If artificial intelligence is the transformational force of the 21st century, energy is the foundation. Access to energy will play a key role in how quickly AI technology develops and where data centers and capital investment concentrate, at the same time as it continues to shape international alliances and drive the trajectory of the global economy.
Nothing demonstrates energy’s critical role more starkly than the fallout from U.S. and Israeli strikes on Iran, and Iran’s subsequent attacks on Gulf states. The closure of the Strait of Hormuz (the primary maritime transit route for around 20% of global oil supplies), alongside the damage to oil and gas infrastructure in the region, sent shockwaves around the world.
The disruption pushed the benchmark Brent crude price up by more than 40% overnight, driving an instant inflationary spike into markets already grappling with the long-tail effects of war in Ukraine and higher trade tariffs. Countries across Asia—which collectively buy almost 90% of the resources transported through the Strait—were left scrambling to source alternative reserves.
In response, the U.S. government rolled back some of its sanctions to enable countries to buy Russian oil stranded at sea, further straining relations with Europe that were already stretched thin by ongoing tensions over defense spending and the future of Greenland. Meanwhile, the International Energy Agency (IEA) coordinated the release of more than 400 million barrels from global strategic stockpiles in a bid to make up some of the shortfall.
The sensitivity of financial markets and global supply chains to shifts in the energy landscape highlights why energy security is such a powerful driver of public policy. Events in the Middle East have shown how instability in one region can have an immediate impact on stock valuations, gilt yields, supply chains, consumer prices, and the availability of residential mortgage deals thousands of miles away.
Secure energy supplies bring greater strategic autonomy in a changing world; nations and blocs that can exert greater autonomy over their energy supplies will be better placed to shape the future on their own terms.
But for countries without their own fossil fuel reserves (three-quarters of the world’s population live in fossil-fuel importing countries), sufficient renewable or nuclear infrastructure and associated critical mineral supplies, uncoupling from the system that has powered society for centuries is a fiendishly complex task. Even Iceland, whose electricity and heating networks are fueled entirely by geothermal energy and hydropower, imports significant quantities of oil for its transport and fishing sectors.
The businesses whose strategies account for the interconnections between energy markets and geopolitics, the availability of critical minerals, and the direction of sustainability regulations can become more resilient to market volatility, while those that can take advantage of energy-related policies will be positioned to thrive.
Energy security and strategic autonomy
The focus on energy security is evident across the world, both at government and private sector level.
Japan’s Seventh Basic Energy Plan, approved in February 2025, elevates energy security as a central theme, as does China’s Energy Law, which came into force in 2025. In Europe, the Ukraine war has pushed defense to the top of the political agenda, with energy security a key priority of the EU’s multifaceted policy response.
In pursuit of greater energy independence, Japan is focusing on renewables, reviving its nuclear program and exploring ammonia/hydrogen co firing in its high-carbon power plants. China wants to improve the environmental impact and efficiency of its fossil fuel facilities while accelerating the deployment of low-carbon infrastructure. Europe is bidding to phase out Russian gas imports by 2028 through diversifying its supply chain (an objective made more difficult by the continuing instability in the Middle East) and investing in wind, solar, batteries, and nuclear.
Nuclear energy is emerging as a common thread across national strategies, not least given its role in delivering net zero as a partner to renewable generation. Governments are extending the lives of existing plants, and new-build programs are accelerating in markets from the UK to South Korea. The number of facilities being planned globally would roughly double current capacity, and growth projections from the International Atomic Energy Agency (IAEA) position nuclear power as a key factor in the energy transition.
Alongside the development of large-scale nuclear facilities that can power millions of homes, there is also significant interest in small modular reactors (SMRs). The tech sector is starting to invest in SMRs to power future data centers, although it remains to be seen whether sufficient scale in unit production can be achieved to make SMRs more economically viable.
China leads the world in nuclear construction, with an extraordinary build out of new domestic capacity and rapid construction schedules. It has already exported reactor technology to Pakistan and signed contracts and cooperation agreements with several countries, though the scale of its overseas program remains modest compared with Russia’s. With the Hualong One now the world’s most widely deployed single reactor design (which is certified for use in European markets), Chinese nuclear exports are likely to accelerate.
