Geopolitics and the Energy Transition
Apart from mining, there is arguably no other sector which is as exposed to domestic political and international geopolitical risk as the energy sector. The risks the sector faces span from wars and regional conflicts to policy, political and regime changes and the way in which states’ insatiable demand for reliable access to critical minerals and processing facilities has shifted the race for access to resources from an economic need to a national security priority.
1. Geopolitics
a. Conflict:
Two examples:
In 2021, Russia sold between 150-157 bcm of gas (piped and LNG) to Europe, making up nearly 45% of the EU’s gas (35% of wider European gas). By December 2025, that figure had fallen to around 30 bcm (approx. 3%). Europe’s scramble to replace lost imports (primarily LNG from other sources) raised short-term energy costs. Global gas prices spiked (at one point hitting over €300/MWh) as European demand sought alternative suppliers and LNG cargoes were diverted to meet European demand. Supply subsequently responded to the demand signals with increased production in Norway, Qatar and the US acting to bring prices back down (they are currently around €27/MWh).
The conflict between Israel and Hamas (and between Israel and Iran) resulted in Israel twice shutting in gas exports to Egypt, with destabilising consequences for Egypt’s economy. Egypt had been importing around 9 bcm of gas per year from Israel – mainly as feedstock for LNG export. When Israel cut off supplies following the outbreak of the war in Gaza, Egypt took immediate supply-side measures, which included switching gas production designated for export to domestic consumption, buying LNG cargoes on the international spot market and switching to diesel and fuel oil for the production of electricity. On the demand side, the government implemented measures to load shed, prioritising supply to domestic consumers and forcing commercial customers to accept supply cut-offs. The full economic cost to Egypt of the 40 days of supply interruptions was between $700 million - $1 billion (approximately 0.3% of GDP).
The volatility of international energy markets underscores how, along with access to critical raw materials, governments are now increasingly viewing reliable access to dependable energy supplies as a critical part of national security considerations. This change in policy stance adds to the urgency of the intensifying competition for access to vital resources accentuating great power rivalry. Taken together the policy shift and the need to secure reliable access to supplies of energy and raw materials act to increase the risk that the race for control spills over into conflict – whether economic or military. Indeed, some commentators argue it is possible to view the rising tensions between the US and Venezuela through that prism.
b. The Middle East
Even as the energy transition accelerates (see below), hydrocarbons will continue to play a key (if declining) role in the world’s energy mix for the next few decades at least. In that context, the Middle East remains a pivotal energy player, holding about 50% of the world’s proven oil reserves (33% of global production) and roughly 40% of its proven natural gas reserves (20% of global annual production). With this much energy ‘weight’ behind it, production decisions taken by the region’s leaders have a direct impact on global oil supply and prices, not only influencing the cost of energy worldwide, but also the health of the global economy. At the same time, regional leaders are investing in clean energy for long-term security.
And therein lies one of the region’s biggest problems. Recognising the inevitability of the energy transition and therefore the declining future market for hydrocarbons, many countries in the region are pushing to diversify their economies away from a dangerous over-reliance on hydrocarbons. Doing so requires significant capital expenditure on new infrastructure. Whilst oil prices remained high, this was a sensible and affordable diversion of hydrocarbon funds, insuring the countries against future changes to the global energy market. But as increased US production has come on stream; demand from China has remained fragile; and OPEC has prioritised market stability over price maximisation, the oil price has remained stubbornly low (hovering around $60/barrel).
Saudi Arabia is a good case study. Current installed renewable energy capacity in the Kingdom is 6.7 GW, but it targets reaching 130 GW and 50% of its power from renewables by 2030, leveraging its oil exports to pay for this ambitious growth – that makes the low oil price particularly problematic. To diversify away from dependence on hydrocarbons (hydrocarbon sales currently make up over 57% of Saudi’s GDP), Saudi is investing heavily in mega-projects in tourism and renewable energy. But to fund those mega-projects, Saudi needs an oil price of around $116/barrel. The delta between that capital-expenditure break-even price and the current price of oil is currently being funded by delving into the sovereign wealth fund. Saudi’s SWF (PIF) is estimated at between $900 billion - $1.15 trillion. But a significant volume of that figure is held in illiquid assets (estimates range between 7-50%). So the PIF is not bottomless and it is being drained by expenditure faster than it is being filled by oil sales. Deficit spending at that rate cannot be maintained indefinitely: but to future-proof its economy and politics, Saudi needs to carry on spending. This conundrum is already having real-world impacts, with Saudi scaling back some of the mega-projects and changing the timetables of others – with implications for investors from the region and more widely. (You can read more about this issue here).
c. Global Clean Energy Technology Competition
Just as the energy transition continues apace, so too has competition for leadership in clean energy industries. China, which took a strategic bet on renewable energies in the 1990s and another on the ascendancy of critical raw materials in the early 2000s, now dominates production of many green technologies, producing between 80-90% of global photovoltaic panels and between 60-80% of global wind turbines. China has continued to stretch its strategic advantage, investing heavily in ultra-high-voltage grids, storage, and electrification so as to maintain its position as the central player in the global clean energy supply chain. This massive market dominance has created significant supply chain vulnerabilities for other countries and stimulated geopolitically-driven diversification strategies.
