The energy transition is deeply intertwined with geopolitics, shaping supply chains, critical mineral sourcing, and superpower competition. As demand for rare earth metals and resources like copper, cobalt, and lithium surges, the influence of regions like China, Africa, and Latin America grows. From armed conflicts to volatile trade policies, the energy transition cannot be separated from global power dynamics, making it essential to consider geopolitical risks in discussions about a sustainable future.
There is a growing need for a reliable supply of critical minerals and metals. The energy transition is the main driver for this demand, and the transition will be mineral- and metal-intensive to say the least. For example, demand for rare earth metals is estimated to grow X5 by 2030.
Energy Industry and 101 about the Geopolitical Relevance
In short, the energy sector (or industry) is a category of stocks that relate to providing or supplying energy. This industry has been an important driver of industrial growth over the past century, providing the power for the rest of the economy. The energy sector includes a network of companies, directly and indirectly, involved in the production and distribution of energy needed to power the economy and facilitate the means of production and transportation. In the bigger picture, the energy industry also consists of governments, some governmental agencies, NGOs etc., as well as the consumers and secondary sources such as electricity.
Natural resources, comprising a wide range of renewable and non-renewable assets such as oil, coal, gold, forests, and minerals, play a key part in the economic prosperity of nations. Control over energy resources, whether it's about oil, gas, coal, renewables etc., can and has often led to some sort of geopolitical tensions which in turn influence energy policies.
Ensuring supply of energy is a priority for all countries and at some level drives geopolitical strategies. The geopolitical significance of transit routes and pipeline infrastructure obviously impact the distribution of energy resources. Moreover, trade agreements, tariffs, and sanctions have a huge impact on the flow of energy resources between regions and countries. Political instability in energy-rich regions disrupt the production and distribution which in many cases affect energy prices. Energy prices and market dynamics as a whole are in the interplay between supply, demand, and geopolitical events.
Within the energy transition, geopolitical dynamics affect the development and deployment of renewable energy technologies and infrastructure. Agreements and commitments between nations try to reduce carbon emissions, and are shaping and will shape the direction of the whole energy industry. In the background, geopolitical factors shape the transition from traditional fossil fuels to cleaner energy sources, heavily impacting investment and industry restructuring.
Conflicts, such as armed hostilities or political instability overall, can result in the closure of production facilities, hampering the extraction and processing of energy resources. Geopolitical conflicts lead to supply interruptions as transportation routes (such as pipelines or shipping lanes) become unsafe for the movement of energy resources, as has happened lastly in the Red Sea. This can lead to shortages and price fluctuations in the global energy market. In a wider perspective, geopolitical tensions often lead to market volatility, with energy prices reacting to perceived supply risks or uncertainties. This volatility affects investment decisions and consumer costs.
Impacts of geopolitical dynamics isn’t always this abstract. Conflict zones are at risk of infrastructure damage, including for example oil refineries, pipelines, and storage facilities. This damage would directly impact the ability to produce, store, and transport resources, leading to supply constraints.
Renewable Energy Sources and Critical Minerals
Governments, corporations, and international organizations are investing heavily in renewable energy sources such as solar, wind, hydroelectric, and geothermal power. Geopolitical tensions related to energy transition and clean energy have become increasingly significant in recent years as the world grapples with the need to shift towards sustainable and renewable energy sources.
Overall, the energy transition relies especially on copper, cobalt, lithium, nickel and rare earths. When it comes to mining these critical minerals and metals we can highlight the relevance of China, Australia, some parts from Latin America, Africa, as well as Southeast Asia. However, it isn't only about where these critical minerals are mined. It is at least as important to understand where these minerals and metals are processed. Here we can highlight the relevance of China.
Geopolitics of the Energy Transition
The energy transition, and climate change in particular, cannot be solved without the involvement of all major powers. Being involved, on the other hand, requires that the geopolitical interests of the most significant countries are generally taken into account. Therefore, it is only realistic to say that energy transition will not happen without China's significant contribution – or in bigger picture combating the problems of climate change, not to mention solving them.
This leads us to the fact that the geopolitics of energy transition is strongly influenced by global superpower competition. The most significant participants are the United States and China. The great power struggle takes place both between the two and between many on a global level. Its effects, as well as the interests of its most significant countries, are seen in practically all ongoing armed conflicts. Overall, the geopolitical picture of the energy transition is practically the same as a map on which you would have marked all the geopolitical focal points. Geopolitics therefore plays a very significant role in how well the energy transition will actually happen.
This involves a lot of risks - obviously. China has made it very clear that Taiwan will eventually be reunified as part of China, geopolitical tensions are growing in the South China Sea, the Korean peninsula cannot be ignored, just as we cannot ignore Russia's ongoing war in Ukraine – also from energy transition point of view. What about the explosive situation in the Middle East? The energy transition will require functioning supply chains, in which the Middle East as a whole plays a very significant role. Or Africa, which currently also serves as a significant arena for the global superpower struggle. The importance of Latin America as a producer of critical minerals alone is significant, and the political climate in Latin America is not the least tense at the moment.
Too often, geopolitics and geopolitical risks are left out of the energy transition discussion.