National leaders are faced with the new realities^[10], when they have to prioritize economic concerns caused by growing demand for basic commodities and inevitable shortages of certain key materials over social and political instability in their own countries and in areas with major reserves of vital resources. This, in turn, will increase the number of disputes over the ownership of important supplies.

Some of the problems can be resolved^[11] by the market forces and progress of technology. However, others will be further aggravated by the growing^[12] competition. The latter is increasingly becoming a guiding principle behind the use of the military power.

The most recent outbreak of hostilities in Israel^[13] and the war between Russia and Ukraine^[14] are no exception from this trend. Both conflicts, while linked with local realities, regional and even ethno-religious specifics, are indeed a part of a much larger geopolitical confrontation^[15], which is unfolding^[16] between two generalized collectives – the West lead by the United States and its allies in Europe, and the East lead by a triumvirate of China-Russia-Iran with a group of natural and opportunistic allies seeking to get recognition, economic benefits and political support. Both of these collectives strive for deeper ties and even form coalitions with the so-called “Global South”, which adds another dimension to the ongoing geopolitical contest as it appears that the West and East are in developmental counter-phases. As the traditionally dominant West shows signs of decline, the East is clearly growing and expanding in terms of political influence, economic wealth and military might.

Oil and Gas industry is particularly significant for the global development and therefore, access to the remaining deposits will drive the global policy makers in their choices and shape the global security environment. However, the access to resources is just a part of the equation. Any resource whether it is oil, gas, minerals, rare earth metals, water or any other important commodity, before it gains its true market value – must be extracted, processed and sold.

This cannot be ignored and therefore, poses a whole plethora of challenges – all of which emanate from another important fact – concentration of natural resources’ deposits in certain regions^[17] of the world, which causes conflicts over access (i.e., concessions for or control of extraction) to such deposits, the need to transport the raw resources to processing facilities whether domestic or abroad, and then its delivery to the end consumer. There is, of course, also part of selling the product, which gives the final value to any resource. However, this is usually conducted in a virtual realm of oil and gas bourses^[18] or other trading platforms^[19], which does not involve material and physical efforts associated with the other stages.

Much of contemporary analysis^[20] of the risks for Oil and Gas industry has been dedicated to the problems of the so-called “upstream production” – that is, access to and extraction of resources, which covered^[21] associated conflicts and competition. While there have been changes among the powers which control extraction of the resources, the overall global balance among the major resource producing countries remains^[22]. KSA, OAE, Qatar, Iraq in the Middle East^[23], Algeria and Libya in North Africa, Nigeria and Sahel countries in Central Africa, Venezuela and Guyana in South America, USA in the North America, Norway in the North Sea, countries of the Central Asia and even heavily sanctioned Russia and Iran (the list can go on) – all keep producing adequate amount of energy resources for global consumption^[24].

The world economy is primarily based on the principal of “getting supplies in the right time^[31]” with no or little provisions for storages, which brings about a cascading effect on all industries if the supplies, particularly the energy, are delivered with delays and at the increased costs. This, coupled with already existing shortages and difficulties obtaining cheap oil and gas from Russia due to sanctions, has already caused major economic problems^[32] in European Union.

The “victims” of the logistical disruptions are numerous, and the end result could be more devastating than even wars for some of the modern economies. For example, recent decision of Elon Mask to move^[33] his factory from Germany to USA^[34] was based on the assumption that Germany was deprived of steady and guaranteed supply of cheap energy that was earlier provided by the Russian gas giant Gazprom. Similar effects were felt in other major economies in Europe and Asia.

Geopolitical factors

Global Energy Crisis and Market Dynamics:

• Supply: while collectively, all major oil and gas producing countries supply adequate^[35] amount of these vital commodities to the world^[36], there are apparent differences in their distribution due to political choices as well as pressures that various producers exert on the consumers and vice-versa – powerful consumers exercise their control over some of the producers to obtain preferences in volumes or prices. Russia and Iran^[37], for example, use oil and gas as a leverage^[38] in geopolitical clash with the west, offer discounts and special arrangements with its supporters and neutrals. But the west is, in a very similar way, using the matters of guaranteed energy supplies as a tool for coercing other players to make certain choices. Moreover, there are various costs and purchase conditions for each consumer whether it is a country or even a block such as EU. And there is also a competition among the producers – for instance, a more expensive and technologically complex LNG produced by the US, in many cases, is “pushed on” as more “preferrable option” due to guarantees of uninterrupted supplies. This, in turn makes, the US look like “forcing” European partners to buy their commodities^[39] instead of the cheaper Middle Eastern or Russian ones. Therefore, the market dynamics do not always reflect exclusively the market and business rules but the players weight in the global setting.
• Demand: The almost permanent energy crisis^[40] caused by regular shortages and logistical disruptions, clearly demonstrates that global oil and gas industry is highly susceptible to geopolitical developments^[41] and decisions by key producers and consumers. This, in turn, has effect^[42] on other industries and might induce financial instability or cause breakdowns of supply chains.

