All eyes are on the horrific humanitarian crisis unfolding in Gaza as a result of the biggest Palestinian-Israeli war yet. From the very beginning, fears of the conflict expanding regionally have been widespread, now seemingly being realised with the Red Sea’s emerging US-Houthi conflict. Beneath the geopolitical turmoil is another storm brewing globally which concerns energy. The global energy market is in crisis for numerous reasons and events in the Middle East can severely exacerbate it, impacting countries worldwide.
Energy security first took a hit from the pandemic. Then things worsened with Russia’s invasion of Ukraine. Europe, heavily reliant on Russian gas till then, scrambled to source its natural gas elsewhere, leaving less available for countries like Pakistan that cannot compensate by turning to Russia, since only the infrastructure connecting Russian energy to European consumers exists. More recently, various additional problems have surfaced. One is industrial action by workers at two Australian gas processing facilities owned by Chevron. The two facilities, called Gorgon and Wheatstone, produce seven percent of the world’s supply of liquefied natural gas. The issue had been brewing for months. A renewed strike was announced by workers on October 10. Back in August, strikes against another company called Woodside Energy also caused apprehension in Australia, but were averted. Combined, Chevron and Woodside’s Australian plants produce a tenth of the world’s LNG. Then, on October 8, a gas pipeline connecting Finland and Estonia ruptured and will be out of action until April. Many suspect sabotage by Russian actors which would represent an incursion into NATO territory.
On top of all this came Hamas’s October 7th grand offensive. It prompted closure of Israel’s offshore Tamar gas field, which could potentially make Israel turn to the international gas market, adding to global demand. Recently, the Tamar field reopened, but bigger fears linger regarding Israel’s biggest source of natural gas and main driver of its recent energy revolution, the offshore Leviathan gas field. It is located close to the nation’s maritime border with Lebanon, well within range of Hezbollah’s rockets. Should the conflict in Gaza expand across the energy-rich Middle East or even similarly energy-rich Eastern Mediterranean (tensions involving Cyprus, Turkey, Greece and Egypt could conceivably enter the fray), the closure of Israel’s Leviathan field alone could be a significant shock to the international economy.
Israel’s war also imperilled energy markets by jeopardising trade deals between Saudi Arabia and the USA. Now, Yemen’s Houthi rebels are targeting commercial shipping in order to pressure Israel, prompting a US-led coalition to launch counterstrikes against them. However, if Middle Eastern countries embargo the West like they did after the Yom Kippur war in 1973, or the flow of commerce comes under fire as during the 1980s “Tanker War”, the impact will not be as big as in those previous decades because the world now depends much less on Mideast petroleum.
What’s more, now is winter in the northern hemisphere, and in the face of climate change and a Jet stream that nowadays wreaks havoc on Europe, North America and Asia, there is no telling how severe this winter could turn out.
All these events seem unrelated, but they are actually disruptions cascading through the energy system. The world economy is interconnected, as is global political stability. Economic sectors that are limited in scope but which the world depends on are a source of power. They can, therefore, be drivers of conflict, whether through workers who see increased leverage in their hands or hostile forces that attack energy supplies to produce an impact. Disruption of one energy source increases global dependence on another, providing extra leverage to whoever wants to exploit it. It is possible that Russia was only willing to invade Ukraine because of how dependent Ukraine’s would-be allies were on Russian energy. And maybe Hamas chose the time it did to launch its grand one-day offensive against Israel because it judged that international economic volatility could provide it sanctuary. Another possibility is that the US sanctioned Israel’s war (including by withholding intelligence warnings of October 7th) so the West is weaned off of Middle Eastern oil and buys more American shale.
Economic destabilization will likely worsen due to various factors, with the depth of geopolitical instability determining its severity. Russia’s invasion of Ukraine and Hamas’s assault on Israel shocked many, and further escalation is increasingly likely. If the West increases sanctions or goes to war against Iran, Iran could attempt to disrupt oil shipping in the Persian Gulf, while the Houthis, allies of Iran, could threaten shipping in the Red Sea. Such actions would have a significant impact given the current global situation, providing ambitious geopolitical actors with opportunities for exploitation, especially if provoked by powers like the US. If the current conflicts in the Middle East escalate, energy disruptions will inevitably worsen. Pakistan, highly vulnerable to energy shortages, must prepare a policy to weather the brewing storm.
—The writer is Director at Pakistan’s People Led Disaster Management.
Email: [email protected]
views expressed are writer’s own.
