Many wars and international conflicts have been called wars for oil. And it wouldn’t be an overstatement either. There have been many wars over resources throughout history, and the modern era is no exception. However, today’s conflicts can reach far wider proportions, and lead to a global shift in the economy at levels they couldn’t before. Let’s look at the role of oil and gas in global conflicts. We’ll also explain the role oil has in several ongoing conflicts we often fail to realise are affected by energy.
The Role of Oil and Gas in Modern Global Conflicts
There are four main areas of conflict in the world today: Crimea/Ukraine, South Sudan, Iraq/Syria and the South China Sea. At first glance, all of these conflicts seem to be unique events. However, they share a number of characteristics.
For example, each is driven by either a mix of ethnic, religious and national conflicts brought to a boiling point by energy. Each faction in these wars is fighting to control valuable natural gas and oil assets like oil fields or refineries. For example, the governments of Syria, South Sudan, Iraq, Nigeria and Russia all generate a lion’s share of their revenue from oil sales. They will fight with separatists to protect it.
How Attacks on Energy Infrastructure Impact the Market
One of the early responses to news of an international conflict in an energy producing region is surging oil and gas prices. Insurance costs skyrocket, too. Attacks on energy infrastructure drive up prices as people stock up and fear disruptions, while damage to infrastructure keeps prices high due to restrictions on supply.
Blocking shipping lanes that carry oil tankers has the same result. Political disputes can literally leave people in the cold, such as when disputes between Russia and Ukraine over what it should pay for Russian gas led Gazprom to cut off deliveries. That left Ukraine in the dark at a most desperate time and diminished supplies to the European Union as well. Conversely, terrorists and separatists may simply threaten to attack energy infrastructure in order to force others to give in to their demands.
What Businesses Can Do to Cope
A prolonged conflict in the Middle East could tip the global economy into recession. While businesses may not be able to do much about that, they can take steps today to protect themselves from sharp increases in energy prices.
Businesses can now use comparison sites to find energy providers that won’t drive up prices because of disruptions in the supply of oil and gas. Business energy comparison sites allow them to choose energy companies that rely mostly on locally produced power or renewable energy. This saves you from the potential doubling of oil prices. Natural gas prices could spike far more in the case of a war in the Strait of Hormuz, since more liquefied natural gas passes through that region than oil.
Developing renewable energy sources is a long-term approach for limiting the impact of international wars over energy. Dramatically increased renewable power generation allows countries to become independent of the countries fighting wars for oil and protects them from the economic shocks when the price of fuel skyrockets. This arguably makes renewable energy investment a matter of national security.
While there are predictions that oil is dying, it continues to fuel conflicts around the world, and we can expect it to still drive markets. However, there are steps businesses can take to limit their own risk.