​Orderly exit: On India and energy transition issues

World power shocks usually are not new. The world has seen them earlier than — within the early Seventies after the Yom Kippur Warfare; in 1979 following the Iranian Revolution; in 1990-91 after Iraq’s invasion of Kuwait, and in 2022 after Russia’s invasion of Ukraine. But, the current disaster triggered by American-Israeli strikes on Iran is materially totally different. Whereas Russia’s conflict with Ukraine sharpened the geopolitical use of pure fuel, the present battle has concurrently disrupted oil and fuel flows. This disruption comes at a second of profound transition within the world power system. The Worldwide Vitality Company has underlined that transport electrification is firmly underway, with electrical autos displacing about 0.9 million barrels per day (mb/d) of oil demand in 2023, rising over 30% to about 1.3 mb/d in 2024. This nonetheless quantities to barely 1%-1.3% of worldwide oil demand, nevertheless it alerts a structural shift. A provide shock of roughly 8 mb/d may speed up the transition away from fossil fuels.

The power transition may additionally unsettle the greenback’s long-standing dominance in world power commerce. The “petrodollar” system, solid within the aftermath of the Seventies oil shocks by way of U.S.-Gulf strategic alignment, ensured that oil was priced in {dollars} and that surplus revenues have been recycled into U.S. monetary markets. This underpinned each the financialisation of oil and America’s capability to maintain giant fiscal deficits. The rising paradigm is extra fragmented, with power shifting from a globally traded commodity to geographically dispersed provide chains centred on vital minerals. Lithium reserves are concentrated in Chile (30%), Argentina (13%) and Australia (20%+). The Democratic Republic of Congo accounts for over 70% of worldwide cobalt manufacturing, whereas Indonesia dominates the nickel market. Copper, essential for electrification, is likewise concentrated in Chile and Peru. Canada is rising as a key provider of nickel, cobalt, and lithium, whereas Australia leads lithium manufacturing for western provide chains. But, the decisive benefit lies in processing and manufacturing, the place China is dominant. This raises the chance {that a} future power system might be as depending on Chinese language industrial capability — and doubtlessly the yuan — because the outdated system was on dollar-denominated oil. For nations comparable to India, this presents a dilemma. The transition affords a possibility to cut back fossil gas dependence, but additionally dangers creating new technological and provide chain dependencies. Navigating this panorama would require a acutely aware technique rooted within the World South’s legacy of non-alignment — securing assets, constructing home technological capabilities in manufacturing and processing, and avoiding a brand new type of dependence that merely shifts outdated hierarchies.