The political weight of Big Oil decreases as governments adopt green energy

The sinking of hands between then-British Prime Minister Tony Blair and Muammer Gaddafi in the desert in 2007 was not just the moment when the Libyan leader consolidated ties with an old enemy. It was also a cruel symbol of the role that the “Big Oil” played in foreign policy.

BP sealed a major exploration deal on the same trip, which limited its efforts to push the UK government to re-establish ties with the late North African dictator and open up access to huge hydrocarbon resources to the gates of Europe.

The struggle for fossil fuel resources has for decades influenced geopolitics, from the generation of conflicts and the formation of West-Middle East relations to the current controversy over Russia’s Nordstream 2 gas pipeline in Western Europe.

But now the relationship between Western oil companies and their governments is undergoing a dramatic change as governments pledge to go green and fossil fuels fall into disrepair, a move that picked up pace in April when President of the United States, Joe Biden, summoned climate peak exert pressure on countries to reduce emissions.

“There’s always been the idea that geopolitical power was tied to access to oil,” said Greg Priddy, a former U.S. government energy analyst. “Even as late as the Obama administration was in the United States, there was a sense that major foreign producers were strategically important. But all that is changing. “

The change was made at home last month when the International Energy Agency released a report arguing that if the world reduced greenhouse gas emissions to zero by 2050 – a prerequisite for achieving the Paris climate agreement goal of limiting global warming to 1.5 ° C above pre-industrial levels – the exploration of new oil fields should stop immediately.

Even before the report, oil companies had reduced investment in a risky border exploration, fearing that oil consumption could peak in the next decade.

But in countries where oil executives could have played almost as important a role as ambassadors in managing relations with foreign leaders, their influence is waning. Critics once complained of a “revolving door” between governments and oil groups, with officials occupying positions in the industry after leaving public life. But governments no longer want to be seen supporting fossil fuel companies overseas as they push for a national renewable energy-based agenda, analysts say.

In the United States, the world’s largest oil producer and consumer, the Biden administration has rejoined the Paris agreement, rejected the Keystone XL pipeline and proposed unprecedented investment in net energy. Internationally, the White House has pressured other countries to stop funding coal projects abroad – last month The G7 nations committed themselves do so later this year, in addition to leading the climate summit.

Even if all the problems of energy geopolitics were solved through decarbonization, the energy transition will certainly create new ones.

“With the change of administration in Washington, I think we’ve probably seen the twilight of the U.S. government’s love affair with oil companies,” said Helima Croft, a former CIA analyst who directs product research. at RBC Capital Markets.

“Safeguarding access to resources used to be considered a major issue in Washington, but now it is less so with a focus on energy transition and climate change.”

However, attempting a global transition to renewable energy is a complex calculation, observers warn.

The big oil companies say that while they enjoyed the support, they never trusted their governments to help them secure access to resources and are still welcome in many countries.

But industry figures argue that politicians run the risk of losing global weight by weakening their ties with domestic oil and gas companies and alienating developing countries from fossil fuels. The U.S., for example, would have to use its own vast hydrocarbon resources to support potential allies that might otherwise depend on supplies from countries like Russia, they say.

“There is currently geopolitical competition with China due to economic influence in many parts of the world,” said a former senior U.S. national security adviser who now works for a large U.S. oil company and asked to remain anonymous. . “The United States has advantages with its LNG supplies, but it seems less willing to use them.”

Jason Bordoff, a former special aide to Barack Obama and director of Columbia University’s Center on Global Energy Policy, noted that there was still little stagnation in global oil demand.

“The IEA roadmap was quite surprising in highlighting what needs to change, but it also drew attention to the fact that nothing is changing yet: oil demand continues to rise,” Bordoff said.

The role of natural resources in foreign policy would evolve with the energy transition, he said. Critical minerals for batteries or access to alternative fuels, such as hydrogen, meant that relations between large commodity producers and governments would change rather than disappear.

“Even if all the problems of energy geopolitics were solved by decarbonizing, the energy transition will create new ones,” he said.

In the end, high-level political support cannot protect oil companies from events. Blair may have paved the way for BP, but his investment in Libya has not paid off, with the 2011 civil war and subsequent conflicts that have disrupted his plans. In 2018, the company sold half of its stake in exploration rights to Italian company Eni.

“There was always an interesting relationship between the government and the big oil companies, but I’ve never been entirely sure how the influence went,” said Professor Paul Stevens, a distinguished Chatham House Fellow.

“But with oil at the exit. . . companies are fighting back action and the government cannot do much for them ”.

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