Ukraine and the dangerous twilight years of fossil-fuel geopolitics

The Ukraine crisis highlights how half-formed climate policies can reinforce the geopolitical power of fossil fuel-exporters such as Russia in the short term. Western economies now need to force these policies to their conclusion.

By Daniel Litvin, Founder and Senior Partner of Critical Resource. He writes here in a personal capacity.

This piece was originally published on 21st February, and updated on 24th February in light of Russia’s unfolding invasion of Ukraine.

Whatever happened to the promise of greater energy security and geopolitical stability? Weren’t those sunlit uplands meant to be coming into view by now? The so-called “energy transition”, the process whereby the world shifts away from fossil fuels, has of course been primarily driven by the need to avoid dangerous climate change. But it has also long been promoted as a way for the west and the global economy in general to reduce dependence on unstable, potentially unfriendly, oil and gas exporting nations. Less predicted, but now becoming starkly clear, is that in its half-formed early stages, the movement away from fossil fuels actually can create conditions for acute geopolitical tensions.

Longing for the sunlit uplands

The war now underway in Ukraine is a vivid demonstration of this. The role of Russian gas exports to Europe in the conflict has already been widely discussed. Russia has many motivations for its unfolding invasion of Ukraine, including restoring influence in its ‘near abroad’ and holding back NATO expansion in the region. But it has also been emboldened in facing down western powers by the combination of the long-standing dependence of many European economies on Russian gas exports (these account for roughly a third of EU gas imports, with the proportion closer to 100% for many Eastern and Central European nations) plus the recent soaring gas prices and fears of energy shortages and blackouts in parts of Europe.

So far, so unsurprising. Fossil fuels have long been used as a foreign policy tool by major exporters. Just like the Middle East oil producers in the 1970s using their then dominance of global oil supplies to seek to influence outcomes in the conflict with Israel, or President Hugo Chavez of Venezuela using his country’s oil revenues in the 2000s to help fund leftist politicians in other Latin American countries, so Russia’s attack on Ukraine in February 2022 has been partly underpinned by the dependence of much of Europe on its gas.

Importantly this time, however, Russia’s ability to use its gas to support its foreign policy and military goals has been supported by a set of half-complete, environmentally-motivated policies in Europe. In theory, the EU’s support for its fast growing renewable energy industry plus various other initiatives such as liberalization of the EU gas market, should have strengthened the bloc’s energy security and weakened Russia’s influence. But gas imports from Russia have remained stubbornly high: Russia’s share of EU imports of natural gas actually increased from 26% in 2010 to 34% in 2020.

Power politics

Alongside promoting renewables, many EU countries have also allowed domestic gas production to enter a period of slow decline. A number of EU countries are also in the process of phasing out coal-fired power generation and shifting away from nuclear energy given popular anxieties over that technology (Germany, Belgium, and Spain have all announced that they will close their nuclear plants in the coming years).

Taken together these moves have reduced energy supplies from domestic sources, creating a gap that renewables alone have been insufficient to plug and thereby driving an ongoing need for significant volumes of Russian gas. The current crisis in Ukraine apart, this problem could become even more acute at points in the future: the phase out of nuclear and coal in parts of Europe still has a way to go, and meanwhile no comprehensive solution is yet in sight to the intermittency problem of solar and wind power (i.e., keeping the lights on when the sun or wind aren’t strong).

Alongside this, Europe’s efforts to shift domestic energy demand away from fossil fuels are even more unfinished business. Though more advanced than in most other parts of the world, EU efforts to discourage carbon-intensive economic activity and promote energy efficiency have so far had relatively little impact on overall gas demand. Indeed in many cases utilities have been incentivized to switch to burning gas to reduce reliance on (even less climate friendly) coal-fired power.

Crude battles

Hydrocarbons remain politically explosive

In the global oil market, a potentially similar dynamic may be beginning to emerge: climate policies and activism risk unintentionally reinforcing the geopolitical power in the short-term of major oil-exporting nations. Parallel to the situation in Europe’s power market, climate-related restrictions on oil have so far had more impact on supply than on demand. Patterns of supply are now beginning to realign: new oil projects in many OECD countries are harder to advance given growing public resistance; similarly, major oil and gas companies headquartered in the OECD, sensitive to their reputations, are trimming their investment in new oil projects and shifting more into renewables.

At the same time, global oil consumption looks likely to continue edge up for at least several years and exceed its pre-pandemic highs. The growth of electric vehicles, energy efficiency measures and other demand-side policies have yet to achieve sufficient scale to outweigh upwards pressures from economic and population growth in different parts of the world.

The potential result? As with European gas, the only way for global supplies of oil to keep up with still-healthy demand may be to rely more on those oil-rich nations which are less constrained in investing in new production by domestic climate sentiment – notably the big oil producers of the Middle East. Not just in Moscow but potentially some capitals of other hydrocarbon-heavy economies, the early steps of the energy transition may prove geopolitically emboldening (even if unlikely to provoke anything as stark as Russia’s current military moves in Ukraine).

In the coming days, western nations understandably will be focused hard on on how to face down Russia. But beyond the current crisis, part of the answer, both for western and other major fossil fuel importing nations, is surely to scale up and better coordinate those climate reforms. Fossil fuel demand needs be reined in as proactively as domestic production, otherwise imports inevitably will fill the gap. As part of this, governments may need to fund generous welfare packages to cushion domestic constituencies who lose from the energy transition (such as poor families if they face higher energy bills) – for local political backlash could easily derail climate efforts.

Forcing the energy transition to its conclusion remains a gargantuan task for governments, but the alternative is not just a general retreat from the climate agenda and risking an era of dangerous global climate instability. As the current conflict in Ukraine augurs, those sunlit geopolitical uplands also could remain forever beyond reach.

Daniel Litvin is Founder and Senior Partner of Critical Resource, a Visiting Senior Fellow at LSE’s Grantham Institute, and author of ‘Empires of Profit: Commerce, Conquest, and Corporate Responsibility’.