Tensions, Trade and Transition
The global energy landscape, traditionally viewed as a balance of supply, demand and technological advancements, now finds itself inextricably tied to the pulse of geopolitics. In 2025, geopolitical tensions are expected to drive unprecedented volatility in energy markets, with cascading effects on economies and industries worldwide.
From ongoing conflicts in Europe to rising tensions in the Middle East and trade disputes between global superpowers, geopolitics is shaping the future of energy in ways both expected and unforeseen.
Europe: The Ripple Effects of the Ukraine Conflict
As the Russia-Ukraine war stretches into its third year, its implications on global energy supply chains remain profound. Russia, a historic energy juggernaut, has experienced diminishing revenue streams as European nations pivot from its gas supplies to alternative sources. In response, Moscow has diversified its exports to Asia, particularly India and China, forming a Eurasian energy bloc that challenges traditional market dynamics.
This realignment has strained Europe's energy infrastructure. Liquefied natural gas (LNG) imports from the United States and Qatar have filled some gaps, but with mounting demand and infrastructure limitations, the continent faces recurring price surges. Volatility continues to unsettle markets, as geopolitical risks—such as attacks on pipelines like Nord Stream in 2022—add unpredictability to an already fragile situation. Europe’s attempt to lead the transition to renewables has slowed, with governments reprioritising short-term energy security over decarbonisation.
The Middle East: Conflict and Complexity
The Middle East, the world's perennial energy hotspot, is witnessing increasing instability. The simmering tensions between Iran and Israel have grown hotter, with periodic clashes raising alarms over the Strait of Hormuz, a vital artery through which nearly one-third of the world's oil flows.
Iran’s role as a major oil and gas producer adds layers of complexity. Despite sanctions, Tehran has expanded its clandestine exports, fostering relationships with sanction-resistant partners such as Venezuela and certain Asian buyers. The U.S.'s determination to curtail Iran’s nuclear ambitions through sanctions has led to market apprehension, where mere speculation of an escalation impacts crude prices globally.
Meanwhile, Saudi Arabia and the UAE remain cornerstones of OPEC’s policy-making, balancing production cuts to stabilise oil prices. Yet internal discord within OPEC+, especially with non-member producers like Russia, has created uncertainty in the bloc’s cohesion and influence on energy prices.
U.S. and China: Superpower Trade Wars
The energy markets’ trajectory has also been increasingly shaped by tensions between the United States and China. As Beijing accelerates its energy security agenda, securing access to critical raw materials and energy sources has been central. The U.S., eager to reduce China’s strategic hold over rare earth elements and solar panel manufacturing, has doubled down on reshoring initiatives and technological restrictions.
Trade disputes between the two nations have disrupted the supply chains for renewable technologies such as solar panels and battery components, hampering global efforts to transition toward clean energy. In parallel, China’s investments in the Belt and Road Initiative continue to reshape regional energy partnerships, bypassing traditional Western dominance.
Additionally, Beijing's budding alliance with oil-rich nations, such as Iran and Venezuela, signals a deepening energy divide. The pricing of crude oil in yuan, alongside China’s aggressive push for non-dollar energy trade, introduces another layer of complexity, threatening the petrodollar’s longstanding dominance and sowing uncertainty into energy markets.
Rising Global Fragmentation
Beyond specific regional flashpoints, the world is increasingly polarised between energy-rich and energy-hungry nations. Fragmentation within multilateral organisations, such as the United Nations and the World Trade Organisation, has eroded the efficacy of global energy governance.
Emerging markets in Africa and Southeast Asia, reliant on imported oil and gas, are caught in the crossfire of major powers’ battles for influence. Meanwhile, economic decoupling trends and protectionism are amplifying market unpredictability. Each new trade restriction—whether targeting rare minerals, LNG exports or refinery technologies—sends ripple effects across supply chains, driving up costs and reshaping investment decisions.
The Energy Transition and Stranded Investments
Geopolitical turbulence is also complicating the energy transition. While clean energy commitments remain central to global strategies, they face growing headwinds. For instance, Russia’s reduced access to Western technologies following sanctions has disrupted its green energy projects, reflecting how political agendas often sideline sustainability goals.
Conversely, fossil fuels are witnessing a revival. With natural gas labelled a "bridge fuel" by several nations, coal consumption is also seeing short-term spikes, particularly in Asia. Geopolitical pressures have inadvertently pushed governments to delay the retirement of aging coal plants as contingency measures, further postponing climate goals.
This "two-speed" energy reality leaves investors grappling with stranded asset risks. Capital once earmarked for long-term renewables is being rerouted toward immediate security needs, thereby introducing volatility to financing costs across the spectrum.
Beyond 2025: The Path Ahead
In a world grappling with political dissonance and economic recovery, energy markets are unlikely to stabilise soon. The need for nations to reassess energy strategies within the context of geopolitics is more pressing than ever.
Three key trends are worth watching:
· Energy Diplomacy Resurgence: With diplomacy being weaponised, expect heightened negotiations surrounding strategic alliances. Deals between developing economies and OPEC states are likely to surge as emerging economies bargain for discounted supply guarantees.
· Clean Energy Militarisation: Countries increasingly view renewable energy resources as strategic assets. Territorial disputes over offshore wind farms and lithium-rich regions could fuel new conflicts, particularly in South America and Asia.
· Tech-Decoupled Markets: Global energy sectors will further diverge based on technological availability. Nations facing sanctions or restrictions—such as Iran or North Korea—are likely to continue fostering niche markets for bespoke energy trades outside of international frameworks.