxically, some endeavours to promote climate action, despite being premised on transnational collaboration, could erode cooperation by exacerbating the forces of fragmentation and protectionism.

Europe’s urgent need to disconnect from Russian energy during the Ukrainian conflict has undermined the argument for energy integration. However, shocks may be felt more widely in an integrated system but are also felt less acutely.

Integration is insurance, spreading the risk of energy supply disruptions across several parties. Furthermore, if each nation attempted to manufacture and consume solely within its borders, expanding clean energy at the necessary scale and pace would not be possible. The International Energy Agency predicts that the value of global trade in critical minerals must triple to achieve net-zero emissions by 2050.

Assessment

Energy security has come to dominate geopolitics, further exacerbated by Russia’s aggression in Ukraine. As energy remains critical to economic development, social well-being, and national security, it has come to perform a crucial interplay between politics, international relations, and energy markets.

As it has come to dominate global concerns, climate change also works as a strong push for diversifying energy sources in the scramble to ensure sustainable energy supply. A complex mix of diversification, integration and resilience must be worked through to achieve geopolitical stability.