• Climate, Oil, and the Shifting Strategic Landscape

    Posted by: David Livingston May 04, 2016

    On April 22, representatives from 175 countries signed the Paris climate change agreement at a high-profile ceremony in New York, setting a record for the largest number of countries to sign an international treaty in one day. The signatures are largely symbolic. For the historic pact to enter into force, at least 55 countries representing 55% of global greenhouse gas emissions must formally join. However, at least 35 countries representing around 49% of emissions have already committed to ratification.

    The EU, if it can get its house in order and ratify the accord, can and should tip the scales to make the agreement a reality. Of course, the deal’s impact will lie not in its words, but in the actions that follow. And perhaps no actions will have more tangible and strategic benefits—particularly to Europe—than those that reduce the world’s oil demand.

    As countries move to fulfill the commitments they made at the Paris climate summit last year, a new raft of measures are poised to emerge—from carbon pricing to efficiency standards to support for electric vehicles and other alternatives—that will collectively deliver a global oil demand trajectory far below that envisioned by many forecasts. Sure, this is beneficial to EU climate priorities. But more notable are the ways in which these efforts will help to usher in a long-term “new normal” of low oil prices, bringing with it a number of strategic opportunities and challenges for the EU and its allies.

    A recent Carnegie event in Brussels examined a new study from Cambridge Econometrics and partners, Oil Market Futures, which estimates that as the world implements the Paris accord, cumulative oil demand between 2015 and 2050 may be 260 billion barrels less than a world on a “business as usual trajectory,” leading to prices that are 24 percent lower in 2040 and 33 percent lower in 2050. This points to a future in which demand is as important in determining oil prices as supply, key to keep in mind amid the OPEC-obsessed chatter of today.

    Oil demand reductions will bring significant benefits to the EU, whose imports of foreign oil are set to increase as production in the North Sea continues its decline. By 2030, the reduction in the volume of EU oil imports would lower the EU’s annual oil bill by €27 billion from with the lower prices shaving off an additional €12 billion, according to the study. EU employment and GDP would both be expected to receive a boost by the increased consumption on EU goods and services when less is spent on oil.

    This would be welcome news for a continent desperately looking for new engines of growth, particularly as the prospects of the TTIP agreement continue to look shaky. Yet EU diplomats and mandarins would be well-advised to put greater thought the knock-on effects of this low oil price world.

    Energy security and foreign policy strategies of the last decade were built upon the assumption of ever-increasing oil demand and ever-rising prices. While these foundations have already shown cracks, there has not yet been a comprehensive rethink of what Europe’s proactive, externally oriented stance should be in a world of low oil prices and an increasingly complex web of oil alternatives. The Energy Union project still suffers from an underdevelopment of its external dimensions, and even then the implications of oil prices and volatility receive short shrift.

    There are more complex developments to unpack here.

    For example, the recent crash in oil prices has provided the world a glimpse of what to expect in a lower oil price world, raising questions over whether such low prices undermine global stability, offer windows of opportunity for meaningful reform, or something in between.

    The persistence of low(er) oil prices over coming decades will also likely reshape the composition, behavior, and political implications of the industry itself. There is no single Rosetta Stone for divining how this will play out. Saudi Arabia is leading a plan to partially privatize the nation’s state-owned oil major and end “an addiction to oil,” just as Russia may be forced to consider renationalizing its petroleum assets. And what will come of shale oil in North America, the boom of which has led to a new, more hands-off U.S. approach to the Middle East? Will Washington get sucked back into the region if U.S. oil production declines, with the budgets and stability of certain producers in the region coming under pressure?

    This also means that Iran’s return to the market comes at a consequential moment in the oil market’s history, representing yet another producer who will likely look at future oil demand destruction and continue to produce today as if there’s no tomorrow. Consensus within OPEC will be yet harder to come by. This will have to inform the efforts of Europe’s oil companies as they seek entrée into Iran, but the Paris agreement and its reverberations on energy markets should also encourage the EU to seek a foothold for the continent’s renewables sector in Tehran’s future plans. Given Iran’s significant solar potential and China’s keen interest in capitalizing upon it, this may be as strong a play for the EU as commercial petro-diplomacy.

    The knock-on effects also include a reshaping of the defense landscape, as petrodollars have reliably been recycled into weapons for years. It took several years for the 1980s oil price crash to translate into reduced defense spending, but the effects were ultimately felt quite acutely. Today, lower prices are already eating into Gulf defense spending, while Russia’s procurement budget has already fallen by 10 percent and is mulling further strategic cuts.

    Addressing climate change in coming decades will put further pressure on oil prices, making a return to previous highs less probable. Prices and volatility will be lower, on average, than a world without climate action. The shifting of the strategic landscape wrought by lower oil prices—in terms of regional stability, petrodollar recycling, and the transfers of wealth that shape power and capabilities—is a consideration not only for energy and climate communities, but for foreign policy and security strategists as well. The impact of the Paris agreement may not be felt immediately, but it will be felt. A tactical orientation would ignore this; a strategic one should pay it heed.


  • A World in Which Only Three Things Matter?

    Posted by: Jan Techau Tuesday, May 03, 2016 1

    The pace and complexity of international politics has become truly dizzying. Is it possible to boil the world’s priorities down to just three big issues?

