Energy Security and Geopolitics: Risk and Uncertainty are the New Normal

April 13, 2020

 

Often, political uncertainties be they in the Middle East and Africa or Latin America and Asia affect economic realities. This uncertainty is at the heart of global security. Consider this: the outcome of COVID 19 will change global economic order whether we like it or not. Or China and Russia’s partnership in exploring the Arctic. At stake is as much as $35 trillion worth of untapped oil and natural gas, valuable minerals, titanium, graphite, and uranium, to name but a few. To what degree taping into their resources will impact global energy market?

 

The extreme volatility of global energy market since the early 2000s has prompted many countries to express their concerns vis-à-vis global energy supply. The question now is how countries intend to address their “Energy Security” moving forward. This outcome presents challenges to not only consuming countries, but also organizations such as OPEC and the Group of 20 countries (known as G20). Of note: G20 was established to assist in shaping the international agenda/order. Interestingly, the G20 just concluded its meeting recently in the Kingdom of Saudi Arabia (KSA). It was revealed that energy ministers were unable to agree on a cut in oil production. Only days later and in a surprise move, OPEC and its allies agreed to cut production by up to 10 MB/D, the deepest cut ever. Who do we have to thank for that? The United States? Or KSA’s fear of losing American protection? 

 

What has been taken place behind the scenes is the pressure some US Senators (13 to be exact) have been putting on KSA. They threatened the desert kingdom to cut off political and military support. Mind you that following the barbaric killing of Saudi journalist Jamal Khashoggi, support for Saudi Arabia declined significantly in Washington.

 

US Senators’ reaction highlights the importance of oil production/supply especially when considering they represent key oil-producing states. The drop in oil prices certainly impacts U.S. producers. Further, Senators fear that if global oil prices do not stabilize, it will impact their political career considering how their electoral bases will be broken if U.S. producers are under financial pressure. Thus, hurting the economy even more at this sensitive moment in the US when more than 16 million Americans have filed unemployment claims in the past three weeks.

 

While such an outcome present challenges to OPEC member countries, it also presents opportunities to countries in Europe to partner with Russia and the Caspian Sea region, for instance. It suggests, in my opinion, that stability and predictability in energy markets are shared goals between producing regions and major consumers. Russian Energy Minister Alexander Novak’s call on G20 to form a committee to coordinate efforts to bring stability to the global market is a case in point.

 

Despite this cut, global demand for oil is so weak. And I doubt a major increase in prices will take effect. Time will tell sooner than later, I hope!

 

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