Nuclear energy is also in focus in the U.S., alongside a significant policy push to increase America’s fossil fuel output. A series of executive orders seek to increase domestic energy production “with particular attention to oil, natural gas, coal, hydropower, biofuels … and nuclear energy”, and boost investment in, and the use of, coal. In parallel, the One Big Beautiful Bill Act introduced major changes to federal decarbonization initiatives and extended new tax incentives to fossil fuel producers.
At the same time, the push for gas has led to a global shortage of turbines and America’s growing energy needs must be met from somewhere. As a result, for many industries (tech in particular), the quickest, cheapest, and most realistic solution is often wind and solar. Consistent with what we see globally, economics and supply chain dynamics continue to drive the growth of renewable energy in the U.S., despite the shift in policy direction by the federal government.
Barriers to grid infrastructure buildout
Energy sovereignty is not just a question of spending on electricity generation capacity. Developing the infrastructure that delivers power to where it is needed is another critical piece of the puzzle. Interconnection backlogs, coupled with supply bottlenecks in cable and transformer production, are now so severe that they have become a constraint on economic growth across the world.
Massive investment in upgrading and expanding grid infrastructure is required to connect new and more distributed energy sources to transmission networks (large-scale wind farms, solar plants and hydroelectric power stations are often in remote areas), and address intermittency issues by tying local or regional grids together. And the barrier is not solely one of investment; in many countries, the process of connecting new infrastructure to the grid is mired in bureaucracy.
As a result, grid reform has become a defining theme in energy policy. Without faster connections, more efficient queue management and the accelerated buildout of transmission infrastructure, new sources of generation cannot translate into affordable power for consumers or industry, and much needed private capital investment will be deterred.
In the EU, the European Commission’s Grids Package is expected to address such concerns by making grid connection queues transparent (i.e., requiring grid operators to publish information on who is in the queue and how long it takes to connect, among other things, in a bid to reduce delays and improve fairness) while accelerating permits for grid upgrades.
For its part, the UK is implementing a “first-ready-first-connected” policy and aims to build double the amount of transmission infrastructure between now and 2030 than has come online over the past decade, in part by streamlining planning and consents.
“Behind-the-meter” power generation and storage are other potential solutions. Here, businesses or individuals/groups of households use solar photovoltaics, home or commercial batteries, small wind turbines, and backup generators to service their own needs. In Pakistan, the growth of rooftop solar (accelerated by the high price of conventional electricity) has been so rapid that more than half of electricity needs in some cities are now met by behind-the-meter infrastructure.
Electrification, AI, and economic development increase demand for electricity
Sovereignty-driven policy shifts are taking place in a world where demand for power is shifting in line with the electrification of transportation, residential heating, and manufacturing; the advance of AI; and economic development and rising living standards in markets such as India and China.
According to the IEA, the data centers that underpin AI systems consumed approximately 1.5% of the world’s electricity in 2024. Estimates suggest that in many countries, AI adoption will drive most of the growth in electricity consumption between now and 2030. The energy demands of building and operating large language models are huge. According to MIT Technology Review, training OpenAI’s GPT-4 reportedly used enough electricity to power San Francisco for three days.
But servicing technology’s thirst for power is just one piece of the energy puzzle. The world faces a deeper challenge in that hundreds of millions of people in developing nations still lack even the most basic access to electricity. Furthering economic development in these regions—particularly Sub-Saharan Africa—will create substantial new demand for energy.
What does all this mean for the energy transition?
While the proportion of global energy supplies that come from low-carbon sources such as nuclear and renewables is growing, the world is also burning more fossil fuels than ever before. Research from Goldman Sachs suggests global oil consumption will continue to rise for at least another decade.
With that said, new liquefied natural gas (LNG) capacity coming online before 2030 may aid decarbonization efforts to the extent that it displaces more carbon-intensive energy sources and provides flexible backup for intermittent renewables. Its potential as a “bridge fuel” will be measured by how swiftly the transition away from gas is achieved and whether lower-carbon alternatives are crowded out.
The growing importance of gas in the global energy mix is being reflected in the capital markets, where project finance for LNG terminals and gas-fired generation is readily available.