  • Toward a European Defense Union

    Posted by: Roderich Kiesewetter Friday, April 29, 2016 4

    The creation of a common European army is a long way off, but it is a strategic necessity to start paving the way toward it now.

  • The Looming EU-Turkey Visa Drama

    Posted by: Marc Pierini Thursday, April 28, 2016 4

    A major deal between the EU and Turkey on refugee exchanges and visa liberalization is in imminent danger of coming apart at the seams.

  • That Enduring German-Russian Complex

    Posted by: Judy Dempsey Thursday, April 28, 2016 2

    Two important surveys show that half of Germans no longer believe Russia belongs to Europe and that almost a majority sees Russia as a threat.

  • Judy Asks: Will TTIP Happen?

    Posted by: Judy Dempsey Wednesday, April 27, 2016 5

    A selection of experts answer a new question from Judy Dempsey on the foreign and security policy challenges shaping Europe’s role in the world.

  • Honoring Turkey’s Voice of the Voiceless

    Posted by: Thomas de Waal Tuesday, April 26, 2016 3

    A new English-language biography offers a fresh insight into the inspiring life of the assassinated Armenian-Turkish editor and civil rights leader Hrant Dink.

  • Obama’s Push for a New Transatlantic Relationship

    Posted by: Judy Dempsey Monday, April 25, 2016 1

    A wide-ranging trade deal between the United States and Europe is needed to revive, if not rescue, the West’s liberal order.

  • A Northern Perspective on Europe’s Security Challenges

    Posted by: Børge Brende Friday, April 22, 2016

    Unity and cooperation based on common norms are Europe’s most important assets when it comes to reducing vulnerabilities and enhancing resilience to security threats.

  • Time for an EU Counterterrorism Agency

    Posted by: Judy Dempsey Thursday, April 21, 2016 4

    Recent terrorist attacks in Belgium and France should finally push EU states to establish a counterterrorism agency with real clout and real cooperation from all EU governments.

  • Judy Asks: Will the Eurozone Crisis Come Back?

    Posted by: Judy Dempsey Wednesday, April 20, 2016 1

    A selection of experts answer a new question from Judy Dempsey on the foreign and security policy challenges shaping Europe’s role in the world.

  • The Fundamental Flaws of Brexit Backers

    Posted by: Jan Techau Tuesday, April 19, 2016 5

    Campaigners who want Britain to leave the European Union misunderstand the basic mechanics of globalization.

  • Georgia—Waiting for NATO, Waiting for the EU

    Posted by: Judy Dempsey Monday, April 18, 2016 3

    Georgia’s defense minister spoke candidly about her expectations for the July 2016 NATO summit and about the security vacuum in Eastern Europe.

  • The Refugee Policy the EU Needs Today

    Posted by: Gerald Knaus Friday, April 15, 2016 2

    The current priorities in EU asylum policy are all about implementing the March 2016 refugee deal with Turkey in good faith.

  • Erdoğan Brings His Media Policies to Germany

    Posted by: Judy Dempsey Thursday, April 14, 2016 3

    The EU’s refugee agreement with Turkey that Angela Merkel helped secure is becoming embroiled in a struggle between Berlin and Ankara over media freedom in Germany.

  • Judy Asks: Is It Possible to Reform France?

    Posted by: Judy Dempsey Wednesday, April 13, 2016 2

    A selection of experts answer a new question from Judy Dempsey on the foreign and security policy challenges shaping Europe’s role in the world.

  • How to Fill Ukraine’s Security Vacuum

    Posted by: Andreas Umland Tuesday, April 12, 2016 5

    The most feasible way to solve Ukraine’s mounting security challenge is to establish an alliance of nations stretching from the Baltic Sea to the Black Sea.

  • Ukraine From Revolution of Dignity to Government of Shame

    Posted by: Mikhail Minakov Monday, April 11, 2016

    The resignation of Ukraine’s prime minister will make constitutional reform in the country impossible and will delay reforms in many other areas.

  • Trump, NATO, and Europe’s Security

    Posted by: Judy Dempsey Monday, April 11, 2016 3

    Donald Trump’s criticism of Europeans’ unwillingness to invest in NATO is misplaced. What he should have questioned is Europe’s reluctance to take its own security seriously.

  • Western Leaders’ Discomfort With Turkey—and Vice Versa

    Posted by: Marc Pierini Friday, April 08, 2016 4 Русский

    Long gone are the days when Turkey was seen as the model Muslim country on its way to democracy.


About Strategic Europe

Judy Dempsey’s Strategic Europe offers insightful analysis, fresh commentary, and concrete policy recommendations from some of Europe’s keenest international affairs observers.

Subscribe Today

Sign up to receive Judy Dempsey's Strategic Europe updates in your inbox! Fields marked with an asterisk (*) are required.

Sign up to receive Strategic Europe updates in your inbox!
Carnegie Europe
Carnegie Europe Rue du Congrès, 15 1000 Brussels, Belgium Phone: +32 2 735 56 50 Fax: +32 2736 6222
Please note...

You are leaving the Carnegie–Tsinghua Center for Global Policy's website and entering another Carnegie global site.


您离开卡内基 - 清华全球政策中心网站,进入另一个卡内基全球网站。