Whilst some might argue that the horse has already bolted, Western governments in particular are beginning to invest heavily building domestic capacity. In the US, the IRA provided significant financial aid for domestic clean energy and climate initiatives. The EU’s Green Industrial Plan aims to boost local manufacturing of batteries, wind turbines and solar panels. And the contest for dominance in the clean tech sector is reshaping existing geopolitical and trading alliances, as countries seek secure access to the technologies and materials which are crucial for the energy transition – in this context, China’s omnipresence in Africa is no coincidence…
d. Critical Minerals – New Geopolitical Dependencies
As the clean energy transition continues to accelerate, the key materials to which access is most needed shift away from oil/gas to critical minerals, raising geopolitical stakes in new jurisdictions. Supply chains for minerals like lithium, cobalt, and rare earth elements which are crucial to the energy transition are highly concentrated. China mines about two-thirds of the world’s rare earths; is the leading refiner for 19 of the 20 most important transition minerals, (with about 90% average global market share); and manufactures over 90% of rare-earth magnets.
A number of supply countries – especially in Africa – keen to avoid becoming the victim of a 21st Century Scramble for African natural resources, have passed legislation to move their economies up the value chain by requiring processing to be carried out in-country, rather than exporting the raw materials and importing the (more expensive) finished product. Whilst this approach is welcomed in helping improve structural developmental deficits, it is also exacerbating the supply bottle necks already created by the over-concentration of mining and processing capacity in China. (You can read more about this phenomenon here and here).
e. Europe’s Supply Chain Vulnerability and Response.
As a consequence of the realisation of China’s strangle-hold over access to the raw and refined minerals critical for the energy transition, many other countries have moved to reclassify the access to critical rare earths as a national security issue (rather than ‘just’ an economic security issue).
With China providing 100% of the EU’s heavy rare earth elements (and Turkey 99% of its boron), the EU has woken up to the fact that gaining reliable access to critical minerals is a strategic priority and has legislated to localize and diversify its supply in a bid to enhance overall energy security. The EU’s Critical Raw Materials Act sets 2030 targets for at least 10% of the EU’s critical minerals to be mined domestically and 40% to be refined in the EU, alongside a boost to recycling and import-diversification goals. The EU has also just reached an agreement on introducing new and enhanced foreign investment screening rules covering energy and critical technology sectors, reflecting geopolitical concerns about foreign (especially non-EU) control over critical strategic supply chains.
And The EU is not alone in responding in this way. Earlier this month, the US set up a multi-national coalition to counter China’s dominance in rare earths and tech supply chains, further polarising the geopolitics of access to critical materials.
2. Domestic Politics
Beyond the global geopolitics, the rise of the climate sceptical hard-right in domestic politics plays a role in the pace of the energy transition - generally in the shape of political resistance as the costs and disruption of the transition become apparent.
Last week, the EU, under pressure from consumer and producer groups retreated from its blanket ban on the sale of ICE cars and vans beyond 2035, allowing up to 10% non-zero-emission sales and greater flexibility in compliance.
The EU’s ‘omnibus legislation’ rolls back sustainability requirements for businesses and slows regulatory tightening in the face of a growing “green backlash” as (predominantly right-wing) political parties leverage rising energy costs and inflation to fuel voter discontent.
In the UK, the decades-long bipartisan approach to tackling climate change has broken down. The rise of the hard-right and climate change sceptical Reform Party has dragged the centre-right Conservative Party towards it, forcing the Conservatives to abandon its traditional support for the UK’s Net Zero targets, reframing decarbonization measures as burdensome for households and arguing that the Climate Change Act’s targets serve only to worsen cost-of-living pressures. (The same right-wing pressures can be detected in green policy climb-downs in Germany and Italy).
In the US, the Trump Presidency strongly supports the domestic hydrocarbon industry, with the President’s rallying cry of ‘drill baby, drill’ being the backing track to the prioritisation of domestic fossil production over energy transition goals and attempts by the Republican-controlled House to cut or undo major clean energy incentives (again leveraging cost-of-living concerns about energy affordability). It is perhaps interesting to speculate how much of the Republican support for the hydrocarbon sector is actually about seeking competitive advantage in the geopolitical duel with China, given how far ahead the latter is in the renewable sector…
King Coal remains powerful, still meeting around 30% of global energy demand in 2024. Despite long-term decline projections, global coal demand is expected to hit a record of around 8.85 billion tonnes in 2025, This heightened demand is driven, ironically, by some of the geopolitical decisions set out above which, as an accidental by-product of prioritising domestic energy security, introduce (even greater) uncertainty into geopolitics which acts to deter or defer investment in renewables deployment.