Strategic Alliances, Power Dynamics, and Realignment:

• The formation of alliances like BRICS and the strategic decisions of entities like OPEC – all indicate shifting global power dynamics, which is directly related with the oil and gas industry. This includes the increased competition^[43] from developing countries and the influence of OPEC’s policies on the global oil and gas markets.
• Regional conflicts in oil-producing areas and the strategic realignment observed in key regions^[44], such as the GCC, MENA countries and nations within the Sahel Alliance, reflect the changing^[45] geopolitical landscape. China, Russia and to some extent Iran^[46] are increasingly active in Africa, particularly in countries^[47] with newly established regimes but with considerable reserves of natural resources such as oil, gas and rare earth metals – Niger, Mali, Burkina Faso, etc. These shifts, driven by factors like economic and political independence as well as regional security dynamics^[48], push countries to reconsider traditional alliances and potentially gravitate towards major powers like China, Russia, and Iran, who represent geopolitical East, and to the USA, UK, EU as geopolitical West.
• The interconnected nature of these alliances and realignments has a profound effect^[49] on the complex dynamics of the industry. Decisions whom to cooperate with, what prices to offer and what volume of the commodities – whether it is oil or gas, now include geopolitical and often security considerations^[50]. For example, EU nations, which were heavily reliant on cheap Russian energy for a long time^[51], found themselves in a difficult situation – they have to balance between their immediate economic requirements and political allegiances^[52]. This causes another interesting phenomenon – weaponization of the energy supplies in geopolitical terms, when oil and gas become instruments of coercing entire nations to bow to certain demands of a stronger power. The military might of any country depends^[53] on access to adequate amount of fuel^[54] for the armed forces as tanks, airplanes and trucks all need regular and timely refueling.
• The influence of these geopolitical shifts is also evident in multilateral institutions. There is an increasing polarization within bodies such as the United Nations, World Trade Organization^[55], and the International Monetary Fund^[56], where decision-making is becoming more contentious. The traditional Western influence in these institutions is being challenged by the East, leading to gridlocks and a search for alternative platforms for international cooperation^[57]. This situation compels smaller nations to deal with increasingly complex diplomatic landscape, where alignment with one bloc may result in retaliation from the other.

Geopolitical Leverage and Resource Control:

• Control over strategic transportation routes^[58] and resource-rich territories provides geopolitical leverage and can escalate into geopolitical tensions or direct conflict. As Houthis recently demonstrated in the Red Sea, even temporary disruptions of a vital international transportation artery led to major economic downturns, price hikes and other negative consequences^[59]. Some of the major blocks – for instance EU, realized^[60] that dependence on US as a guarantor of security for the energy supplies from the Middle East can be costly and even lead to strategic losses of business niches on the global scale, which could be catastrophic for some of the European economies^[61]. Moreover, there is an observable increase in military spending^[62] and a reevaluation of defense strategies almost everywhere including traditionally neutral countries^[63] such as Finland, Sweden, etc., as they seek to adapt to the changing global geopolitical landscape.
• Political instability and regime changes in resource-rich countries significantly influence the oil and gas sector as it might become a reason for shifts in global geopolitical alliances. For instance, supply disruptions^[64] and changes in leadership or policy^[65] in countries like Venezuela, Iraq or countries of the Sahel Alliance can change the volumes of major commodities available on the market or the timing of their delivery and prices.

Practical Factors

Logistical Infrastructure and Security:

• Dependence on Strategic Chokepoints: Control over key transportation routes^[66] like pipelines, ports, and canals^[67] is crucial, with disruptions at these chokepoints significantly impacting global energy flow and prices.
• Security Vulnerabilities: Transportation infrastructure, including pipelines and maritime transport, is prone to threats such as terrorism^[68], sabotage, theft, piracy, and accidents^[69]. A good example could be the North Stream 2 pipeline that was destroyed^[70] by unidentified culprits^[71] and caused a major overhaul of EU energy policy and approaches to procuring required volumes of natural gas to include US and Qatar originating LNG^[72]. This also incurred additional costs for construction of LNG terminals^[73], storage facilities^[74], but most importantly placed^[75] a major economy – Germany^[76], under duress^[77] and by extension prompted “emigration^[78]” of a number of large production lines to other jurisdictions, where energy supplies are guaranteed. The full scale of consequences is hard to estimate but this will undoubtedly have long-term negative^[79] effect on German and other EU economies.

Infrastructure Integrity and Technological Reliance:

• Infrastructure Deficiencies: Issues like aging infrastructure^[80], inadequate maintenance^[81], and insufficient investment in new capacity^[82] can create bottlenecks, restricting the passing through volumes and potentially leading to price fluctuations.
• Technological Dependence: The industry’s heavy reliance^[83] on sophisticated technology for operations exposes it to risks of technical sabotage ranging from poor quality unreliable equipment to cyberattacks^[84] on control centers, which can lead to total operational paralysis and hard to estimate economic losses.

Regulatory and Public Sentiment Dynamics:

• Environmental Regulations and Public Opposition: Policies^[85] affecting oil and gas extraction and transportation, coupled with growing environmental concerns and opposition to fossil fuels, can lead to resistance against important and economically beneficial projects. Overly “pushy” climate or environment concerns^[86] can urge investors to opt complete discarding of energy projects despite their obvious economic benefits. This can create delays, increase costs, and obstruct the industry’s ability to meet global energy demands.
• Government Incentives and Market Dynamics: Government subsidies^[87], tax incentives, economic growth, and industrial activity in major oil-consuming countries, as well as fluctuations in currency exchange rates, trade policies, and tariffs, significantly influence market dynamics and the operational landscape of the oil and gas industry. The controversial initiative of introducing the “carbon signature” quotas have already caused some debate in industrially developed countries^[88], which now face a choice between “clean agenda” and economic well-being. Both issues have a potential to cause clashes, protests and social instability. Due to such fluidity of the process, this poses significant risk for the oil and gas industry, particularly in Europe and Scandinavian countries.

