The vulnerability of global energy markets is once again back in focus due to Russia’s invasion of Ukraine.
The race for a renewable future will come with its own geopolitical issues and could lead to new conflicts as new supply chains emerge.
In March, President Biden introduced a plan to secure the strategic and critical materials necessary for the clean energy transition—such as lithium, nickel, cobalt, graphite, and manganese.
Russia’s invasion of Ukraine has exposed, once again, the vulnerability of the global energy markets and economy to the actions of petrostates with the power to weaponize their energy resources for political purposes. In the biggest shock to oil flows since the 1973 Arab oil embargo, the war in Ukraine and the hesitancy of Europe to immediately punish Putin threw into sharp relief the geopolitical power that countries with huge oil and gas resources currently hold.
The European Union’s response to Russia’s invasion of Ukraine is to wean off Russian energy as soon as possible and reduce overall fossil fuel consumption in the longer term in order to stop being beholden to malign actors for energy sources.
The mad dash to boost renewables and transport electrification, however, comes with its own set of geopolitical issues.
Countries that aren’t Saudi Arabia, Iraq, and Iran hold vast resources of the metals and minerals that will be critical to enabling a faster energy transition. But those resource holders also include Russia, China, and a host of African and South American nations still living “the resource curse”, where conflict, forced and child labor, and critically low environmental standards are undermining the “green” credentials of the clean energy transition.
As developed economies look to lessen their dependence on fossil fuels and, by extension, on the political goals and whims of major oil and gas resource holders such as Russia and the members of OPEC, the geopolitical influence of the petrostates would likely wane over time. But a new geopolitical issue would rise—potential dependence on countries holding resources of critical minerals. And those countries include the likes of China and the Democratic Republic of Congo (DRC), for example.
The geopolitics of oil resources has shaped the second half of the 20th century and continues to do so in the 21st century.
“Although the threat of "resource wars" over possession of oil reserves is often exaggerated, the sum total of the political effects generated by the oil industry makes oil a leading cause of war,” Jeff D. Colgan, Assistant Professor in the School of International Service at American University in Washington, D.C, wrote in a policy brief in the peer-reviewed journal International Security nearly a decade ago.
Since 1973, between one-quarter and one-half of interstate wars have been connected to one or more oil-related causal mechanisms, Colgan notes, adding that “No other commodity has had such an impact on international security.”
International and energy security continue to be influenced by fossil fuel resources a decade later.
Due to the high dependence on Russian oil by some of its members, the EU is debating how to implement an oil embargo on Moscow without plunging Europe into a recession and without fracturing a united EU front against Putin and his aggression in Ukraine.
Renewables Could Hold The Key To Energy Independence…
Therefore, the EU is looking to switch to renewables faster, as a way to reduce fossil fuel consumption and reliance on Russia.
“The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system,” European Commission President Ursula von der Leyen said in early March, announcing a goal to reduce EU demand for Russian gas by two-thirds before the end of this year.
“Renewables give us the freedom to choose an energy source that is clean, cheap, reliable, and ours. And instead of funding fossil fuel imports and Russian oligarchs, we can create jobs here,” European Commission Executive Vice-President for the European Green Deal, Frans Timmermans, said.
The EV revolution would also help reduce the geopolitical power of petrostates.
“The ability to electrify transportation and get off combusting fossil fuels, and oil specifically, means we would solve massive geopolitical problems, which have been just a plague for the last 100 years,” Adam Scott, executive director at Toronto-based charity advocating for sustainable investing, Shift, told Andre Mayer of Canada’s CBC News.
…If Clean Energy Didn’t Need Key Metals Resources
The war in Ukraine is accelerating the shift to increased investment in renewables as a way to lessen dependence on imports of fossil fuels, a large part of which comes from OPEC and Russia.
However, the big challenge in the energy transition will be supply chains, Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, said last week.
“Costs for solar and wind turbine components are already experiencing inflation and demand is only going to intensify. There’s also going to be a massive scramble to access the metals to build out electrification – from steel, key base metals including copper, aluminum and nickel, and battery raw materials,” Flowers noted.
Developed economies, including the United States, currently depend on imports for boosting low-carbon energy sources. The U.S. imports more than half of its annual consumption of 31 of the 35 critical minerals, the Department of Energy said at the start of President Biden’s term in office. America does not have domestic production for 14 of those critical minerals and is completely dependent on imports to supply its demand.
President Biden included in March strategic and critical materials necessary for the clean energy transition—such as lithium, nickel, cobalt, graphite, and manganese for large-capacity batteries—in the Defense Production Act of 1950.
This is a step in the right direction for ensuring more domestic supply, considering that geopolitics will play a role in the energy transition, too, although the resource holders may be different.
“There is an underappreciated risk to the energy transition: the supply of clean energy depends on mined natural resources, which are steeped in geological, geopolitical, and governance challenges,” KPMG and Eurasia Group said in a report last year.
The new global energy ecosystem could shift “from OPEC to OMEC”, where OMEC is what KPMG and Eurasia Group describe as a “freshly minted acronym for ‘Organisation of Mineral Exporting Countries’ – this grouping may not yet exist, but the point remains: geopolitical power could shift from oil-dominated countries to critical metal-dominated countries.”