Geofinance of Energy

To comprehend emerging national energy strategies, traditional foreign policy lenses, which highlight the central role of political and military affairs, will not longer suffice. Yet, it still remains true that hostile acts to close the Straits of Hormuz or Malacca would constitute a threat to consumer as well as producer countries. Geofinance of Energy looks at the relationship between energy and finance within the global energy transition and the geopolitical implications thereof. In a world of energy abundance, the long-term strategic importance of oil as a commodity is in relative decline, whereas finance as a strategic aspect of energy becomes more important. Based on seven case studies, the Geofinance of Energy project investigates the role and impact of the energy transition on the relationship between energy and finance in different geopolitical contexts. The changing energy mix, with an increasing share of renewables, together with the financialization of green and brown energy into an integrated energy market, introduces new vulnerabilities that policy experts and strategists have not been required to anticipate in the past. Todays policymakers, energy firms, as well as investors need a baseline of familiarity with the role of finance in the changing energy mix as one of the emerging key features of the world economy.

The Geofinance of Energy Project sheds light on a paradox. As the world moves towards the green energy transition, the geopolitical significance of oil-exporting economies in the Persian Gulf may increase, with investments in renewable energy being highly profitable for the oil sector of Gulf states. The Geofinance of Energy Project case studies show that the motivations for renewable energy sources vary among the Gulf Cooperation Council (GCC) member states. For instance, smaller Gulf economies like the United Arab Emirates and Kuwait prioritize renewable energy to enhance their energy security. In contrast, Saudi Arabia invests in renewable energy to maximize its oil export revenues and maintain oil production capacities. A significant portion of the oil produced in Saudi Arabia is used for domestic power generation (e.g., water desalination and air conditioning). Replacing these oil-based power plants with renewable energy sources would lead to excess oil for export and generate additional income for the country. Furthermore, it is worth noting that the energy transition is increasingly linked with security considerations. The scholarly consensus assumes that renewable energy systems empower local communities and individuals, thus incentivizing grassroots participation and democracy. Due to their decentralized nature, wind and solar installations could reduce inequality and increase prosperity, as the economic benefits are more widely distributed compared to centralized fossil energy systems that primarily benefit corporations and governments. This assumption focuses on a changed political economy of power distribution within a country and the evolving goals of actors who might be prone to conflict. However, the Geofinance of Energy Project raises doubts about the direct impact of renewable energy on peace and emphasizes the importance of context-specific factors. A wealth of data on local and global conflicts and global financing of renewable energy systems allows for a temporal analysis over the last 30 years and provides initial insights into the relationship between peace and renewable energy. The context in which decentralized renewable energy systems are implemented matters. In separatist regions, such systems could create a new source of revenue and power that might be used to finance or support armed conflicts. In established and stable democracies, however, adopting renewable energy could help reduce tensions and promote peace. As a result, renewable energy could play a role in conflict mitigation. Surprisingly, so-called "green megaprojects," particularly capital-intensive projects with concentrated ownership, seem to increase stability and reduce violence. Cross-border infrastructure investments through foreign direct investments could lead to greater financial interdependence between states, making it more difficult for states to harm other economies without suffering consequences.