Is the renewable energy transition an existential crisis for petrostates?
Morena Skalamera
The rapid rise of commercially viable renewable energy worldwide presents encouraging opportunities for sustainable growth. However, as the transition to clean energy gains momentum the details pointing to a rocky future for oil-producing nations are lost in the headlines. While the demand-side ramifications of the global low-carbon transition are widely discussed, little consideration has been given to the inevitable implications of this process for hydrocarbons producers, particularly in central Asia. This region, facing the acute consequences of global energy shifts, finds itself navigating a fraught path between global greening trends and the imperative to maintain market share both in Europe and in the emerging fossil fuel market of China.
Green deals and uncertain futures
In Europe, advances in technology have been matched by a structural shift in policy. In December 2019, the European Commission unveiled the most fundamental move to date towards energy sustainability — the ‘European Green Deal’. While tackling climate change through a transformation of Europe’s energy consumption patterns is laudable, a shift of such proportions portends new risks. The hydrocarbon-producing nations of Eurasia have typically relied on geographical proximity to Europe as their most lucrative export market. Yet the revolutionary nature of energy change in an era of ‘greening’ technology threatens their position.
Indeed, this shift has exacerbated tensions, reduced the strategic importance of Eurasia’s big crude producers and put major market and geopolitical forces into play. The potential for problems has become clear in the Caucasus region, where the inflection point that saw protracted low-intensity sniping transform into a war of attrition seems to have been Azerbaijan’s need to secure its energy-delivery pathways. Other anxieties over increasingly complex supply networks are exacerbated by shocks to the oil price created by the COVID-19 economic downturn, significantly impacting all fossil fuel suppliers. However, while it can be hard to see through the weeds of smoldering conflicts in the region and the rhetoric surrounding price levels, there is a longer-term ‘existential crisis’ afoot: the clean energy transition.
While the energy transition is often assessed exclusively on the basis of the speed of energy diversification towards renewables, it still has extensive repercussions for the domestic stability and foreign policy of hydrocarbons producers or ‘petrostates’. Existing literature establishes that countries where state-owned oil companies are hand-in-glove with authoritarian regimes may face both relative losses vis-à-vis oil importers and absolute declines in their growth rates. In these countries (such as Russia and Kazakhstan), the failure to maintain social spending is expected to threaten regime survival. But, in the face of reduced hydrocarbons rents, Eurasian regimes have defied expectations and maintained remarkable stability.
Temporary or lasting stability?
Part of the secret to this notable stability has been China, which has provided a lifeline to central Asian economies. The speed with which China has risen to prominence in central Asian petrostates’ energy markets reveals an underlying dynamic: the interplay between global low-carbon transition, pressure from vested interest groups, and domestic-level policy. These factors combine to produce a reorientation of foreign policy towards China, the country with the most prominent interest in hydrocarbons-powered growth.
But the regional geopolitics of energy centered around embracing China is only part of the story. Eurasian petrostates such as Kazakhstan are well aware of global energy trends that are pushing energy majors and governments to reduce their contribution to climate change and invest in renewables. Kazakh advocacy of the sustainability cause reflects these circumstances and an aspiration to project a ‘soft’ modern image of energy power associated with renewables. From this perspective, we might conclude that there is scope for the development of further energy capacities based on renewables in Eurasian petrostates. The admittedly small-scale changes that are currently under way thus illustrate two conflicting developments. First, a central Asian turn to China as a result of the perceived danger posed by a switch to alternative energy sources. Second, the potential for increasing use of renewables by Eurasian petrostates themselves, thereby changing their social fabric and empowering a new generation to pursue a modern, investment-friendly and sustainable notion of energy power projection.
The question obviously remains what this heightened dependence on China means for vested interests in central Asia’s energy sector and whether any economic instability could lead to future political instability among Eurasia’s regimes. In light of China’s own proportional reduction in the use of fossil fuels, its leadership in clean energy technology, and the discovery of new sources of fossil fuels globally such a scenario cannot be ruled out. The consequences of politically hamstrung, economically-enfeebled, and socially-demoralized Eurasian petrostates could upend global politics. For European policymakers, one can hardly imagine a more destabilizing development than the potential of failed Eurasian petrostates on its doorstep.
Morena Skalamera is an Assistant Professor of Russian and International Studies at Leiden University.
Her article, ‘The 2020 oil price dive in a carbon constrained era: strategies for energy exporters in central Asia’ was published in the November 2020 issue of International Affairs.