Reliability of Supply:

• Infrastructure Stability: Technical disruptions^[89] in transportation, storage, and distribution, along with the dependability of infrastructure such as pipelines, tankers, and terminals, critically affect the global oil and gas market. A simple technical breakdown^[90] of a compressor station on a major pipeline or closure of a major oil tankers’ port could have long-lasting detrimental effects on the industry. Incidents in the US in 2023, for instance, like the Colonial Pipeline^[91] in Danville, Virginia and crude oil pipeline^[92] in Midland County, Texas demonstrated how vulnerable critical infrastructure is to disruptions, leading to serious economic consequences, fuel shortages and major security concerns about the energy infrastructure​​s. There are plenty of less known incidents around the globe and their number is growing.
• Strategic Investments and Upgrades: Investing major capital into exploration, extraction and processing as well as introduction of new and more efficient technologies shape the oil and gas industry’s operational capacity^[93] and market standing. Given the fact that many existing oil and gas infrastructures approaching their so-called “half-life” point, there will be a need of extensive repairs or technical upgrades. Finding investors whether governmental^[94] or private, could prove difficult during the unfolding global crisis and increased strategic competition.

The US-China strategic competition – as catalyst in global energy markets.

In a similar approach as was applied to geopolitical and practical factors earlier, in order to simplify the analysis US-China dichotomy, the following analytical categories are considered for identifying the presence of a catalyst effect of this strategic competition:

• Factors of shifting periphery dynamics in region
• Extent of wanning US influence in each region
• Extent of the rise of China in each region
• Diversification of economy in each region

For the purpose of the overall analysis, there will be need to only identify if a catalyst factor is present or not.

Middle East (Persian Gulf – GCC countries)

• Shifting periphery dynamics^[95] in the Middle East: The relationship between the United States and the Gulf states is clearly changing. The Gulf states are no longer as reliant on the United States for security as they used to be in the past. They are increasingly looking to Asia for trade and investment. This is due to a number of factors, including the rise of China, the diversification of the Gulf states’ economies, and the perceived decline of American power.
  • Rising Chinese Presence: Between 2010 and 2020, China’s trade^[96] with the GCC^[97] nearly doubled^[98], reaching $231 billion and came up to $315 billion by end of 2022. This represents a significant challenge to American economic dominance in the region.
  • Diversification of Trade Partners: The share of Gulf exports going to Asia has risen from 20% to 40% in the past decade. This indicates a deliberate shift away^[99] from dependence on the US market.
  • Declining US Arms Sales: US arms sales to the Middle East fell by 23% between 2017 and 2022, while China’s arms exports^[100] to the region have quadrupled in the same period. This shift in military partnerships further highlights the changing power dynamics.

• Waning American influence: The United States has traditionally been the dominant power in the Middle East, but its influence is waning. The Gulf states are now more willing to challenge American interests, and they are less likely to automatically follow American dictates. This is due in part to the perception that the United States is no longer as reliable a security partner as it once was.
  • Independent Foreign Policy: Saudi Arabia’s^[101] rapprochement with Israel and the UAE’s engagement with Iran, despite US disapproval^[102], are both examples of Gulf states pursuing independent foreign policy^[103].
  • Criticisms of US Policy: The Gulf states have publicly criticized US policies^[104] such as the Iran nuclear deal withdrawal and the handling of the Syrian civil war.
  • Shifting Security Alliances: The growing defense ties^[105] between Israel and certain Gulf states like Bahrain and the UAE demonstrate shifting security alliances beyond the traditional US-centric model.
• The rise of China: China is playing an increasingly important^[106] role in the Middle East. Chinese investment in the region is growing, and China is also becoming a major source of arms for the Gulf states. This is a challenge to American dominance in the region, and it is likely to have a significant impact on the balance of power.
  • Chinese Infrastructure Investment: China is implementing a $46 billion railway project linking Oman and China, which demonstrates the scale of Chinese engagement^[107] with the region.
  • Growing Chinese Energy Partnerships:  Following the instabilities in oil markets China is now the top buyer of Saudi Arabian oil, surpassing^[108] even the US. This shift in energy partnerships^[109] weakens US leverage in the oil-rich region.
  • Chinese Technological Influence: Chinese tech-giant Huawei is now involved in building smart cities in the Gul, which shows China’s growing technological influence^[110] in the region^[111].

• Diversification of Gulf economies: The Gulf states are no longer as reliant on oil as they once were. They are diversifying their economies^[112], and they are looking to develop new industries, such as tourism and technology. This is making them less vulnerable to fluctuations in oil prices, and it is also giving them more leverage in their dealings with the United States.
  • Non-Oil Revenue Growth: The non-oil revenue in Saudi Arabia has doubled^[113] since 2016 due to initiatives like tourism and investment in renewable energy.
  • Development of New Industries: The Abu Dhabi’s space program^[114] and Dubai’s focus on becoming a fintech hub^[115] are examples of new industries growing in the Gulf, which clearly points at diversifying of their economies beyond oil.
  • Reduced Dependence on Oil: The IMF’s projection^[116] of a 4.4% GDP growth for the Gulf region in 2024, even with stable oil prices, which demonstrates the decreasing reliance on oil.

