The politics of movement and control

The intervention in Venezuela by the United States did set the tone for this year. It was an episode that has not only become a threshold moment for energy markets and energy flow around the world, it also has the potential to be a moment that later defines energy statecraft much like the 1973 OPEC oil crisis. 

As the world moved from Venezuela to Iran, and since then all eyes, stock market graphs, and even social media clips have been stuck on the Strait of Hormuz. What has become abundantly clear is that the control of resources and also over their trade is now one of the foundational blocks of perception of power. 

For decades, conversations around global energy was dictated in the language of supply and demand, in barrels per day, in reserve estimates, and in fluctuating price cycles. That structure is now inadequate. The focus has now shifted to the flow of energy, trade around it, the control over that trade, and who profits from it, the producers who have always been important have become relegated to the background as the battle about logistical control has become bigger than control over production.

As global demand continues to rise and renewable sources of energy, as well as rare earth minerals/ elements (REEs) get added to the mix, the fight over this control of supply and transit is only going to intensify. While one might believe that with increased production and new energy resources in the mix, this should be an era of abundance, one must remember that the demand for energy has also grown. With the advent of not just progressive electrification, and industrial growth, demand for extreme cooling and heating has also grown exponentially. With the advent of AI, this demand will only rise with time, and energy trade and control over resources, would only mean that this conflict over trade would intensify.

Energy infrastructure, however, has not kept up with the diversification and rise in the use of energy sources. The fragility of this transit infrastructure is nowhere more visible than in the oceans. 

Approximately four-fifths of global trade flows through maritime routes. Oceanic chokepoints like the Strait of Hormuz, the Strait of Malacca, the Suez Canal act not as mere passages, but sites of geopolitical leverage. A substantial portion; almost one -fifth or twenty per cent of the world’s crude oil and natural gas transits through Hormuz alone. Any slight disruption, even a perceived one, tends to trigger cascading impact of rising insurance premiums, rise in freight rates, faltering delivery schedules, and eventual inflation.

This is nowhere as clear as it is in Iran. There has been a constant belief that energy markets are buoyant, in case one route fails, another balances. But current events have questioned this belief. Interruptions in the Strait of Hormuz and the Panama Canal in the Pacific have pushed tankers and LNG carriers to take longer, more expensive routes around entire continents. 

Such adjustments are not marginal, they raise the costs and insurances exponentially, and weaken trusted structures and processes. The other important part to such shocks to the system are that they introduce the space to install irrevocable premiums for maritime transit. This opportunity for countries making a profit from these premiums comes not as a result of economic activities but as a function of conflict and uncertainty; two relatively temporary problems for which a permanent and exceedingly expensive solution as adopted.

While land-based alternatives, are often cited as solutions, their true potential remain limited. Pipelines are capital-intensive, politically sensitive, and geographically constrained. Overland corridors across Eurasia have often found themselves repeatedly hindered by regulatory fragmentation, security concerns, and infrastructural gaps. They do very little to replace maritime routes. This has led to the shift that we are currently observing in the energy markets. The concept of control over markets has moved beyond ownership of resources and has moved to ownership over routes, logistics, and finance.

As traditional routes now are growing and becoming more contested and congested, new routes are joining the strategic visions. The frigid Arctic is fast becoming the object of international interest, as it shows signs of becoming navigable due to melting ice caps, it comes with the promise of shorter maritime route and the possibility of more crude oil underneath the Arctic ice caps. The Indo-Pacific, anchored by the Strait of Malacca, is evolving as the central theatre of global energy transit. However, an addition to existing maritime routes does not necessarily indicate diversification, it also potentially symbolises the growth of vulnerabilities.

In the coming decade, some trends would probably define the direction that would be taken by global energy markets.

First trend would be the premiumisation of transit and security. Energy will progressively be evaluated not just by origin or quality, but by the security of the route it takes. Safe passages would carry a cost, and the cost would be decided through the complex calculations of bilateral relationships, and long – term friendships between nations.

Second trend would be the fragmentation of markets. While energy trade would still have a global nature, its trade flow would be directed by strategic alignments, trade blocs. A unitary, market will give way to overlapping spheres of influence.

Third would probably be the normalisation of disruption. It has become clear that geopolitical leverage is more important than fighting and all-out war; a trend that more conflicts are set to follow. This calibrated instability would become accepted and its consequence of rising premiums on transit, and weaponised energy supply would become the norm which would in-turn make strategic realignments the need of the hour. 

It is safe to say that the global energy system is not breaking down, it is however, evolving to its next stage and in this coming phase the control over energy flow would also mean control over the market. 

END OF ARTICLE