Rather than deciding how energy shocks will impact foreign policy, it is time to think about how to make energy a tool in the national security tool kits of all our countries.
The world is in the middle of the worst energy crisis since the 1970s and a return to the status quo ante is unlikely. Instead, countries like Korea, Japan, Australia and the United States should be thinking about forming a new energy security alliance to increase supply and stabilise markets for the longer term. What that alliance should look like is clear from how we got to this point.
The cascading shocks to energy markets began with the Ukraine war in 2022. The main impact was on Europe, which depended on Russia for 47% of its gas. In response to the Russian invasion of Ukraine, the European Union reduced that amount to 12% by 2025 and has pledged to completely sever all gas shipments from Russia by 2027. There is no end to the conflict in sight but even with a cease fire of some kind, Russia will still be under various economic embargoes and will need time to restore the estimated 45% of energy infrastructure damaged by Ukrainian drone attacks. The impact of the Ukraine war alone on energy markets will be long-lasting.
Then the US-Israel war on Iran caused a second and bigger shock wave for energy markets. This time it was the Asian economies that were hit hardest since 25% of gas imports for the region came through the Strait of Hormuz. Any cease-fire agreement between the United States and Iran will also have only a moderate impact on energy prices and strategies. It will likely take years for energy exporters like Qatar to restore production in liquefied natural gas (LNG) facilities hit by Iranian drone attacks and the risk of renewed attacks will be ever looming. Iran itself may resume exports to China, but US-Iran negotiations are not going to produce satisfactory solutions to Iran’s nuclear program or stop Iran from using income from restored energy exports to reconstitute ballistic missile and drone programs.
The United States or Israel could find it necessary to attack Iran again at any time and Iran will have the ability to close the Strait of Hormuz despite the damage to Iran’s missile, drone, mine and naval capabilities. Even if the US airstrikes destroyed the majority of Iranian mines, for example, there would still be dozens if not hundreds that would deter shipping companies from transiting the Strait. Meanwhile peripheral conflicts could flare up between Israel and Hezbollah or Hamas, quickly escalating to general conflict between Israel and Iran.
In the immediate wake of the Iran war, Asian economies are resorting to unusual suppliers as they are forced to shift away from the Middle East. The Australian prime minister travelled to Singapore to ask for fuel and Gulf of Mexico producers from the United States are shipping for the first time to Australia and Japan. But these are temporary fixes. Something more enduring is necessary.
An energy security alliance... could send a strong signal to markets and governments; accelerate mutual financing, approvals, and development of gas and oil reserves; and organise naval and military strategies to ensure secure sea lanes for supply.
Korea is friends or allies with the right mix of countries to build a new consortium. This would be like a “reverse OPEC.” OPEC is a cartel that keeps production down to increase prices for its companies. A reverse OPEC in the Indo-Pacific would be a consortium that would increase production to lower prices and guarantee more stable long-term supply. The right players are in place.
Australia has the largest proven reserves of gas in the world after Qatar and Russia, but the latter are now associated with significant geopolitical risk. However, Australia has been complacent about energy for a decade. Ten years ago a third of all global capital for energy went to Australia but today only 8% does. This declining investor excitement about Australia reflects long approval times, unpredictable state and commonwealth policies on emissions and reserves, and the political power of the anti-fossil fuel lobby in Australian politics. But Australian companies, politicians and officials are now realising, with the Iran war and Australia’s own energy shortages that the complacency has to end.
Canada was also complacent under the Justin Trudeau government with the “ease of doing business” index by the World Bank dropping Canada from 7th to 23rd place over the past decade. But Prime Minister Mark Carney, who once championed climate over expanded energy production, has reversed course. Canada was shipping 95% of its gas through pipelines to the United States. US President Donald Trump’s fight with Canada has increased enthusiasm for exporting to Asia and last year Canada began its own liquefaction and export to the region. Carney has promised to add 50 million tons of production by 2030 and 100 million by 2050.
Meanwhile, the United States has emerged as the world’s energy superpower. US producers surpassed Australia on LNG last year and the United States has replaced Russia as the main supplier of gas to Europe. Most of that gas comes from the Gulf and the United States has no export terminals on the West Coast, but now Alaskan gas from the North Slope has enthusiastic backing from all the major US corporations and the Trump administration. Early exports from Alaska to Asia have already begun with the potential for producing 3.5 billion cubic tons a day. Donald Trump in characteristic form has established a National Energy Dominance Council which is pushing for approvals of new wells from years to weeks.
Japan is energy poor but is a major hub of energy shipments and has established a $10 billion line of credit under its Partnership on Wide Energy and Resources Resilience Asia, or POWERR, to support supply chain providers to Japanese industry hit by the energy crisis. Japan’s financial giants like the Japan Bank for International Cooperation and firms like Inpex and Jogmec are looking for investment opportunities to strengthen energy security.
An energy security alliance centred on these countries and Korea could send a strong signal to markets and governments; accelerate mutual financing, approvals, and development of gas and oil reserves; and organise naval and military strategies to ensure secure sea lanes for supply. Renewables would have to be part of the mix, but the main objective would be to reduce dependence on the Middle East for gas and oil, strengthen strategic cooperation among like-minded partners in Asia, and lower prices for the advanced economies in the region. Rather than deciding how energy shocks will impact foreign policy, it is time to think about how to make energy a tool in the national security tool kits of all our countries.