The war in the Middle East, Russia and Ukraine, as well as US sanctions, have resulted in a fragmented petroleum industry.
Causes of Fragmentation in the Petroleum Industry
- The Impact of Sanctions The US sanctions on Venezuela, Iran, and Russia have resulted in a fragmentation of the petroleum sector, with trading links becoming more regional than global. This fragmentation has changed the dynamics of oil supply and demand, with various areas dependent on distinct suppliers based on geopolitical factors and sanctions.
- Regional Trading Patterns: The petroleum industry’s trading ties have evolved geographically, with the United States becoming as a key supplier of LNG and goods in Europe, Russia being India’s top crude supplier, and Iran focusing on shipments to China despite Western sanctions. The regionalization of commerce has disrupted conventional market dynamics and diversified supply networks.
- Challenges for Oil Companies: International petroleum corporations are reporting strong profits as oil and gas output and prices rise. However, they must integrate their investment strategy with net zero carbon emission ambitions. Oil firms have a tremendous problem in combining revenue and sustainability goals.
- Geopolitical Uncertainties: The continuous wars in the Middle East, notably between Israel and Iran, have exacerbated the difficulties of the oil market. The area, which houses a substantial share of the world’s petroleum reserves, is suffering a combination of violence, bigotry, and extremism, adding to heightened tensions and uncertainty in the oil sector.
- Energy demand in the AI industry: The artificial intelligence (AI) business is increasing its energy need for data centres, cloud storage facilities, and cryptocurrency mining. This rising need for power presents a hurdle since renewables may be unable to match the demands, creating a quandary for industry leaders dedicated to attaining net zero carbon emissions.
What should be done?
- Diversification of Energy supplies: To reduce the effects of geopolitical uncertainty and sanctions-induced market fragmentation, governments must diversify their energy supplies.
- Regional Cooperation Agreements and Partnerships Can Help Stabilise Petroleum Markets and Ensure Energy Security.
- Promotion of Energy Efficiency: Improving energy efficiency in a variety of sectors, including transportation, industry, and residential structures, can reduce overall energy consumption and reduce reliance on petroleum products.
Source: https://foreignpolicy.com/2020/06/18/green-energy-dirty-side-effects-renewable-transition-climate-change-cobalt-mining-human-rights-inequality/