However, its future trajectory will be heavily influenced by events in the Middle East. Prior to the escalation of the conflict an LNG glut was widely expected for 2026, driven by a wave of new capacity from the U.S., Canada, and Qatar. With the strike on Qatar’s Ras Laffan complex and the closure of the Strait of Hormuz, the expected surplus has given way to a supply squeeze, with gas prices surging to multi-year highs. While new capacity from U.S. terminals may ease pressure later in the year, the conflict has exposed the structural fragility and concentration risk of global LNG supply chains, with significant implications for energy markets, industrial competitiveness and the pace of the energy transition.
Despite oil consumption forecasts, it is worth noting that around two-thirds of the fossil fuels that enter the energy supply chain are lost during the conversion to power, meaning that more efficient nuclear, renewables, and battery systems would not need to wholly replace current fossil fuel consumption.
At the same time, the structural barriers to decarbonization are formidable. Many of the fundamental pillars of modern economies—from cement to steel, plastics and ammonia, a core ingredient of nitrogen-based fertilizers—at present depend on fossil fuels.
As COP30 reinforced, much greater public and private sector action on climate mitigation and adaptation is required to achieve the goals of the Paris Agreement. The accord was designed to keep average global temperature rises “well below” 2°C above pre-industrial levels by the end of the century, and to “pursue efforts” to achieve a safer maximum of 1.5°C.
Climate data shows that in 2024, the hottest year on record, that 1.5°C threshold was breached. At current emissions volumes, the remaining “carbon budget” (i.e., the maximum cumulative amount of carbon dioxide that can be emitted into the atmosphere in order to limit global temperature increases to 1.5°C) could be exhausted by 2029.
If the world is to transition away from fossil fuels, a range of sustained and enhanced measures are needed from all stakeholders.
But today, decades of global consensus on decarbonization are giving way to growing divisions as the economic realities of a more volatile world, and political pushback against climate action in some jurisdictions, gathers momentum. As views diverge between and within stakeholder groups—politicians, investors, regulators, staff, consumers—global businesses face a web of conflicting policy measures, sustainability mandates, enforcement postures, litigation risks and political scrutiny across the world. In the energy trilemma of security, cost, and sustainability, sustainability is increasingly the poor relation.
U.S. government rejects focus on sustainability
The U.S. federal government has again withdrawn America from the Paris Agreement and, as we have described above, is pursuing a range of policy measures in a bid to increase fossil fuel production. It has also taken aim at “burdensome and ideologically motivated ‘climate change’ or energy policies” at state level and repealed the “endangerment finding”, which underpins federal emissions limits on cars, trucks, and power plants, among other things.
Trade tariffs are also having an impact on clean energy supply chains. U.S. duties on Chinese solar panels, batteries, and electric vehicles—and China’s retaliatory export controls—are raising input costs in the U.S., disrupting procurement, and forcing manufacturers to restructure their supply networks at speed.
Against this backdrop U.S. gas output is increasing, although instability in the Middle East, rather than political developments in Washington, is the critical factor. As highlighted above, the primacy of economics over policy is similarly evident in the fact that the build out of U.S. renewable infrastructure is also accelerating in spite of moves to tilt America’s energy mix back towards fossil fuels.
While America’s changing federal energy policy is not translating into a major shift in infrastructure development, it is creating complexity for global businesses—particularly given the fact that state administrations are pursuing opposing sustainability-related policy agendas.
This fragmentation is feeding through into divergent climate-related litigation. Here a range of approaches are being deployed by public and private stakeholders, from lawsuits that cast climate collaboration as a violation of America’s antitrust laws to pro-sustainability suits featuring novel liability arguments that seek to link oil and gas companies to personal losses, including the first climate-related wrongful death case.
Europe maintains its green ambitions despite headwinds
The European Union, for decades a leader on environmental issues, remains committed to decarbonization, seeing both the economic justification and the energy security benefits of a long-term focus on low-carbon energy.
However, the picture at member state level is fragmented. This is particularly so in relation to offshore wind, where countries including Denmark, the Netherlands and the UK have experienced low or no bids in auction processes due to cost inflation, supply chain constraints, and auction design. Together with reforms to state aid under the EU Electricity Market Regulation (where from 2027, new renewable energy generation which receives state-backed price support will need to use “two-way” contracts for difference (CfDs) or equivalent schemes with clawback features), changes are also being considered in several member states. Denmark, Germany, and the Netherlands, for example, have all announced a shift to CfDs for future offshore wind auctions.
