The Intricacies of Energy Weaponization & Global Trade

The constantly evolving nature of geopolitical order and its influence on the global energy landscape can, at times, compromise the economic & political stability of import-dependent nations like India and Germany. This occurs against the backdrop of the sensitive global energy markets that are highly susceptible to the threats and challenges posed by the interdependency of geopolitics and global energy trade. This is why in an increasingly multipolar world order with the persistent geopolitical vulnerabilities, it is essential to understand the world's energy landscape to navigate the negative consequences.

Energy Trade & Its Weaponization:

Contemporary energy politics has culminated into the practice of ‘weaponization of energy trade’ which has paved the way for the deepening of the global energy crisis. Unsustainable price shocks and frequent supply chain disruptions are a few characteristic features of this situation which can be jeopardizing for import-dependent economies. Moreover, the manipulative power enjoyed by strategic exporters in an oligopolistic energy market and supply chain network is serving as an imminent threat to sustainable geopolitical stability.

Energy, as a resource, continues to be multi-dimensional, reflecting its broad ties within the political & economic structure of nations. Complex geopolitical incidents in recent years such as the Russian invasion of Ukraine, the militarization of the Red Sea in the backdrop of the Israel-Hamas war hint at an increasing usage of trade as a geopolitical weapon.

This interdependency has caused various crises in the past. One such instance was the oil crisis during the Arab Israeli war (also known as the Yom Kippur War in 1973). The OPEC (Organization of the Petroleum Exporting Countries) bloc leveraged its monopolistic powers over oil supplies in retaliation to the West’s support to Israel. Similar instances like the destabilized oil prices during the Iranian revolution in 1979 and the trade embargo by the UN during Iraq’s invasion of Kuwait in 1990  are reminders of how weaponization of energy trade comes into effect. Even in the present, Ukraine disrupted the transit of Russian gas supplies to Europe causing an array of socio-economic effects, in retaliation for the sanctions that ensued following the 2021 invasion.

Energy has historically been exploited as an alleged geopolitical weapon to gain dramatic economic and political leverage. All of the aforementioned incidents were a result of over-dependency in the realm of energy trade and how it compromised the energy sovereignty of import-dependent economies. This broadly highlights challenges associated with an asymmetrical interdependency of energy supplies since the trend of energy trade being perceived as a tool for power projection is becoming increasingly popular. These mechanisms are a reflection of how energy trade has transpired into a tool of foreign policy rather than being restricted to an economic one.

The Evolving Dynamics of Energy Trade:

Russia’s control over major gas pipelines, enabled it to manipulate its control over critical energy infrastructure that the European Union (EU) relied on. As aforementioned, this was an instance of Russia’s retaliatory response to Western sanctions and was essentially aimed at disrupting Western Europe’s critical energy infrastructure. Similarly, strategies such as offshore energy agreements, assurance of discounted gas with threats of undesirable price hikes and supply disruptions have pressured economies of Belarus, Armenia and Kyrgyzstan to surrender their sovereign gas infrastructure while settling for constrained energy sovereignty. The latest instance of such acquisition was Russia’s alleged seizure of the Zaporizhzhia power plant in southern Ukraine, Europe’s largest nuclear facility upon invading Kyiv in 2022. In fact, Ukraine has argued that Russia has been sabotaging the nuclear facility on various occasions, primarily to “blackmail Ukraine and Europe” by leveraging its unjust control of critical energy infrastructures in eastern Europe. This defends the prevailing argument surrounding the risks associated with asymmetrical energy interdependency and the simultaneous risk of a compromised energy sovereignty.

These aforementioned acts were similar to a coercive military strategy by an adversary to secure its objectives. As a result, the EU has adopted significant initiatives thereby agreeing to phase out its dependency on Russian energy imports “as soon as possible”. This in fact is a strategic priority for them and reiterates the risk associated with foreign-controlled energy infrastructure, making them susceptible to motivated sabotage. This leaves importing economies at a compromising state when foreign governments use energy as ‘a tool of coercion and dramatic leverage.’ However, these measures are also a departure from the liberal principles established under the International Energy Charter and the Energy Charter Treaty (ECT) which was framed with EU’s support. They are in a direct contrast to the principles of cooperation, liberal energy trade and the essential facet of protecting and promoting energy investments. These principles were in fact established to promote energy security, and the shifting stance is in fact a reflection of the emergence of a new regime which might be in contrast to the liberal energy trade and investment policy.

Conclusion:

It is essential to remember that the Russia-Ukraine war was not an instance of energy war. However, somehow it still managed to create major energy supply disruptions. As a result, it has revived the anxieties related to energy security and has highlighted the necessity to revisit the need for energy security reforms. Import-dependent economies are increasingly becoming susceptible to risky trade arrangements that can lead them into dependency and ultimately surrender sovereign energy infrastructures upon failure to abide by the dictates of emerging powers. Constrained energy security policies of dependent economies are in a dire need for reforms in global energy, trade and investment laws. Also, with  the alternate forms of energy creating waves in the market, it is time to reexamine the existing frameworks and adopt novel conceptual frameworks addressing these issues.