Energy security is an issue of strategic importance. It deals with the connection between the economic activity that occurs in energy markets and the policy response of nations. It embodies four distinct yet interrelated aspects: (I) oil and gas import dependence, (ii) energy infrastructure vulnerability, (iii) climate change and (iv) the future of nuclear power. Evidently, these aspects cross-cut the traditional distinction between domestic and foreign policy. It therefore stands to reason that all of them will require a heightened degree of international cooperation–even if policy action takes place in the domestic sphere. What is more, enlightened common action now can substantially lower the cost of adapting to our energy future. Unfortunately, most of the Western countries have made little progress in adopting measures regarded as necessary to address these four energy security challenges effectively.

The New Energy Questions

In this essay, I shall focus on the first two of these issues, as these tend to reinforce the strategic resonance of energy questions. One simply needs to consider the major leverage energy resources provide when market demand exceeds supply. The trend in world oil supply and demand under business-as-usual assumptions is clear. The US Department of Energy in its 2006 International Energy Outlook projects an increase in global oil consumption from 80 million barrels of oil per day in 2003 to 118 million in 2030. Non-OECD Asia, including China and India, will account for 43 per cent of this increase–its share of world consumption rising from 18 to 28 per cent. The effects this evolution will have on prices are uncertain, but the sharp increase in oil prices during 2006–the first to be demand-driven–seems to serve as a pointer for the future.

The Oil Market

On the supply side, importing nations will for the foreseeable future remain dependent on oil coming from politically unstable parts of the world–i.e. the Persian Gulf–and from suppliers that may actively oppose the interests and policies of NATO countries, e.g. Iran, Venezuela or Sudan. This dependence has acquired stronger political connotations as there has been a major shift in oil reserves and production from international oil companies to national oil corporations. In the early 1970s the former controlled about 80 per cent of reserves and production while the latter controlled the remaining 20 per cent. Today that proportion is about reversed. 75 per cent of oil reserves are in areas currently closed to international investment! This implies a movement away from transparent markets governed by commercial considerations to state-to-state agreements involving political concessions and non-market considerations. The Chinese arrangements with Sudan and Angola are a case in point. It also triggers fears about a possible ‘lock-up’ of supply. Apart from the security of supply, there exists concern over the use to which oil wealth is put. Petrodollars can be used to finance terrorist groups or WMD production, as was the case with Libya and Iraq in the 1980s.