Articles

Geopolitics of the War: Resetting the Energy Debate

by Ms. Rajnandini Yadav and Dr . Mary Rani Thomas

One who controls the energy commands the power. The world we know is witnessing an Energy Transition, a ripple effect that has already seen the rise and fall of nations and the collision of power dynamics. While the world transitions into a low carbon energy footprint, intervention of geopolitical tensions and borderline crisis, spark energy debate, thus rigging the price. Price is a cost that we pay to consume that energy. But the current scenario provides enough evidence of a direct relationship between crisis and price volatility. So, what lies ahead in the evolution of energy transition? To anticipate what’s ahead, we need to understand the past clearly. Events that surprise us never happened in our lifetime, but they have indeed happened many times in history (Dalio,2021). The volatility in crude oil came to us as a shock, whereas evidence of such events embeds the past. We thus envisage the history to understand the crisis and the play of price dynamics.

One who exerts power on oil fuels the world. History acknowledges this verity and examines how the OPEC Oil Embargo followed the US military backup to Israel during the Yom Kippur War 1973. This event left behind a tail of skyrocketing oil prices, resulting in fuel shortages, thus sending energy shocks through the veins of the American Economy.  Followed by, the world witnessed the Second Oil Shock in 1979, marked by a drop in oil production, as price rigged, during the wake of the Iranian Revolution. As we reach 1990-1991, the response to the Iraqi invasion of Kuwait, marked as the Gulf war, sent ripple effects of spike in crude oil prices. The trajectory continued with the Persian Gulf Oil Spill, leading to environmental terrorism.

Speeding back the time to the present, we notice similar patterns of geopolitical tensions playing a significant role in rigging the energy markets. The rebound effects of Covid-19, in the wake of economic recovery, caused sharp spikes in the prices of commodities caused due to a domino effect of the wide pause during the pandemic, wherein demand rebounded, but the supply constraints lingered. This marked what the world would know as the 2021 Global Energy Crisis. Volatility was exacerbated with the breakout of the Russia-Ukraine war, thus continuing the contagion of supply chain disruption, wherein supply tanked, thus demand pulled the price, breaking the decade-high points. So, do disruptive patterns root from reliance on a nation?

Russia’s accountability in capturing the global share of oil production is critical. Gazprom, one of the largest natural gas suppliers to Europe via the Nord Stream 1 pipeline (accountable for supplying 35% of all EU gas imports from Russia). What follows is the exploitation of the dependency when tension is activated. From demanding gas in Roubles to slashing and finally shutting down the gas supply, Russia played the field in all possible ways. The volatility in power dynamics thus impacted the energy costs, wherein the initial phase of the gas price, which had hit a 30-year low, reached a two-decade high point in 2021 (Global Energy Perspective 2022, n.d.), thus hardening the already tight commodity market. The impact of war predicted a catastrophe in Europe due to a significant shift in energy dynamics. Winters in Europe are known to be harsh. But, the current scenario marks a turn of events with the LNG (Liquefied Natural Gas) bottlenecks highlighting Europe’s weak infrastructure, as supply awaits at the busy regasification terminals. Owing to unseasonable warm temperatures, Europe seems to be at the mercy of winters. The recurring pattern of the demand-supply conundrum demands a breakthrough, which can only occur with growing investments in alternate avenues of renewable energy.

Nations need to recognise the threats posed by the vulnerability of geopolitical tensions and the extreme dependency of the global axis towards specific countries. The 2030 Paris Agreement and 2050 Net Zero vision garner attention towards the necessity for transitioning towards decarbonisation. The expected annual energy supply and production investments will double by 2035, thus reaching $1.6 trillion (Global Energy Perspective 2022, n.d.). Opinions for adaptation of alternatives (wind, solar) stand firm while feasibility for transportation and cost structure develop. Transitioning towards Electric vehicles (EV) accelerates while it’s the range and charging infrastructure evolves. Investments grow in the LNG market while cracking the enticing Green Hydrogen code to address the concerns of cost viability, storage, and round-up efficiency remain in action.

The recurrence of past patterns replicates demand-supply dynamics, the shift in power, and the cause-effect relations due to geopolitical tensions. Only the titles attributed to the variables change. The world is evolving, and so are its geopolitical dynamics. It boils down to how we transition through and break past these patterns.

A message to the world stands:

“May the force of evolution be with you”  – Ray Dalio

References:

Dalio, R. (2021). Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail (1st ed.). Avid Reader Press / Simon & Schuster.

Global Energy Perspective 2022. (n.d.). McKinsey & Company. https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-energy-perspective-2022

 About the Author:

Ms. Rajnandini Yadav is currently pursuing her Master in Commerce at CHRIST (Deemed to be University), Bengaluru, India. She is an active organiser and participator in various clubs and associations of the commerce department while handling her responsibilities as the Student Council Member. Her research interests are in the field of Global Market, Macroeconomics, Geopolitics, and Behavioral Finance.

Dr. Mary Rani Thomas is currently working as an Assistant professor at CHRIST (Deemed to be University), Bengaluru, India since 2010. She has completed her MPhil and her Ph.D. from CHRIST (Deemed to be University), Bengaluru. Areas of specialisation and subjects handled are Marketing, Management, Human Resource Management, and Organisation Behaviour. Research interests and publications are in the fields of consumer behaviour and Organisation behaviour  Also published in reputed UGC-listed and Scopus journals.

3 Comments

  1. Good Article, lot of efforts taken, keep it going, All the best for your future!!!

  2. Very good article…matched with correct data

  3. A very wonderful insight into the world’s geopolitical situation and a well stated importance and message to shift from fossil fuels to alternative energy resources.