A new global energy war will shake the world

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About the Author: Abishur Prakash is co-founder and geopolitical futurist of the Center for Innovating the Future, a consulting firm. He is the author of The world is vertical: how technology is reshaping globalization.

After telling its citizens to shower less, Germany collides with India as the two countries scramble to secure energy. A company recently nationalized by the German government refuses to export gas to India, even though New Delhi has a contract in place. Days before the G20 summit in Bali, Indonesia, the situation reached a boiling point as India debated whether or not to force Germany into a legal settlement.

The global energy crisis has entered a new phase. Existing rules and alliances are challenged. A new global battleground has formed as countries make erratic and potentially dangerous decisions to maintain the stability of their societies and economies.

Start with the G7.

On Monday, a “price cap” on Russian oil went into effect. The United States, the European Union and their partners have set a ceiling for the price of Russian oil in the world at 60 dollars. (Ukraine was pushing for $30). The goal is to break the Russian economy. And it comes as the EU calls for similar action on Russian gas.

Russia has warned that it will not export oil to countries that support price caps. China and India have criticized the price cap and early signs indicate they will increase their purchases of Russian oil. Anyone buying Russian oil outside the price cap — say for $65, not $60 — cannot use Western insurance or shipping services, the United States has warned.

The G7 effectively arms its financial and logistics sectors to serve its geopolitical objectives. Will Russian customers create their own alternatives? Could the G7 “price cap” divide the world?

Moving to West Africa.

As Ghana faces its worst economic crisis in years, it no longer wants to pay for its oil exclusively in US dollars. Instead, he wants to pay with gold, a resource that is part of Ghana’s $12 trillion resource. For Ghana, an economic slowdown is an opportunity to establish its financial and energy sovereignty. He can trade one resource he has in massive amounts (gold) for one he needs to grow quickly (oil).

Ghana’s decision is also a shot in the American arc. Since the end of World War II, the world has used the dollar as the main global currency, especially for energy. How will Washington react to a country whose economy represents less than 1% of US gross domestic product challenging the dominance of the dollar?

Jump to the Middle East.

As fans head to Qatar for the World Cup, China are there looking for energy. The two countries signed a huge 27-year, $60 billion natural gas contract in November. This new energy alliance will last at least until the 2050s. And, the agreement was signed after Europe tried unsuccessfully to encourage Qatar to increase its energy exports to European capitals (and far from Asia).

Saudi Arabia and the United Arab Emirates are adopting an equally bold tone. Not only are the Saudis considering pricing oil in Chinese yuan, but Bloomberg reports that they are selling cheaper energy to Asia than to Europe. At the same time, Russia demands that some exports to India be paid for in Emirati dirhams, according to Reuters, because the UAE has not banned Russia from transacting in its currency. Have Saudi Arabia and the United Arab Emirates quietly launched a currency war against the United States?

Energy decisions by nations are creating a new geopolitical status quo. The pillars that nations have relied on for decades – that energy can be purchased freely in global markets using a single currency – are being questioned or abandoned. These changes raise difficult questions about the future “structure” of the world.

First, do global rules and systems still matter? The German government effectively canceled an energy contract with India, citing unexpected political conditions. If Germany can do it, so can other nations. From Africa to Latin America, countries that have received energy can refuse to pay, while those that have been paid for energy can refuse to export.

Second, who will enter the energy war next? So far, the fight for energy has revolved around Europe and Asia. But in November, the United States removed some sanctions against Venezuela, potentially unlocking new oil supplies. Massive projects are underway in Africa and the Middle East to increase the supply of clean energy. More and more players enter an already crowded field.

Third, is “vertical globalization” accelerating? As “frontier economies” like Ghana think about ditching the dollar, while established energy hubs like Qatar choose Asia over Europe, the old glue that held the world together is losing its strength. The global economy is fragmenting and nations of all sizes and cultures are reconsidering their commitments to sell to all energy customers.

Finally, what role will companies play? Nations have been clashing over energy since Russia invaded Ukraine in February. But government decisions put businesses in the crosshairs. For example, as the energy crisis worsens, Switzerland is debating a temporary ban on certain uses of electric vehicles. Will it be Tesla, Nio or Mercedes dragged into the energy war next?

A new post-war future is emerging, like the snowball effects of war in Ukraine. Paradigms that were abandoned years ago, like energy hoarding, are coming back, while Western ideals, like cohesive democracies, are being trashed.

With no massive increase in global energy supply on the horizon, the stage is set for nations to behave in even more unexpected ways. What happens when a nation goes too far and crosses another country’s red line? The risk is that a global energy war will turn into real violence. It would not be the first time.

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