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Oil to lithium, the energy transition is shuffling the cards for global politics

How decisions around energy shape geopolitical power

Anna Creti, Professor at Université Paris-Dauphine-PSL, Director of Climate Economics Chair and Associate Director of Economics of Gas Chair
On May 13th, 2021 |
3 mins reading time
1
How decisions around energy shape geopolitical power
Anna creti
Anna Creti
Professor at Université Paris-Dauphine-PSL, Director of Climate Economics Chair and Associate Director of Economics of Gas Chair
Key takeaways
  • In coming years, the energy transition will alter demand for resources with a global geopolitical impact.
  • Historically, geopolitical tensions due to raw materials are most linked to oil with prices as fluctuating as much as $145 in 2008 to $50 in 2009.
  • In Europe, natural gas has also played a role, considered as one of the main geopolitical threats to Europe between 2006 and 2009.
  • As the world towards reduces its carbon emissions, demand for new raw materials like lithium will, in turn, could shift the focus of geopolitical power to other regions such as Latin America.

Access to nat­ur­al resources is strong­ly linked to geopo­lit­i­cal pow­er, par­tic­u­lar­ly when it comes to ener­gy. As such, the ener­gy tran­si­tion, which inher­ent­ly alters demand for raw mate­ri­als will in turn heav­i­ly impact the glob­al geopo­lit­i­cal bal­ance. Dubbed as “sci­ence of the State by Rudolph Kjellen in 1899, geopol­i­tics “stud­ies the way pol­i­tics or ide­olo­gies can be explained by means of geo­graph­ic vari­ables, such as loca­tion, size, pop­u­la­tion, resources or tech­no­log­i­cal devel­op­ment” (Leigh, 2014)1

Oil: a source of dispute

Unsur­pris­ing­ly, when it comes to defin­ing geopol­i­tics of ener­gy, oil is the most debat­ed case.  Since the First World War, the deci­sion of the then First Lord of Admi­ral­ty Win­ston Churchill to change the fuel source of the Roy­al Navy war­ships from coal to oil, in order to make the fleet faster than its Ger­man coun­ter­part, marked the start of a new era. The shift from secure coal sup­plies mined in Wales (UK) to uncer­tain oil sup­plies from what was then Per­sia, led to the Mid­dle East becom­ing an impor­tant epi­cen­ter of glob­al geopol­i­tics – not to men­tion, oil becom­ing a key issue for nation­al secu­ri­ty (Cam­pos and Fer­nan­des, 2017)2

In the sec­ond half of the 20th cen­tu­ry, con­trol of oil played a cen­tral role in numer­ous dis­putes: the Biafra War (1967–1970), the Iran-Iraq War (1980–1988), the Gulf War (1990–1991), the Iraq War (2003–2011) or the con­flict in the Niger Delta (ongo­ing since 2004). Dur­ing these decades, ten­sions between oil-pro­duc­ing and oil-con­sum­ing coun­tries increased, cul­mi­nat­ing in the oil crises of 1973 and 1979. As a result of these events, in 1980 the price of oil sta­bilised at $32 per bar­rel, a lev­el ten times high­er than before 1973. 

Geopo­lit­i­cal ten­sions linked to oil con­tin­ued in the fol­low­ing decades, as shown by the Iraqi inva­sion of Kuwait in 1990. Over just a few months it led to the oil price dou­bling, trig­ger­ing for the Amer­i­can eco­nom­ic reces­sion of the ear­ly 1990s. Since then, the bal­let of oil prices has nev­er stopped. The price of oil “rose from $21 a bar­rel at the begin­ning of 2002 in the run-up to the Iraq war, to $29 at the start of hos­til­i­ties on March 19, 2003, to $48 at the start of Pres­i­dent Bush’s sec­ond term in Jan­u­ary 2005, to $145 in July 2008; an over­all rise of over 400 per­cent. Prices then fell dur­ing the reces­sion in late 2008, hov­er­ing at about $50 a bar­rel in the spring of 2009 with decreased con­sumer demand” (Brook­ings, 2017)3. And in the last decade, oil price con­tin­ued to skyrocket. 

Inde­pen­dence via renewables 

In Europe, anoth­er fos­sil fuel that con­tin­ues to play a very impor­tant geopo­lit­i­cal role is nat­ur­al gas. Most­ly import­ed from Rus­sia and Nor­way, gas began to be con­sid­ered one of the main geopo­lit­i­cal threats to Europe between 2006 and 2009. At that time, gas pric­ing dis­putes between Rus­sia and Ukraine led to the inter­rup­tion of Russ­ian nat­ur­al gas sup­plies to Europe through Ukraine. Secu­ri­ty of gas sup­ply, as defined in the Euro­pean Reg­u­la­tion 2017/1938, is an impor­tant pil­lar of the Euro­pean ener­gy pol­i­cy goal. For instance, the Gas Cor­ri­dor link­ing the Caspi­an region to Europe via Turkey is a recent exam­ple of diver­si­fi­ca­tion of nat­ur­al gas supplies. 

