On October 6, 1973, a coalition of Arab states, armed with Soviet weapons, suddenly invaded Israel during the Jewish holy day of Yom Kippur. Countries such as the United States and the Netherlands provided military aid to Israel, and Israel won the war. In response, Arab members of the Organization of the Petroleum Exporting Countries, OPEC, banned oil sales to Israel’s backers. In the Netherlands, this has resulted in “Car-Free Sunday”, which allows me and my friends to cycle on the autobahn.
“The oil embargo 40 years ago sparked an energy revolution,” wrote energy icon Daniel Yergin on his 40th anniversary. Oil companies drill in the North Sea, Alaska, Gulf of Mexico and Canadian oil sands for new supplies. Domestic coal and nuclear power regain momentum. The wind and solar industries are booming, and the US sets fuel efficiency standards for new cars.
On February 24, 2062, as we look back 40 years, we will see the origins of another energy revolution sparked by Russia’s brutal invasion of Ukraine. This time, however, the winner may not be “the West” — roughly defined as North America, Europe, Oceania, Japan, South Korea and their allies.
As Europeans wean themselves off Russian fossil fuels and accelerate the transition to carbon-free energy, they may find themselves unexpectedly at the mercy of another regime: China. Russia’s war in Ukraine is strengthening China’s geopolitical power and shifting more control over fossil fuels, base metals, rare earth metals and semiconductors to Beijing. The West may not like this – but can something be done to change the outcome?
‘Energy independence’ is harder than it looks
Europeans have long known that reliance on Russian oil and gas can pose problems. Russian expert Dr Andrew Monaghan said when Russia’s state-owned Gazprom cut gas supplies to Ukraine in January 2006, “…it created a crisis of confidence on the EU side”. He argues that Gazprom’s actions have led some EU countries to plan to “redesign their energy security strategies and express a clear intention to diversify away from Russia”.
Of course, the EU does the opposite, hoping that economic integration with Russia will minimize the possibility of conflict. Fast forward 16 years, and Europe’s dependence on Russian hydrocarbons is dangerous and difficult to break. If the EU bans Russian oil and gas, it will have no choice but to continue using nuclear fission to generate electricity, and possibly coal, while trying to source liquefied natural gas (LNG) from North America and elsewhere. It’s not easy, it can only be done gradually.
In the long run, Europe must balance immediate needs with an energy transition to achieve “energy independence” – a more daunting goal than fanatics imagine. Yes, Europe can and should accelerate the deployment of wind and solar power to power homes and power new energy-demanding industries such as data centers. Hydrogen should also be expanded, although its production is currently partly dependent on Russian natural gas. However, the most important investments for energy independence will be utility-scale energy storage and nuclear fusion, which are expected to be commercialized over the next decade. It can provide cheap, clean, abundant energy anywhere on the planet.
Don’t cheer for now. This energy strategy may be a loss for Russia, but a future built around renewable energy and electrification could have an equally problematic winner: China.
Xi’s new vassal
I am not a mind reader. But if Chinese President Xi Jinping is half of what strategists are portraying, then I believe he’s making a profit by investing for the long term. There is evidence that Putin sought Xi’s support over Russia’s invasion of Ukraine ahead of the Beijing Olympics. Xi Jinping must be trying to control his excitement. The delusions of the Russian dictator will trigger harsh sanctions in the West, forcing Putin to choose between sinking his ship or handing over his captaincy to Xi Jinping.
This may be the cheapest geopolitical victory in history. Putin, eager to go down in history as the 21st czar, has instead intensified Xi’s campaign to make China the world’s superpower. Conveniently, Putin also allowed Xi to simulate the consequences of taking Taiwan back by force.
With his trademark smile, Xi will offer to shield Putin from economic attack from the West, but only on Xi’s terms. Basically, this would make Russia a colony of China and Putin as a vassal of Xi Jinping. As a result, China would gain the right to buy Russian oil and gas at cheap prices, giving its industrial companies a competitive advantage over Western companies that pay a premium. It will guarantee China access to Russia’s minerals and metals, which are essential for a successful energy transition — and in very short supply.
Every serious plan to achieve net-zero carbon emissions by 2050 (or 2060 in China’s case) calls for massive electrification. Electric vehicles (EVs) absolutely need to replace internal combustion engine designs if we are to prevent a rise in excess of 2°C. For example, researchers at Princeton University estimate that 50 million electric vehicles will be needed on U.S. roads to achieve net-zero emissions by 2050 (as of 2020, there are only 1.8 million electric vehicles registered there). Electric car batteries require a lot of metal, and guess where there’s a lot of it? Russia and China.
For lithium-ion batteries alone – not to mention other uses – annual demand for nickel, the main material, is expected to grow more than eightfold by 2030. Demand for lithium will grow by more than 9 times. For the energy transition to 2050, analyst firm Wood Mackenzie estimates that capital spending on base metals must reach $2 trillion over the next 15 years, with supply set to increase fivefold by 2040.
