The Israel-Hamas conflict presents new challenges for global energy security.
And competition for resources lurks beneath.
Once again, we grieve the deaths of innocent civilians on all sides of a deadly geopolitical crisis brought on by illegal acts and terror. With sadness and compassion, we pray for peace.
It has been said that history doesn’t repeat itself, but it does rhyme. This phrase resonates as the conflagration in the Levant follows the explosion of the Russia-Ukraine crisis. Both have profound implications - for life and humanity, first and foremost, but also for global energy costs and security and, in so many ways, literally and metaphorically, for the balance of power.
600 days ago today, on Tuesday 22 February 2022, Germany halted Nord Stream 2 after Russia formally recognised two breakaway regions in Eastern Ukraine. Nord Stream 2 was an $11 billion gas pipeline in the Baltic Sea that bypassed Ukraine and was meant to double the flow of Russian gas directly into Germany. It was hoped that is would ease pressure on European consumers facing already record energy prices and a cost-of-living crisis. Gas prices jumped 10% on the news, but that was just the beginning of the beginning.
Dmitry Medvedev, Russia’s former president and now deputy chairman of its Security Council, tweeted: “Welcome to the new world where Europeans will soon have to pay 2,000 euros per thousand cubic meters!”
Within 48 hours, Russia invaded Ukraine. Gas supplies from Russia would eventually be all but cut off to Europe and prices would rise 600% above current levels. Food supplies to Europe, the Middle East and North Africa came under threat. Global supply chains and commodity markets were thrown into chaos. Hundreds of thousands would die in a new war on the edge of Europe, accompanied by fears of the escalation of warfare and even use of tactical nuclear weapons. Hundreds of billions of dollars of international aid and military spending drove budget deficits and economic strain to levels not seen since the second world war.
After Russian gas supplies were eventually cut off to Europe, replacement supplies needed to be found urgently from the United States, Norway, North Africa and the Middle East, including, potentially, Israel. The need to rapidly diversify sources of natural gas supplies added to dramatically inflated prices on international markets. It took the best part of a year for prices and storage levels to return to pre-invasion levels and for nerves to begin to calm.
But while the causes of the Israel-Hamas conflict are profoundly different to Russia-Ukraine, some of the effects may not be. Indeed, comparisons are being drawn to the global oil crisis of 1973 after the Yom Kippur War.
Before it invaded Ukraine in February 2022, Russia represented 40% of European gas supply. The Middle East represents a third of global oil production and any substantial disruptions to regional supplies could cause significant cost escalations. This would fuel energy cost increases for the global economy with implications for inflation, interest rates, the cost of living, for business, industry, food, transport and sociopolitical stability.
Alongside the pivotal role that the Middle East plays in global oil markets, the Middle East also hosts over a third of global natural gas reserves. Although the Middle East has historically produced less than 10% of the world’s natural gas output, Iran and Qatar have the largest natural gas reserves in the world after Russia (more if you combine them), and both have larger reserves than the United States.
More recently, Israel has entered the global natural gas export market. Israel signed a MOU with Egypt and the European Union in 2022 with a view to exporting natural gas from its Tamar gas-field, the closest of three offshore gas projects to Gaza, in the aftermath of Russia’s invasion of Ukraine. Although its planned EastMed pipeline to Europe never made it past negotiations with Turkey and lost support from the United States, exports to Egypt were to be liquified and sent to Europe to meet its needs to diversify from Russia. This was a massive opportunity for a cash windfall for Israel, and consequently anxiety for Hamas in Gaza, for Hezbollah in Lebanon, and for Iran.
Exports from Tamar were halted on Monday 9th October 2023, two days after Hamas’s terrorist attack on Israel of Saturday 7th October, amidst security concerns. Production at Israel’s other major gas-field, Leviathon, may yet come to a halt if the conflict expands. (Another gas field, Karish, is in territory that as recently as 2022 had been disputed by Lebanon and over which Hezbollah had threatened to “act”). If Iran is implicated in the Hamas attacks, or becomes directly involved in a regional conflict, any US led sanctions arising could lead to a disruption of oil flows through the Strait of Hormuz. Iran has been increasing oil production, most of which is sold to China, over the last year. Reducing production, already a consideration from Saudi Arabia, would increase prices in the global market.
Politically, the deal that was being brokered by Washington to normalise relations between Saudi Arabia and Israel is now on ice and could be derailed. US military firepower and budget could be diverted from the Russia-Ukraine conflict to the Middle East at an exceptionally convenient time for President Vladimir Putin.
In the week following Hamas’ terrorist attack on Israel, Finland (which joined NATO in April 2023 in the wake of the Russia-Ukraine crisis) said that it suspected sabotage in relation to a 77km-long Baltic Sea gas pipeline with Estonia that had been damaged, contributing to European gas prices increases, which surged 14% following Israel’s suspension of production at the Tamar gas field. Later that week, Iranian Oil Minister Javad Owji was quoted saying that oil would hit US$100 per barrel “on recent developments in the Middle East”.
Competition for resources did not cause this new war. But it lurks beneath. In a complex, interconnected and volatile world, it has the potential to further fuel flames. In my book, ‘The Edge: How competition for resources is pushing the world, and its climate, to the brink - and what we can do about it’, I write about the cruelty of the paradox that we lose three quarters of the world’s primary energy through extraction, conversion, generation, transmission, distribution and end use losses, at the same time that nations clash over it. More than ever, reducing this waste, for instance through efficiency, could reduce reliance on the costly and volatile energy resources on which the world depends and over which it competes, sometimes with horrific violence. When Russia annexed Crimea in 2014, the European Commission cited that every 1 per cent. of energy saved meant 2.6 per cent. reduction in gas imports. In 2022, the European Parliament’s lead for the Energy Efficiency Directive said: “It is not just about business, it is about security policy. I think it will change this time because the Ukraine situation is the biggest security threat to Europe since the Cold War’”. Tragically, there is now another one.