The World Is Entering a New Era of Energy Security

The ongoing conflicts in Iran and Russia are revealing flaws in the global energy and economic system. These crises demonstrate that energy security is inextricably linked to financial, transportation, military, and strategic ties with major powers. The war in Ukraine has disrupted Europe's reliance on Russian gas, while tensions with Iran have highlighted the concentration of oil and liquefied natural gas (LNG) flows through strategic maritime routes.

The International Energy Agency (IEA) has termed the disruption in the Strait of Hormuz as the largest oil supply disruption in its history, affecting roughly 20 million barrels per day.

These crises may signal the start of a new era of globalization, where countries become less reliant on a single source, route, technology, or global power. Instead, nations are likely to pursue greater strategic autonomy by diversifying their energy supplies, developing alternative transport and supply routes, enhancing domestic capabilities, fostering economic and technological resilience, and reassessing relationships with major global powers. However, complete energy independence may not be feasible or even desirable for all countries.

Historically, the global energy system has undergone several stages. In the 1990s, financial integration was a key focus, with East Asian economies becoming deeply integrated into international capital markets. The 1997 Asian financial crisis showed how swiftly capital-market disruptions could impact strong economies. The 2000s and early 2010s saw Europe's energy dependence exposed, as Russia became an increasingly important gas supplier due to factors like declining domestic production and the attractiveness of geographically close pipeline supplies. By 2021, Russian gas accounted for more than 40% of EU gas demand.

The 2010s introduced a new dimension with the rise of the U.S. as a leading oil and gas producer and LNG exporter, thanks to the shale revolution. Energy production became increasingly connected to geopolitical and financial influence. The 2020s have revealed broader vulnerabilities, including highly interconnected global supply chains.

While countries diversify their energy suppliers, they remain exposed to shipping routes, insurance, financial markets, technology, and geopolitical shocks. Europe's shift from Russian gas dependence to a broader but still externally dependent energy system is a prime example.