The Growing Significance of Geopolitics in the Energy Sector
19 Jan 2019 | Strategy & Risk
The global energy sector, especially the oil market, has always been subject to geopolitical impulses. Ever since the oil crisis in the 1970s, geopolitics has been an important factor in determining the global oil price and the need for energy supply security has driven many relationships on the international scene.
Nonetheless, it is valid to argue that geopolitics has gained in significance over the past few years. The political relationships between some of the key oil and gas reserve holders and producers (Saudi Arabia, Venezuela, Russia, Iran), with one of the key producers (US) as well as key markets (US, China, EU) are all full of tensions and uncertainties. Adding to the complexities, some of the old alliances such as the relationship between US and Saudi Arabia have been shaken due to political developments.
While it is important to study the technological, environmental and economic drivers of global production and demand patterns, it is equally crucial to understand how geopolitics is impacting global energy markets.
Domestic political developments in the US and President Trump’s America First policies are undermining US soft power on the international scene and alienating US allies to an extent that many are talking about the emergence of a post-western global order. This phenomenon, coupled with Russia’s and China’s desire to fill the vacuums left by US decision, especially the vacuum in the Middle East on the one side and the emergence of new alliances (such as the Russia-Turkey-Iran cooperation), produces a completely new set of geopolitical realities that will have implications on global prices and energy flows.
As such, while it is important to study the technological, environmental (especially climate change) and economic drivers of global production and demand patterns, it is equally crucial to understand how geopolitics is impacting global energy markets. The existing and emerging geopolitical trends are complex and interrelated, and it would be a mistake to simplify the phenomena that are leaving a more intense footprint on the global energy sector.
Some of the developments to watch in 2019 will be:
● US-Iran relations and their impact on geopolitical realities in the Middle East;
● US-Saudi relations and their impact on political sustainability in Saudi Arabia;
● The consolidation of the triangle relations between Russia, Turkey and Iran;
● US-China trade wars and tensions and their impact on the further consolidation of the Shanghai Cooperation Organization, especially closer energy links between Russia and China.
Strategy & Risk
To capitalize on new opportunities, a strong strategy needs to keep pace with rapid change while navigating risk with foresight and confidence.
Dr. Bijan Khajehpour | Managing Partner
Bijan is a veteran strategy advisor for the West Asian markets and has over 25 years of strategic consulting experience with global companies. Read more
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