Leaders 9E
nergy andcommoditieslieatthedarkheartofVladimir
Putin’s regime and the threat it poses to the world. Four tril
lion dollars of oil and gas exports over the two decades of his rule
have paid for the tanks, guns and Grad missiles now killing
Ukrainians. Naturalresource earnings have entrenched a rent
seeking elite that has created an offshore archipelago of yachts,
nightclubs and Caribbean front companies, stifled representa
tive politics and indulged Mr Putin’s megalomaniacal fantasies.
As Russia supplies 1025% of the world’s oil, gas and coal ex
ports, many countries, especially in Europe, are vulnerable to
coercion by it. For them, the war in Ukraine has been a shock
that adds urgency to the creation of an energy system which de
pends more on sun, wind and nuclear reactors than on derricks
and rigs. Yet don’t fool yourself that this new era will allow an
easy escape from the curse of energy crises and autocrats.
Weeks of chaos in energy markets are beginning to hurt con
sumers. Petrol prices in Los Angeles are over $6 a gallon for the
first time. As sanctions on Russia bite, traders predict, Europe
will run short of diesel. Germany is preparing to ration natural
gas next winter, in case Russia cuts off supplies. In Asia, oil
importers are bracing for a balanceofpayments hit. In a tight
market, shocks are hard to absorb. Oil spiked at $122 per barrel
this week after a pipeline from Central Asia to the Black Sea suf
fered storm damage and Iranianbacked Houthi
rebels attacked Saudi energy facilities.
The immediate reaction of governments
everywhere has been to scramble to find more
fossil fuels, however polluting to the environ
ment or painful to their pride. With Western en
couragement, Saudi Aramco, the world’s big
gest oil firm, is raising investment to $40bn
50bn a year (see Schumpeter). At one point, the
Biden administration buttered up Nicolás Maduro, Venezuela’s
dictator, perhaps to get more oil from a state which in 2005 sup
plied 4% of the world’s crude (see International section).
The longerterm question being asked by many is: how fast
can they abandon fossil fuels altogether? The energy strategy an
nounced this month by the euenvisages independence from
Russia by 2030—in part by finding new sources of gas, but also
by doubling down on renewables. As the folly of relying on Rus
sia becomes clear, nuclear power is back in fashion. France plans
to construct six new plants and is aiming for “total energy inde
pendence”. On March 21st Britain said it would build a new gen
eration of reactors at “warp speed”. A redesigned energy system
that will belch out less carbon also promises an escape from the
20th century’s great game of relying on energy from despots.
Yet although geopolitics will hasten the climatedriven ener
gy transition, they will not make it riskfree. The transition will
disrupt some economies and cause new dependence on others.
To gauge this we have simulated spending on a basket of ten nat
ural resources, including oil and coal, and the metals used in
power generation and the electrification of industry and trans
port (see Finance & economics section). As the world decarbo
nises, spending on this basket will fall from 5.8% of gdp to 3.4%
by 2040. Yet in our simulation over half of that will still go toautocracies,includingnewelectrostatesthatprovide green met
als such as copper and lithium. The top ten countries will have a
market share of over 75% in all our minerals, which means pro
duction will be dangerously concentrated.
Two problems therefore stand out. First, the geopolitics of
shrinking the oil industry are fraught. As Western firms with
draw for environmental reasons and in response to high costs,
the market share of opec plus Russia will rise from 45% to 57%
by 2040, giving them more clout. Highercost producers such as
Angola and Azerbaijan face a shock as they are squeezed out. The
world map will be peppered with distressed expetrostates.
Second, the emerging electrostates face their own battle with
the resource curse. Spending on green metals will surge amid a
twodecadelong buildout of electric infrastructure. The wind
fall may be worth over $1trn a year by 2040. Some beneficiaries,
such as Australia, are wellequipped to deal with this. More frag
ile states, including Congo, Guinea and Mongolia, are not.
Mountains of cash distort economies and feed grievances. Min
ing was a source of discord in recent elections in Chile and Peru.
Global mining firms are nervous that their property rights will
be buried. A resulting lack of investment has sent the price of a
basket of green metals up by 64% in the past year. All this is com
pounded by China, which is hunting for the same resources, but
is more tolerant of bad governments.
As with all commodities, soaring prices will
eventually trigger a market response. Tight sup
ply gives firms a huge incentive to step up recy
cling and to innovate. New kinds of smallscale
nuclear reactors are emerging (see Science &
technology section). Tesla, which uses minerals
to make electric cars, is developing new battery
designs. It has also struck a supply deal with
New Caledonia, a Pacific territory of 277,000 people you will
hear more about because it has a tenth of the world’s nickel re
serves. This month Barrick, a Canadian firm, took a deep breath
and agreed to develop a $10bn copper mine in Pakistan. High-voltage rewiring
Yet even as markets respond, governments must also redouble
their efforts. Because selfsufficiency is rarely an option, diver
sification is the goal. That means new partnerships. On March
20th Germany began talks with Qatar for gas. The invigoration of
the rich world’s nuclear industry is key, not least because it frees
everyone else from relying on Chinese and Russian technology.
Governments must catalyse mining investment. Firms should
not be free to blow up sacred caves or endanger workers, but the
transition requires more mining projects in highrisk countries
at a cost to the local ecology. Governance rules in wealthy coun
tries need to acknowledge the tradeoff. Finally, richworld gov
ernments should help electrostates prepare by, for example,
helping design model contracts for a fair split of revenues and
establishing sovereignwealth funds to save the bounty.
Building a cleaner and safer energy system is an epic, risky
and daunting task. But whenever resolveflags, ask yourself:
would you rather rely on Mr Putin’s Russia?nThe world’s energy industry is about to be transformed. But energy insecurity is here to stayPower play