3. So the Energy Transition is Dead, then…?
No. Globally, it proceeds apace. The share of primary global energy supply met by renewables has increased from 8.2% in 2023 to a projection of just over 9% in 2025. Although that does not sound much, it should be set against an annual rise in primary global energy demand of around 6.4% since the start of 2023. That means that the additional installed renewable energy capacity is more than meeting the overall increase in global energy demand. However, it is not making substantial inroads into displacing hydrocarbon demand.
The overall global increase in primary energy demand of 6.4% equates to roughly 40 exajoules (or 1.2 TW) of additional annual energy — equivalent to adding another Japan-sized energy system to the world. And the new renewable installed capacity over the same period is 1.7 TW, which, because of capacity factors (essentially the inefficiencies which prevent renewable energies being used as effectively as fossil fuels or nuclear[i]), equates to around 10 exajoules. This means that new renewables supplied between 20–25% of incremental global energy demand increase.
Where do the new renewables come from?
Unsurprisingly, 72% of new renewable power capacity added in 2024 was added by Asia. China alone accounted for 64% of global renewable energy capacity additions — particularly solar and wind. China has added 1 TW of wind and solar since the start of 2023 (see below for a comparison with the EU, UK and US).
Surprisingly, despite President Trump’s well-known scepticism towards climate change, it is the US which is in second place globally for new installed renewable capacity over the same period, though, at only 180 GW (including projections for the whole of 2025), its installation is significantly smaller than China. In 2024 alone, the US added a record amount of new capacity — with between 49–57 GW of additional renewable capacity (solar, wind, storage combined) connected to the grid. By the end of September 2025, the US had installed 31 GW of additional renewable capacity. By extrapolation, the US may reach 40 GW of new installed capacity by the end of the year. Some of this growth is driven by projects already begun towards the end of President Biden’s mandate, so we should expect to see US growth in renewables slow over the upcoming period as Trump’s policies slow federal permitting on some renewable projects (we have already seen this with Orsted, Equinor and Shell offshore wind projects), and approvals continue to fall, especially for wind and solar project approvals on federal land. However, we should not expect a total halt as state policies, corporate contracts, and falling technology costs keep renewables installations growing robustly at the grid level, even without new major federal incentives in some areas.
The EU has installed around 100 GW over the same time period (Germany is the largest single contributor with 35 GW), with India on 60 GW and Brazil on 30. The UK over the same time period installed around 9 GW of new renewable capacity (but interestingly, now generates over 50% of its electricity from renewables).
It is worth watching Africa very closely. It has huge generative potential (especially solar), with currently very limited build-out (approximately 95% of Africa’s primary energy demand is met through fossil fuel power). The World Bank and the African Development Bank have committed significant funding to support the initiative of 17 African nations to accelerate electricity access plans aimed at connecting 300 million people by 2030 and the EU has pledged large sums to support the development of renewables and clean energy infrastructure. With African leaders also calling for greater investment, climate finance, and regional cooperation, it is easily conceivable that in the relatively near future Africa will not only meet its own domestic continental demand, but also be able to export significant quantities of green electricity (and eventually green hydrogen) to power-hungry Europe.
Conclusion
Despite domestic political and international geopolitical headwinds, the acceleration of the installation of renewable capacity indicates that the energy transition has its own political and commercial momentum – which is now probably unstoppable. China is clearly leading the charge – both in raw numbers of installed capacity and in terms of its control of the raw materials and their processing facilities. The rest of the world is so far behind China that playing catch-up is probably a forlorn hope (a bit like watching England play cricket against Australia!). But, given the inevitability of the transition and the need to avoid total future energy dependency on China, other countries are increasingly taking steps to treat reliable access to renewable energy and its necessary raw materials as a national security priority and to diversify their way out of a dangerous single-source dependency.
As the climate sceptic hard-right gains ground around the world, whilst at the same time geopolitical competition intensifies for access to resources and processed materials, this dynamic is only likely to intensify. Companies that are well-advised and understand how to successfully navigate this increasingly complex and fraught political and geopolitical backdrop will have a significant head start on those that don’t.
1 To deliver 1 GW of average power:
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| By way of comparison | |||||
| Technology | Capacity factor | Annual energy | |||
| Solar PV | 20% | ~1.75 TWh | |||
| Onshore wind | 30% | ~2.6 TWh | |||
| Offshore wind | 45% | ~3.9 TWh | |||
| Gas CCGT | 65% | ~5.7 TWh | |||
| Nuclear | 90% | ~7.9 TWh | |||