Article 3: Orderly exit
Why in news: Recent U.S.-Israeli strikes on Iran have triggered a new global energy crisis, disrupting oil and gas supplies simultaneously and raising concerns over energy security and accelerating transition dynamics.
Key Details
- Energy shocks are recurring, but the current crisis disrupts both oil and gas simultaneously.
- The conflict involving U.S.–Israel and Iran marks a more complex geopolitical escalation.
- Energy transition is accelerating, with EVs reducing oil demand gradually.
- A major supply shock (~8 mb/d) could fast-track the shift away from fossil fuels.
- The system is shifting from petrodollar dominance to critical mineral geopolitics, increasing China’s role.
Historical Context of Energy Shocks
- Global energy crises have occurred repeatedly in modern history.
- Major shocks followed the Yom Kippur War, the Iranian Revolution, and the Iraq’s invasion of Kuwait.
- The 2022 crisis emerged after Russia’s invasion of Ukraine.
- These shocks mainly affected oil supply and prices globally.
Unique Nature of the Present Crisis
- The current crisis stems from American-Israeli strikes on Iran, making it geopolitically distinct.
- Unlike previous crises, it has simultaneously disrupted both oil and gas flows.
- Earlier, the Russia-Ukraine war primarily weaponised natural gas supply.
- The present situation is more severe due to its dual impact on energy sources.
Energy Transition Already Underway
- The world is witnessing a structural shift toward clean energy.
- The International Energy Agency highlights rapid transport electrification.
- Electric vehicles (EVs) reduced oil demand by about 0.9 mb/d in 2023.
- This is expected to rise to ~1.3 mb/d in 2024 (over 30% growth).
- Though still small (~1–1.3% of total demand), it signals long-term transformation.
Impact of Supply Shock on Transition
- A large supply disruption (~8 mb/d) could accelerate the shift away from fossil fuels.
- Higher prices and insecurity may push countries toward renewable energy adoption.
- Energy transition may move from gradual to rapid under crisis conditions.
- This could redefine global energy consumption patterns.
Changing Geopolitics: From Petrodollar to Minerals
- The “petrodollar system” emerged after the 1970s, linking oil trade to the U.S. dollar.
- It was supported by U.S.–Gulf strategic cooperation.
- The new energy system is mineral-based and geographically concentrated.
- Key resources:
- Lithium: Chile, Argentina, Australia
- Cobalt: Democratic Republic of Congo (~70%)
- Nickel: Indonesia
- Copper: Chile and Peru
- China dominates processing and manufacturing, giving it strategic leverage.
Implications for India and Global South
- Countries like India face a dual challenge:
- Opportunity to reduce fossil fuel dependence
- Risk of new dependence on critical minerals and technology
- A strategic approach is needed:
- Diversify resource access
- Build domestic manufacturing and processing capacity
- Follow a non-aligned, balanced geopolitical strategy
- Goal: Avoid replacing old oil dependence with new technological dependence.
Conclusion
The evolving energy crisis reflects a deeper structural shift in global energy systems from fossil fuels to mineral-dependent clean technologies. While it offers opportunities for diversification and sustainability, it also risks creating new dependencies, especially on critical minerals and processing hubs like China. Countries such as India must adopt balanced, strategic policies to secure resources, strengthen domestic capabilities, and maintain geopolitical autonomy.
EXPECTED QUESTION FOR PRELIMS:
Consider the following statements:
- The “Lithium Triangle” comprising Chile, Argentina, and Bolivia holds a significant share of the world’s lithium reserves.
- India has no known lithium reserves within its territory.
Which of the statements given above is/are correct?
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Answer: a