Latin America:

• Shifting periphery dynamics: Similar to the Gulf, Latin American oil producers like Venezuela and Brazil are diversifying trade partners, looking towards^[117] China for investment and infrastructure projects^[118]. Additionally, domestic political shifts towards resource nationalism^[119] influence agreements with foreign companies.
• Waning US Influence: Regional powers like Brazil and Mexico are taking on more active roles in diplomacy and security, while declining US engagement^[120] in issues like the Venezuelan crisis^[121] leads to criticism and lessened influence.
• The Rise of China: Chinese investment in Latin American infrastructure, energy, and agriculture is growing^[122]. This challenges US economic dominance^[123] and offering alternative financial options.
• Diversification of Economies: Countries like Chile^[124] and Colombia^[125] are actively diversifying their economies beyond oil and gas, focusing on sectors like tourism, technology, and renewable energy. This reduces dependence on fluctuating oil prices and increases leverage in international relations.

Russia and Central Asia:

• Shifting periphery dynamics: Russia’s focus on Ukraine and Western sanctions have driven Central Asian states like Kazakhstan and Uzbekistan to seek new economic partners^[126] and trade routes, reducing dependence on Russian pipelines and markets^[127].
• Waning Western Influence: The conflict in Ukraine and declining trust^[128] in Western sanctions have led to increased cooperation^[129] between Russia and Central Asian states in areas like security and energy.
• The Rise of China: China’s Belt and Road Initiative provides significant investment and infrastructure development opportunities^[130] for Central Asian countries, solidifying its economic and political presence in the region.
• Diversification of Economies: Central Asian states are increasingly focusing on developing non-oil and gas sectors^[131] like tourism, agriculture, and renewable energy to lessen dependence on resource exports and attract foreign investment.

Africa:

• Shifting periphery dynamics: African oil producers like Nigeria and Angola are seeking^[132] new trade partners and investors beside traditional Western companies, looking towards Asia and emerging markets for economic opportunities^[133]
• Waning Western Influence: Western focus on other global issues^[134] and concerns about resource governance in Africa created an opportunity for China and Russia to increase their economic and political influence in the region. Furthermore, over the past year, Sahelian states started moving away from Europe and toward close Chinese ally – Russia, whose influence^[135] in the region through proxies like the PMC Wagner Group has been steadily growing^[136] over the past 10 years. This shift is partly a reaction to anti-French sentiments and is seen as an alternative to European partnerships.
• The Rise of China: China’s significant investments in infrastructure^[137], resource extraction, and manufacturing in Africa are creating strong economic ties and challenging Western dominance^[138] in the continent.
• Diversification of Economies: African countries are increasingly focusing on developing^[139] non-oil and gas sectors like agriculture^[140], technology, and services to create jobs and reduce dependence on volatile resource prices.

The Arctic

The Arctic is currently turning into a geopolitical and economic hotspot. Major powers like the US, China, and Russia have already engaged^[141] in strategic competition^[142] for the access and control of Arctic’s reportedly vast reserves of oil and gas. However, the analysis of the ongoing competition used above do not fully apply to Arctic as none of the countries traditionally present in the region can boast a decisive influence. The following factors are considered instead:

• New Players, Old Rivalries: Traditional Arctic powers like Canada, the Nordic nations, and Russia face increasing competition from China, South Korea, and Japan. China’s “Polar Silk Road” initiative^[143], very similar to another Chinese strategic initiative – Belt and Road, aims at economic and scientific partnerships in the region, potentially displacing or curtailing already existing interests. This competition practically mirrors the US-China rivalry on a global scale, so the Arctic is becoming yet another battleground^[144].
• Melting Ice, Rising Tensions: Melting ice opens new shipping routes^[145] and options for resource exploration, which in turn leads to the need for renegotiating maritime borders and already existing resource-sharing agreements. This creates disputes and among nations, particularly with Russia’s expansionist claims potentially conflicting with the interests of others^[146]. The Arctic Council, which is traditionally a forum for international cooperation, is likely to turn into another organization (like UN, OSCE, etc.), where member countries would be competing for their interests.
• Indigenous Groups, Rising Sovereignty: Indigenous communities, that were practically marginalized in the Arctic for a long period of time, are now asserting^[147] their rights and demanding control over land, resources, and decision-making. This shift in power dynamics, supported by growing international recognition of Indigenous rights, adds another layer of complexity to Arctic governance^[148] and resource management.
• Limited US Commitment, Uncertain Future: Recent US administrations (Trump and Biden) demonstrated considerably less interest in the Arctic if compared to the US leadership role earlier. This creates a vacuum, potentially allowing other actors like China and Russia to fill the void and exert greater influence. The US-China rivalry, already prominent^[149] in other spheres^[150], could spill over into the Arctic, leading to increased competition and strategic maneuvering.
• Challenges to Russian Control: Russia’s economic problems and international isolation due to the war in Ukraine somewhat diverted^[151] its attention and allocating adequate resources to the Arctic. Similarly to US wanning influence, this can also stimulate other nations to assert^[152] their claims, potentially leading to new alliances and power dynamics in the region.

Other factors affecting oil and gas industry.

The geopolitical and practical considerations as well as strategic US-China rivalry are important components that must be examined while assessing the overall global picture of the oil and gas industry. However, there are numerous other matters that already play a role or expected to do so in the future. Such matters are also incorporated in the model presented above reflecting various aspects of geopolitical and practical factors.

The following is an outline of other geopolitical and practical matters that may have second-order effect on the oil and gas sector.

EU Elections and the Oil and Gas Industry

The upcoming series of European Union elections in the spring and summer of 2024 has a significant potential for determining the future of the bloc’s energy policies^[153], which in turn will have far-reaching consequences^[154] for the global oil and gas industry. EU politics requires another in-depth analysis; however, some general conclusions and logical premises could be made already.

