The Future of Geopolitics and Energy Markets
Energy prices and geopolitics have been interconnected since the beginning of the twentieth century, but expanded globalization, increased industrialization, and booming fossil fuel supplies have made this relationship increasingly brittle.
The political actions of energy-producing states such as Saudi Arabia, Russia, Iran, and the United States impact energy prices. Conversely, energy prices affect the geopolitical actions of energy-producing states, as well as global consumers like China and India. The dramatic fluctuations in the energy sector are rewriting the relationship between geopolitics and investments. A pragmatic understanding of these two separate components is essential to navigating national security and understanding financial markets related to fossil fuels. More than ever before, an understanding of geopolitics is critical to making profitable oil and gas investments.
For example, as a result of the Joint Comprehensive Plan of Action – the Iranian nuclear agreement spearheaded by the United States – Saudi Arabia has declared war on US oil and gas production. The shale revolution now directly affects how Saudi Arabia reacts to US policies regarding Iran, as the Saudi oil minister has repeatedly spoken about being at war with U.S. shale. The Saudi decision to liquefy oil prices was a conscious effort, as Saudi national and economic security was threatened by improved Iranian relations with the West, and the resulting influx of Iranian oil in the marketplace.
The remissive and reluctant attitude of European states towards Russian aggression in Ukraine, such as the 2014 invasion of Crimea, is a direct result of European – namely German – dependence on Russian oil and natural gas. As the decades-old ban on US natural gas exports has been lifted, Europe is more likely to be freed from Russian attempts to use oil and natural gas as a geopolitical weapon.
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