Germany’s Energiewende—designed to deliver a climate neutral economy by 2045—faces significant structural challenges including high energy costs (compounded by the phase-out of its nuclear facilities), intermittency in renewable generation, slow grid expansion, and insufficient energy storage and dispatchable backup capacity. The loss of cheap Russian gas after the invasion of Ukraine triggered a severe electricity price spike in 2022, which while since moderated has put lasting pressure on industry. It has also exposed gaps in Germany’s transition framework, including the lack of gas-fired power plants needed to enable the timely phase-out of coal. In response, the German government is looking to implement a new reform package that aims for climate neutrality without undermining industrial competitiveness.
Spain has achieved rapid renewable capacity expansion, although the 2025 Iberian blackout exposed grid stability challenges that come with high renewable penetration. France has reinforced its nuclear-based low-carbon pathway with plans for new reactors and extended lifetimes for its existing fleet while adjusting its renewables targets downwards. Sweden’s electricity system is largely based on hydro, wind and nuclear power, but recent policy shifts (including restrictions on offshore wind facilities in the Baltic) have drawn criticism from its own Climate Policy Council. The UK, meanwhile, continues to pursue legally binding net zero commitments and ambitious offshore wind targets, recently clearing record-breaking offshore wind capacity following adjustment to its CfD auction budget and strike prices to better reflect current market conditions.
In Central and Eastern Europe the picture is equally varied. Poland (the EU’s largest coal-dependent economy) has seen a boom in solar PV, began construction on its first Baltic Sea offshore wind farms in 2025, and is also pursuing a major nuclear program. However, it remains the only EU member state without an official coal phase-out date.
The Baltic states completed a landmark desynchronization from the Russian power grid in February 2025, with Lithuania now targeting 100% renewable electricity by 2030 through aggressive wind and solar deployment. The Czech Republic has committed to a EUR17 billion nuclear expansion at its Dukovany plant as part of a strategy to raise nuclear’s share of its electricity mix from 40% to over 50%. Romania, meanwhile, has emerged as one of Europe’s fastest-growing solar markets, surpassing 7GW of installed capacity and running successful CfD auctions, with plans for what could become Europe’s largest solar park.
With that said, the rise in support for nation-first parties across Europe has in some quarters been accompanied by efforts to recast climate change in public discourse as a problem too expensive to address rather than an issue too costly to ignore. European governments are also under pressure to ramp up defense investment in a more volatile geopolitical landscape (an issue we explore in more detail here), which in some areas is seeing funds diverted away from climate initiatives. At the same time, parts of the European sustainability rulebook are being reconsidered or streamlined in pursuit of greater economic competitiveness as part of the Omnibus simplification program and Competitive Compass initiative.
Nevertheless, Europe is still seen as a predictable investment destination in terms of renewable projects. Companies are recalibrating their investment decisions to take into account instruments such as the Carbon Border Adjustment Mechanism (CBAM), which levels the cost of imported and domestic carbon-intensive goods, changes to sustainability frameworks and the structural challenges described above such as grid congestion and slow permitting. The threat of climate litigation, too, remains a material issue in many member states.
China emerges as greentech superpower
After decades of ballooning emissions, recent data indicates that China’s CO2 output is either flat or falling—so much so that in 2025 the Chinese government for the first time pledged to reduce the amount of greenhouse gases its economy produces. As highlighted above, its extensive nuclear program is supporting its decarbonization strategy, domestic sales of electric vehicles are soaring and the Chinese state is building twice as much wind and solar infrastructure as the rest of the world combined. With that said, it continues to expand its coal capacity in parallel.
Here, China’s centralized procurement of clean energy equipment exemplifies the advantages of statist systems that can execute at scale, with the government acting as first mover and primary buyer. Indeed China’s managed economy and ability to plan strategically in five-year cycles is its greatest edge in an increasingly contested and uncertain world.
Investors, however, must navigate China’s 15th Five-Year Plan alongside structural constraints (grid/permitting) and the tightening of climate-focused trade barriers. As a result, investment decisions are being recalibrated to prioritize “high-quality” sustainable growth over volume, in anticipation of a more complex operating environment in the period ahead.