Source: The Economist – December 2023 issue.

Potential Election Outcomes:

• Shifting Priorities: Due to already manifested economic problems, a more conservative or nationalist-leaning Parliament may prioritize energy security and affordability. This will define “willingness” to maintain existing energy sources, including oil and gas, for a longer period. This would probably alleviate economic pressures and lead to a short-term boost for the industry, particularly in Germany and a number of other EU members from the former eastern bloc as well as western Balkans, but potentially re-open the issue of considering return to cheap Russian supplies.
• Fragmentation: A hung Parliament with diverse political representation could lead to policy gridlock and slower progress on energy goals. This could create uncertainty for the oil and gas industry, making it more difficult to plan for the future.
• Continued Green Push: A noted growing support for the pro-environmental parties could lead to continued push for the so-called green agenda and overly ambitious climate goals. These cannot be achieved unless EU significantly diversify from traditional fuels such as oil and gas. This is likely to significantly reduce demand for oil and gas in the region over the medium to long term.

Consequences for the Oil and Gas Industry:

• Demand Shifts: Depending on the election outcome, the EU’s oil and gas demand could decrease significantly. This could lead to oversupply and downward pressure on prices, particularly for European-bound crude oil.
• Investment Uncertainty: Because of the future energy policies uncertainty, investors might be discouraged from allocating funding to the new oil and gas exploration and production projects within the EU. This could lead to a decline in domestic production and a greater reliance on imports.
• Trading Partnerships: The EU’s import strategy could be affected by the elections’ outcome, particularly in the case of oil and gas. In this regard, a shift towards energy security might lead to either complete diversification away from Russia towards alternative suppliers such as US LNG suppliers or vice-versa, opt for renewal of trading with Russia and Central Asian countries.
• Carbon Border Adjustment Mechanism (CBAM): Linked to potential results of the elections in EU, the block may expedite and enforce the implementation of the CBAM directives, which would impose extra carbon costs on imports of certain goods. As a result, the competitiveness of fossil fuels from outside the EU would significantly drop, possibly causing imbalance on the oil and gas market.
• Regulatory Frameworks: The EU could introduce stricter regulations on the oil and gas industry – for instance, impose limits on methane emission or set quotas for renewable energy sources in energy mixes. This will result in compliance costs increase for the industry and push EU economies further towards clean energy technologies.

Additional Considerations:

• National Energy Policies: While the EU sets overall energy goals, national governments still play a significant role in shaping their own energy mixes. This means that even with a strong pro-environment EU Parliament, national policies could still favor oil and gas in some countries instead of cleaner energy sources. For example, the success of German industry in the past several decades was based on supply of cheap pipeline gas from Russia. Since 2022, Germany and most of the other European countries refrained from Russian energy imports but their economies responded badly causing some of the major production lines to relocate, cut jobs and tax deductions towards national budgets. This policy may be reviewed and the choice would depend on national interests and affordability of major commodities. A good example in this regard is Hungary, Slovakia and Czech Republic^[155], which still import cheap Russian gas through pipeline traversing war-torn Ukraine.
• Influences of the Global Landscape: The EU energy policies are affected by actors outside the EU, such as developments in OPEC+, the US energy strategy, and the economic recovery from the COVID-19 pandemic. The elections’ results are expected bring forward a group of new politicians, who will be paying close attention to these factors as they interact with and affect the EU’s energy options and policies.

The US 2024 elections and Oil and Gas Industry

The 2024 US elections will have particularly significant implications for the domestic and global oil and gas industry. The sheer volume and the level of consumption^[157] by the United States defines the extent and trajectory of the global oil and gas sector. As of December 2023, the United States increased its domestic production of gas in particular, which positioned it at the top among the global LNG suppliers^[158]. However, most of the US gas production is performed via environmentally challenging fracking technology, which raises concerns domestically and globally. The use of more traditional extraction methods^[159] might require additional investment should the US attempt to retain its leadership position in the sector.

The following are some of the strategic deliberations regarding US elections impact on the industry.

Potential Election Outcomes:

• Democratic Victory: A Democratic victory could lead to a continuation of the Biden administration’s agenda – i.e., consequences of the climate change and investments in renewable energy sources. This is likely to be reflected in further toughening up regulations for the oil and gas industry, including methane emission limits, offshore drilling restrictions, and new harsher fuel efficiency standards. This could lead to decreasing of domestic oil and gas production and increasing imports. Such developments might affect the US oil and gas sector by cutting jobs in the industry, which would impact the overall US economic performance.
• Republican Victory: A Republican victory could lead to reversing of some of the environmental regulations and policies in favor of oil and gas. Given the republican overall inclination towards domestic development rather than global outreach, this will likely include supportive measures for increased domestic oil and gas production, including offshore drilling, expansion of existing pipelines, and subsidies for oil and gas companies. This, in turn, could lead to increased domestic production, lower energy prices, and potential job creation in the sector.
• Legislative Gridlock: A divided Congress could lead to policy gridlock and inaction on energy issues. This could create uncertainty for the industry, making it difficult to plan for the future and potentially hindering long-term investments.