But there is anoth­er way to reach ener­gy inde­pen­dence: increas­ing renew­able ener­gy. Renew­able ener­gy has many advan­tages over fos­sil fuels, fos­ter­ing both decar­bon­i­sa­tion and secu­ri­ty of sup­ply (Vakulchuk et al., 2020)4. How­ev­er, it also exac­er­bates secu­ri­ty risks and geopo­lit­i­cal ten­sions relat­ed to the crit­i­cal mate­ri­als required for renew­able tech­nolo­gies. Mean­while, the decline of fos­sil fuel invest­ments is also cre­at­ing new fric­tions among States that rely on them and those com­mit­ted to a fast transition. 

Final­ly, with renew­able tech­nolo­gies set to trans­form ener­gy sup­ply sys­tems, rela­tions between states will change while economies and soci­eties are under­go­ing struc­tur­al trans­for­ma­tions (Oxford Ener­gy Forum, 2021). For exam­ple, Chi­na has become a big play­er in the geopol­i­tics of the ener­gy tran­si­tion, both because its grow­ing ener­gy con­sump­tion and the rare met­als in its pos­ses­sion which make up the cru­cial mate­ri­als need­ed to pro­duce renew­able tech­nolo­gies and batteries.

Sta­bil­is­ing ener­gy geopolitics 

Fun­da­men­tal changes are tak­ing place in the glob­al ener­gy sys­tem which will affect almost all coun­tries with wide-rang­ing geopo­lit­i­cal con­se­quences (Ire­na, 2019).  The ener­gy tran­si­tion has been the glob­al future of ener­gy since the Paris Agree­ment was signed. The tar­get for get­ting there is net zero car­bon by 2050, a goal already stat­ed by the Euro­pean Union, Britain and Japan, among oth­ers, and very recent­ly the US, back again on track with their cli­mate ambitions. 

As a con­se­quence, the tra­di­tion­al view of geopol­i­tics of ener­gy is evolv­ing towards that of a low-car­bon world and, as such, becomes even more com­plex with glob­al cli­mate change5. There­fore, geopol­i­tics of ener­gy encom­pass­es new and chal­leng­ing dimen­sions, as the papers in this issue illus­trate. We pro­pose a broad vari­ety of top­ics: the role of car­bon pric­ing in polar­is­ing dif­fer­ent ener­gy but also indus­tri­al pol­i­cy objec­tives between Euro­pean Coun­tries; lithi­um as well as the oth­er raw mate­ri­als that are cru­cial for the ener­gy tran­si­tion, which shifts the atten­tion from the old oil pro­duc­ing coun­tries to oth­er places, like Latin Amer­i­can countries. 

Fur­ther­more, the new strate­gies of oil majors, espe­cial­ly in the after­math of the Covid cri­sis, as well as the ambi­tion of gas pro­duc­ers to reshape the indus­try to embrace the chal­lenges of the ener­gy tran­si­tion are excel­lent exam­ples of new facets of the mod­ern geopol­i­tics of energy.

1Brook­ings (2017) The New Geopol­i­tics, Pol­i­cy Brief Series on The New Geopol­i­tics, avail­able at https://​www​.brook​ings​.edu/​p​r​o​j​e​c​t​/​t​h​e​-​n​e​w​-​g​e​o​p​o​l​i​tics/
2Cam­pos, Ana, and Car­la Fer­nan­des. « The Geopol­i­tics of Ener­gy. » Geopol­i­tics of Ener­gy and Ener­gy Secu­ri­ty 24 (2017): 23–40
3IRENA (2019) “A New World: The Geopol­i­tics of the Ener­gy Trans­for­ma­tion”, ISBN 978–92-9260–097‑6
4Leigh, Michael (2014): « Energy–A Geopo­lit­i­cal Game Chang­er?. » The Inter­na­tion­al Spec­ta­tor 49.2 1–10
5Vakulchuk; Roman, Indra Over­land, Daniel Scholten, (2020) “Renew­able ener­gy and geopol­i­tics: A review”, Renew­able and Sus­tain­able Ener­gy Reviews, Vol­ume 122

Contributors

Anna creti

Anna Creti

Professor at Université Paris-Dauphine-PSL, Director of Climate Economics Chair and Associate Director of Economics of Gas Chair

Anna Creti holds a PhD from the Toulouse School of Economics and a post-doc from the London School of Economics. She has previously worked at the Toulouse School of Economics, Bocconi University, the University of Nanterre and has visited the University of California Santa Barbara and Berkeley. She has also studied in depth competition and utility regulation in Europe, and the link between energy, climate and environmental regulation. She is now full professor at Université Paris-Dauphine-PSL, Director of the Climate Economics Chair (Un. Dauphine) and Associate Director of the Economics of Gas Chair (U Dauphine, Toulouse School of Economics, IFPEN, Ecole des Mines)