After the Russian invasion of Ukraine, nickel prices surged from $24,716 a tonne on February 24 to over $100,000 on March 8, before trading on the London Metal Exchange was suspended indefinitely. Russia accounts for 5% of global nickel production, but 20% of high-grade nickel (the type used in electric vehicle batteries). Automakers will pass the extra cost on to consumers, meaning fewer people will be able to afford electric vehicles.
At the same time, China produces more than 12% of the world’s lithium production and about 70% of rare earth metals, both of which are essential for electric vehicle batteries and many electronic products. In the Democratic Republic of Congo, Chinese state-owned companies have acquired most of the rights to mine cobalt, another metal needed for electric vehicle batteries and found in only trace amounts elsewhere in the world.
If China actually controls Russia’s resources as well, Xi Jinping will impose supply control on companies engaged in the energy transition. Unless Western countries expand mining in friendly countries – quickly and without increasing emissions and pollution – electrification will depend on China. Europe will only trade Russian pipelines for Chinese supply chains. That’s not “energy independence”. And it’s going to get worse.
cut out soviet blocks
Mass electrification depends not only on batteries containing metals, but also on semiconductors. COVID-19 has revealed the fragility of the world’s chip supply chain, as shortages force automakers to delay or halt production. Russia’s invasion of Ukraine and China’s threat to Taiwan, which it claims is its territory, have exacerbated the crisis. If China were to control Russia and Taiwan, it would own the world’s chip industry and thus control many global industries.
How will this play out? TSMC is the world’s largest foundry chip maker with a 54% market share. United Microelectronics (UMC), also based in Taiwan, came in third with a 7% market share, while mainland Chinese companies accounted for 7%. If China takes Taiwan by force, if it means losing 68% of the world’s chip supply, can the West sanction China as it did Russia?
Semiconductors may even pose a greater strategic risk than Russia’s metals, oil and gas. Further shortages of chips stacked on top of metal scarcity will push up EV prices (and car prices in general). Unless Western countries accelerate domestic mining and build their own chip factories, they risk losing their traditional leadership in the auto industry and other industries.
This problem is not limited to chips for automotive applications. China would love Russia-controlled Ukraine, which supplies half of the world’s neon gas (interestingly, from Russia’s steel production) and 40% of its krypton gas, both of which are essential in semiconductor manufacturing. Suppliers are running out and raising prices dramatically.
As President Joe Biden made clear in his State of the Union address, the West has known that it must ramp up domestic chip production. There is now even more reason to adopt new semiconductors, such as gallium nitride power transistors that do not require these gases from Ukraine and greatly improve energy efficiency.
true nightmare scene
If China can get cheap access to Russia’s hydrocarbons and metals, achieve chip dominance and continue to gain a foothold in Africa and other mining hubs, the West will be extremely vulnerable. The real nightmare scenario, however, is if China does it all and wins the race for business integration.
While quite a few Western companies claim to have the first commercial fusion plants built in the 2030s, China is investing heavily in fusion and making real progress. By contrast, China’s victory in the fusion race would make the Soviet Union’s 1957 victory with the first artificial Earth satellite, Sputnik, a little odd.
The West best wins this game. Encouragingly, on March 17, the White House convened a summit “to develop a bold ten-year vision for commercial fusion energy.” This is the first time the U.S. government has so publicly supported nuclear fusion, saying it “has the potential to serve as a reliable source of safe, abundant, zero-carbon electricity.”
It’s hard to imagine the White House’s commitment to “accelerating integration” without Russia’s invasion of Ukraine. Perhaps there are no stronger signs that an energy revolution is brewing.
The way out of nightmare scenarios
To avoid a nightmare scenario in which China effectively controls global energy technology, the West needs to pull together. A clever combination of foreign and economic policies can prevent this outcome.
First, the West needs to find a balance between supporting Putin’s opposition and providing the Kremlin with disinformation about Western infiltration and the Fifth Columnist. The West must extend an olive branch to the Russian people – whether they are young educated or rich and powerful – and separate their hopes and aspirations from Putin’s.
Perhaps Ukrainian President Volodymyr Zelensky and Russia’s Nelson Mandela’s Alexei Navalny can lead a historic reconciliation and represent a better future than Chinese colonial rule. Ordinary Russians deserve it. Crazier things have happened in history.
Second, the new geopolitics of energy, metals and chips requires Western countries and their allies to develop local sources of supply and accelerate the commercialization of fusion energy. No country or company can do this alone. No, we cannot wait for the “orderly energy transition” favored by fossil fuel companies. Geopolitics has fundamentally changed.
On February 24, 2062, let’s hope we look back 40 years and see the emergence of an energy revolution that offers opportunity and justice to all, including the Russian public. Power, be it politics or energy, ultimately belongs to the people. Putin and Xi Jinping better remember this.