Consequences for the Oil and Gas Industry:

• Domestic Production and Investment: Depending on the election outcome, domestic oil and gas production could decline or rise significantly. This could impact energy security, prices and jobs in the sector.
• Regulation and Compliance: Changing fuel regulations is likely to affect the operational and compliance costs, which would consequently downgrade the industry’s profitability.
• Global Trade and Partnerships: Depending on the elections’ results, the US energy and trade policies could change considerably, which would impact oil and gas imports and exports influencing global market dynamics and trade relationships.
• Energy Transition and Innovation: US has commenced the so-called “energy transition” to renewable energy sources. The pace of this transition in the United States is linked with the election’s outcome. A Democratic victory could expedite the transition, while a Republican victory could slow it down.
• Geopolitical Relationships: US foreign policy regarding energy-producing countries and regions, such as the Middle East, Russia, Central Asia and Latin America, could change depending on the elections outcome. This could influence access to energy resources and global market stability.

Additional Considerations:

• State-level Policies: The US domestic politics is complex. Individual US states have significant autonomy over their energy policies, which means that even if a federal administration favors a certain direction, some states might pursue different approaches. This would complicate situation for the oil and gas sector.
• Impact on Consumer Choices: The election outcome could influence consumer preferences towards electric vehicles and energy-efficient technologies. Considering the size of the US fuel market, this has a serious potential for affecting the domestic demand for oil and gas.

Global Energy Landscape: The US remains a major player in the global oil and gas market. However, its influence is increasingly challenged by other major powers as well as energy producers. Therefore, US elections may result in changing foreign policies towards more assertive approach in the Middle East or other resource-rich regions that would affect the global energy landscape.

Russia and China Activities in Africa – Implications for the Oil and Gas Industry

The last 10 years demonstrated that both Russia and China intensified their engagements with countries of the Middle East and Africa. They act as individual geopolitical players as well as an allied block, which changes the political and economic balance in both regions. In the Middle East their presence is traditional with roots from the Soviet times but in Africa, both Russia and China drastically increased their efforts in recent years.

Sino-Russian involvement has significant implications for the global oil and gas industry. Their actions and strategies impact various aspects of the industry including:

• Production and investment: Both Russia and China are investing extensively in the oil and gas production in their respective countries of presence in both regions. This can lead to increased global oil and gas supply, impacting prices and market dynamics.
• Trade and transportation: Russia and China are also developing new trade routes and transportation infrastructure to ensure safe movements of energy resources but only those that benefit their interests and limits the abilities of other major powers to achieve the same.
• Geopolitical landscape: The increasing presence of Russia and China in the Middle East and Africa can influence regional security and stability. Both countries are becoming partners and security guarantors for local regimes, which presents long-term strategic challenge for the western world and affects global oil and gas industry.

Analysis of publicly known events and developments in Africa demonstrated the expanding Influence of Russia and China on the continent including North and Central African states. Their engagement, particularly in resource-rich countries such as Mali, Sudan, Burkina Faso, and Niger – has major effects on the oil and gas industry, regional security, and the future of the continent. The following are summaries of Russian and Chinese strategies in Africa, which affect the global oil and gas industry:

Russia’s Strategies:

• Securing access to natural resources: Russia has signed several lucrative mining and energy deals with African countries, including Mali, Burkina Faso, and Niger. These deals grant Russia access to oil, gas, uranium, and other valuable resources.
• Expanding military presence: Russia has been supplying arms and providing military training to several African governments, including Mali, Sudan, and Burkina Faso. This has raised concerns about Russia’s growing military footprint in the continent.
• Promoting its geopolitical interests: Russia’s engagement in Africa is also driven by its intentions to counter Western influence and promote its own geopolitical agenda.

China’s Strategies:

• Securing access to markets and resources: China has invested heavily in infrastructure projects across Africa. The projects include roads, railways, and ports. This simplified and facilitated trade and access to natural resources.
• Promoting economic development: China has provided loans and various grants to African governments for infrastructure development and other projects. This has a very positive economic effect, which contributed to growth and created jobs in several African countries.
• Expanding its global influence: China’s engagement in Africa is also driven by its strategic objective – to expand its global influence and become a major player on the world stage.

More detailed research of the Russian and Chinese involvement in Africa provided the following facts, which are incorporated into geopolitical and practical factors in the overall analysis:

Mali

• Both Russia and China have increased their presence in Mali in recent years.
• Russia has signed a military cooperation agreement with Mali and is providing weapons and training to the Malian army.
• China is investing in infrastructure projects in Mali and has pledged to help the country develop its mining industry.
• These interventions raise concerns about their potential impact on the fragile political situation in Mali.

Sudan:

• Sudan has long-standing ties with both Russia and China.
• Russia has supplied arms to the Sudanese government and has been accused of supporting the Sudanese military in its crackdown on protesters.
• China is a major investor in Sudan’s oil industry and has also invested in other sectors such as infrastructure and agriculture.
• These interventions have been criticized for exacerbating the ongoing conflict in Sudan and undermining human rights.

Burkina Faso and Niger:

• Both Burkina Faso and Niger have become increasingly close to Russia in recent years.
• Russia has signed military cooperation agreements with both countries and is providing them with weapons and training.
• These interventions raise concerns about Russia’s growing military presence in the Sahel region and its potential to destabilize the region further.
• China has also shown interest in expanding its involvement in both countries, particularly in the mining sector.

