Why oil politics will remain as important as ever

The global push for net-zero climate emissions may end up amplifying oil politics, not removing it completely. The current juxtaposition of high energy prices and the ramping up of investment for and commitments to more sustainable sources of power is a handy illustration of what the future might look like, as the world presses forward to deliver on the goals of the Paris climate agreement. Natural gas prices, which are linked to crude, have nearly doubled this year, as several parts of the world, particularly Europe, experience shortages. This, in turn, is a spur to inflation and a risk to the economic recovery after the Covid-19 pandemic. Oil politics was on display on the eve of the Cop26 summit in Glasgow, when US President Joe Biden said his applying pressure on producers to increase the supply of oil and gas while simultaneously urging an acceleration of the energy transition was not “inconsistent”. Mr Biden is undoubtedly attempting to balance short-term needs with long-term necessities. He has already made clear his desire for the Opec+ group, which includes Saudi Arabia and Russia, to loosen the taps to relieve consumers paying more at the pumps. "It’s not at all inconsistent in that no one has anticipated that this year we would be in a position, or even next year, that we’re not going to use any more oil or gas," Mr Biden said. As he delivered his remarks on energy transition, the US president sought to emphasise on the word "transition". “The idea we’re going to be able to move to renewable energy overnight and ... from this moment on not use oil or not use gas or not use hydrogen, it’s just not rational," Mr Biden said. But as the week progressed, he began to put the responsibility for high energy prices squarely on Opec’s shoulders. Now, while Mr Biden is right to say that his overall position does not contradict with the broader climate goals, his confrontational approach will not aid the very momentum the world is trying to build to tackle such an urgent challenge as global warming, the solutions to which can only be harnessed together. Especially as more than 50 nations including the UAE, Saudi Arabia and Bahrain, have crossed the Rubicon on climate change and the idea of net-zero carbon emissions in the next 30-40 years looks achievable. As Mr Biden concedes, that does not mean that oil will disappear. In fact, as renewable energy becomes a greater part of the mix and producing oil and gas becomes less lucrative, there will be the counterintuitive scenario that energy security will become more, not less, complex. This is an important consideration for governments and those they serve, according to the International Energy Agency. In the IEA's scenario for net-zero by 2050, Opec becomes more important, accounting for more than half of the world’s oil supply, up from more than one third today. Overall, net-zero creates “new potential vulnerabilities associated with the need to maintain reliable, flexible and secure electricity systems, and with the increase in demand for raw minerals for clean energy technologies”, the IEA said this week. The debate is now centred on the pace of investment in clean energy, which everyone agrees must pick up, while ensuring the amount spent on oil and gas is at such a level as to prevent the kind of volatility we have seen this year becoming a fixture. “An effective and orderly transition will be critical – not only to reach international climate targets but also to prevent serious supply disruptions and destabilising price volatility along the way,” Keisuke Sadamori, director of the office for energy markets and security at the IEA, said last month. This comes back to how important what the current crop of leading oil and gas producers do is. Striking a balance between today and tomorrow seems easier said than done, as political pressures and fiscal realities create day-to-day noise. Yet, the critical role played by countries such as the UAE in managing a balanced energy transition also requires that their vision for the road to net-zero be given equal weight as compared to developed nations. In a similar vein, India, one of the largest energy consumers, is firmly following its own timetable to net-zero – in 2070, according to Prime Minister Narendra Modi. He also made clear that developed countries should play their part in helping India to achieve these goals. Indeed, co-operation is key. Whether through investment or technology, countries will need to help one another in their efforts to meet climate targets. If short-term worries such as high oil prices dominate the agenda, then the atmosphere of collaboration created by gatherings such as the one in Glasgow will quickly evaporate. In truth, as we progress towards net-zero and the energy mix evolves, the rhetoric is likely to become more barbed and less conciliatory. Change, after all, is never easy.