State of affairs

Global Oil and Gas Industry:

• The global oil and gas industry is currently stable despite going through a series of crises and important transformations, which include geopolitical tensions, shifting energy consumption trends and environmental concerns. While all of these transformations have their own strategic consequences, the analysis of associated geopolitical and practical factors suggests that the global system is able and does adjust to the periodic disruptions.
• The global economy is slowly but steadily shifting towards the cleaner energy regardless of domestic pressures in some countries, which is most evident in regions like Russia and Central Asia, Latin America and even affected by nearly constant conflicts MENA and Sahel regions in Africa. Furthermore, policy changes and technological advances seem to contribute to a more parsimonious approach to energy consumption across the world. Such trends are likely to continue through 2024 serving as secondary oil and gas sector stability factors.
• In Latin America, political changes and shifts of strategic alliances have potential for disruptions of traditional trade routes and energy agreements. Such risks, however, are moderate and most likely will be mitigated by market adjustments.
• The Arctic region has become a new arena of geopolitical and economic competition. It is expected that USA, Russia, China, Canada, Norway and other nations with significant economic interests in Arctic will continue slow geopolitical struggle with a specific attention to access to the untapped resources and newly opening due to climate changes Northern Transportation corridor. These developments are unlikely to have any immediate impact on the global oil and gas industry as they would require considerable time for any sizable effect.

• Supply chain disruptions and logistical challenges continue to manifest across various regions. The driving forces behind such disruptions will remain geopolitical rivalry, infrastructure vulnerabilities, and market dynamics. As the developments in MENA (Yemen and the Houthis) demonstrated, disruptions can cause price spikes for transportation and consequently for the goods including the oil and gas supplies, but they would not change drastically the overall balance of the global oil and gas market. It is expected that availability and stockpiles of energy related commodities would remain relatively unaffected through 2024.

MENA, Central Africa, and Sahel:

• Countries of the North and Central Africa as well as states in Sahel region will remain susceptible to the risks associated with strategic resource seizures by rogue regimes, uncontrolled rebel forces and even foreign powers (Russia, China), which in turn may potentially disrupt global oil and gas supply escalating tensions between major geopolitical players.
• Fueled by global strategic competition, proxy conflicts in Sahel and possibly MENA may escalate presenting significant risks to oil and gas production and transportation.
• Social unrest and labor strikes, driven by economic disparities and external geopolitical influences, could affect production and lead to shortage of supply. These events, if occurred, would be temporary and are unlikely to have long-term strategic consequences.

Latin America:

• The region’s oil and gas industry experienced sudden political shifts and alliance changes, which are currently in progress of reshaping regional oil and gas market dynamics. This particularly concerns access to the existing reserves and affects access of foreign extraction and refinery companies.
• Growing public opposition to fossil fuels and underinvestment in repairs or new infrastructure are turning into considerable challenges for governments of Venezuela, Columbia and Brazil, affecting availability of energy resources on the regional market and slowing economic growth.

Russia and Central Asia:

• These regions are key players in the global energy market, with their infrastructure and transportation networks being critical for global oil and gas flow. In Russia, most of the oil and gas extraction as well as refinement are conducted using rapidly aging infrastructures and machines. Due to western sanctions, Russia is unable to upgrade the existing systems, which leads to inefficiency and potential supply lags.  With the exception of a few relatively recent energy projects, this affects transportation of commodities in Russia and to its foreign consumers. With the exception of “Sila Sibiri” pipeline to China and a handful of local lines, the transportation of oil and gas is conducted via aging pipelines, old railway system with limited abilities. The situation is very similar in Kazakhstan, Turkmenistan and Uzbekistan, where only parts of the existing infrastructures meet the modern technological requirements. Nonetheless, the sheer volume of extracted resources combined with slowed down consumption, buildup of reserves in western economies, the effects of disruptions are likely to remain at manageable levels through 2024.
• The threat of infrastructure sabotage in Russia, Kazakhstan and Uzbekistan due escalating geopolitical tensions and the ongoing war in Ukraine present a risk to market stability and continuity of supplies. However, as the war demonstrated, even warring countries keep the matters of energy supplies out of their target lists. For instance, the existing pipeline delivering natural gas from Russia to some European countries continue operating, although at a lower capacity. It is expected that such state of affairs is likely to continue due to mutual dependency –
• Russia depends on revenues from oil and gas contracts and some of EU members (Hungary, Slovakia) and Asian countries depend on steady delivery of cheap Russian energy. This applies to Central Asian countries as well.  Therefore, despite the apparent risks the situation is likely to remain relatively stable.

Arctic:

• The Arctic is expected to remain high in the strategic energy and transportation agenda for major global players such as USA, China, Russia, and Canada. Despite the Arctic’s transformation into a geopolitical hotspot, it is expected to have insignificant effect on the global oil and gas market. In scenario when some significant changes occur in Arctic that would allow tapping into natural resources, rather than having a detrimental effect on the industry, it would present new opportunities, farther expand the oil and gas market and have a positive effect on global economy.
• Similarly, climate policy changes and technological breakdowns in this region could have far-reaching results, open new commercial routes, and introduce more alternatives to currently challenged oil and gas regions.

Risks for Oil and Gas Industry in 2024

The global oil and gas industry is characterized by a cyclical nature of its behavior and particularly how it responses to various crises. With all the numerousness of parameters, there are two factors – the levels of stress and resiliency, which define the state of affairs. Both of these features follow their own patterns, which periodically coincide or get into counterphase. The analysis of the assessment results indicates that the current state of affairs seems to be in relative balance despite the challenges. Nevertheless, 2024 could be a year of both opportunities and challenges, rather than outright stability. So, here is what to generally expect:

1. Geopolitical Tensions: The strategic competition between major global powers, such as the US and its allies versus China, Russia, and Iran, is likely to continue influencing the industry. Regions like MENA, Central Africa, Sahel, and Latin America could experience fluctuations in oil and gas flow due to geopolitical conflicts or realignments.
2. Market Dynamics: The industry is likely to continue its transition towards cleaner energy sources, affecting traditional oil and gas markets. This shift, coupled with potential policy changes in key regions like the Arctic, Russia, and Central Asia, could lead to market adjustments.
3. Technological and Environmental Risks: The risk of black swan events^[160], such as catastrophic pipeline failures or large-scale cyberattacks, remains a concern. Additionally, the industry’s impact on the environment, especially in ecologically sensitive areas like the Arctic, will continue to be a focal point for stakeholders and could lead to regulatory changes.
4. Supply Chain and Infrastructure: Grey rhino events, such as infrastructure sabotage or severe weather events, could disrupt supply chains. Investment in infrastructure, especially in regions like Latin America, will be crucial to maintaining and enhancing industry stability.
5. Social and Economic Factors: Pink flamingo challenges, including underinvestment in infrastructure, growing public opposition to fossil fuels, and social unrest in resource-rich countries, could influence the industry’s social license to operate and its ability to access new markets.

Grey Rhinos – Highly Probable and Potentially Catastrophic Events Ignored Due to Their Perceived Normalcy or Slow Development:

1. Escalating Proxy Conflicts in MENA and Sahel: The strategic competition between the US and its allies versus China, Russia, and Iran could intensify existing conflicts, turning them into proxy wars that disrupt oil and gas production and transportation, impacting global markets.
2. Resource Nationalism in Central Africa and Latin America: Growing resource nationalism, spurred by global competition for influence and resources, could lead to expropriation of assets or restrictive export policies, directly impacting global supply chains and intensifying geopolitical tensions.
3. Infrastructure Sabotage in Russia and Central Asia: In the face of escalating tensions, strategic infrastructure in Russia and Central Asia could become targets of sabotage, either from internal dissidents or external forces, disrupting supply and heightening geopolitical strife.
4. Major War with Iran with Spillover Effect to Other Countries in MENA: Following the drone strike at the US military base “Tower 22” in Jordan coupled with the unrelenting attempts by Iran’s proxy – Houthis to block the Red Sea maritime corridor drastically raised tensions in MENA region. United States used Tower 22 since 2015, initially as a training site for rebels opposing the government of Bashar al-Assad and later to assist Kurdish forces. The site is a critical logistics hub for the Tanf base in Syria, 20 kilometers from the border, which hosts several thousand US and allied special forces, and has come under repeated attacks since October 7. Direct conflict with Iran also almost guarantees a sharp rise in oil prices, especially if transit through the Persian Gulf is disrupted or there are Iranian attacks on Saudi Arabia’s oil infrastructure. The price of a barrel of Brent oil rose from $73 in early December to $84 by January 26. Further sharp increases will impact gasoline prices in America during an election year.

Pink Flamingos – Complex, noticeable challenges overlooked due to their sophistication and our cognitive biases:

1. Climate Policy Shifts in Arctic and Russia: Drastic changes in climate policy, driven by environmental concerns and international pressure, could lead to sudden restrictions on Arctic exploration and Russian exports, reshaping global energy markets and alliances.
2. Technological Leapfrogging in MENA and Latin America: Rapid adoption of renewable energy technologies in these regions, driven by strategic partnerships with China or other global players, could significantly reduce dependence on oil and gas, disrupting traditional energy markets.
3. Social Unrest and Labor Strikes in Central Africa and Sahel: Growing social unrest due to economic disparities, possibly influenced by external geopolitical actors, could lead to widespread labor strikes in the oil and gas industry, crippling production and leading to global supply shortages.
4. Cyber Warfare Targeting Energy Infrastructure: In the context of growing US-China and Russia-West tensions, a significant cyberattack on critical energy infrastructure could lead to widespread disruption, with each side accusing the other, escalating tensions and potentially leading to a broader conflict.

Black Swan and Pink Flamingo sitting on the back of a Grey Rhino:

The complexity of the current global situation and multi-dimensional games played by major powers in the oil and gas industry provide a theoretical framework for even more nuanced scenarios, which include components and characteristics from all three traditional types of events. Some events may include known but ignored facts, display precipitating indicators and earlier activities but be completely unforeseen. The following is one of such scenarios, which combines features of a black swan, grey rhino and pink flamingo (a.k.a. BS-PF-GR).

BS-PF-GR Scenario: Yemeni radical Houthi groups might implement the “Al-Aqsa Triangle” plan – closure of the three major waterway in the Middle East – i.e. the Bab al-Mandeb Strait, the Strait of Hormuz and the Suez Canal.

Background and brief analysis: Recent reports^[161] from Yemen about the Al-Aqsa Triangle plan, which involves closing three major waterways in the Middle East – the Bab al-Mandeb Strait, the Strait of Hormuz and the Suez Canal, pose a potential threat to the global oil and gas industry.

This situation will lead to a complete stop in oil and gas supplies to Israel from Qatar, the UAE and Saudi Arabia. Closing the Bab el-Mandeb Strait will block the sea route used to transport oil from Central East Asia to Europe and Africa. Closing the Strait of Hormuz will stop oil and gas supplies from the Persian Gulf to Asia and Europe. The closure of the Suez Canal will create obstacles to the transportation of oil from Africa to Europe.

Such scenario has a potential to cause a huge decline in global oil and gas reserves and drive the energy prices to extremely high levels. Moreover, companies operating in the oil and gas industry will have to deal with massive shortages and supply problems. This, in turn, will induce a global crisis and turmoil on the global market.