The geopolitics of critical minerals
Alongside the factors described above, the desire for sovereignty over critical minerals is also shaping the energy landscape.
Elements such as lithium, cobalt, rare earths, copper, graphite, and nickel are essential inputs for everything from batteries to wind turbines, mobile phones, and semiconductors. As a result, the parties that process and refine them hold significant influence over the countries and businesses that need them.
Today, China dominates the processing of critical minerals (i.e., the conversion of raw materials for industrial use). Western governments have long been happy to outsource this environmentally costly activity to Beijing. But in recent years the consequences of those decisions have become clear.
Through its position at the head of the chain, China has become the world leader in the production and export of lithium-ion batteries, the magnets used in electric motors, advanced grid equipment and more. It has also demonstrated its willingness to leverage this power in pursuit of its geopolitical goals, including in 2025 when it announced new export controls on several mineral elements alongside magnets, processing equipment and related technologies during its trade war with Washington. Indian EV production was severely disrupted by these restrictions and it responded with its own controls, directing state-run miner IREL to suspend a long-standing agreement on rare earth exports to Japan and to conserve supplies for domestic needs. Japan has also found itself starved of other supplies amid ongoing tensions with Beijing.
Such resource nationalism is not the sole preserve of China, with other countries becoming more protectionist as they look to meet domestic demand, attract investment and move local industries up the value chain. Indonesia for example imposed a nickel ore export ban in 2020 to encourage domestic processing, while the following year Zimbabwe restricted chromium exports for similar reasons.
Niger’s military government has seized control of uranium mining operations previously run by France’s Orano, revoking mining permits and blocking exports since 2024; a dispute now subject to arbitration that has contributed to a sharp rise in global uranium prices. Namibia banned the export of unprocessed critical minerals including lithium, cobalt, and rare earths in 2023 under its Mineral Beneficiation Strategy, while the Democratic Republic of Congo imposed a four-month ban on cobalt exports in early 2025—later replaced by strict annual quotas—to address a price collapse in a market it dominates with over 70% of global supply.
In Latin America, Chile announced the nationalization of its lithium industry in 2023, requiring future contracts to be structured as state-controlled public-private partnerships. Mexico, meanwhile, declared lithium a strategic mineral in 2022 and reserved all future exploration and extraction rights to the state, though actual production has yet to materialize.
In response, many nations are pursuing a range of measures to increase the resilience of their critical minerals supply chains, including by forging new alliances and launching largescale overseas investment programs. Access to minerals also provides the backdrop to recent geopolitical flashpoints, including in relation to Greenland, which has deposits of 39 of the 50 elements on the U.S. critical minerals list, as well as the war in Ukraine.
The EU’s Critical Raw Materials Act (CRMA) aims to ensure that no more than 65% of the bloc’s annual consumption of any strategic raw material comes from a single third country. Under the auspices of the CRMA, the EU has announced a number of strategic projects located within and outside its borders, with internal schemes given “priority status” to expedite permitting and development.
At the same time, governments across the world from the U.S. to Canada, China, Chile, and the Democratic Republic of Congo (DRC) are taking equity stakes in strategic mineral companies both at home and abroad to boost supply capacity and hedge their strategic vulnerabilities.
ESG and human rights dimensions of critical mineral sourcing
The urgency of securing critical mineral supplies key to energy technologies and other industries sits in tension with the significant environmental and human rights risks associated with their extraction and processing.
The challenge is one of speed and scale. Many governments are simultaneously demanding that businesses accelerate the energy transition and that they source the materials needed to do so responsibly, yet commercially viable deposits are often concentrated in jurisdictions with weak governance frameworks.
Measures such as the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) will require in-scope companies to identify, prevent, and mitigate adverse human rights and environmental impacts across their value chains. Businesses that fail to build these processes into their operations face regulatory penalties, potential loss of market access in the EU and growing litigation exposure.
What should boards be doing in response?
The convergence of energy security concerns, rising demand for power, and geopolitical dynamics represent a structural shift in the operating environment for multinationals. Businesses that treat these as separate issues to be managed by different functions are likely to find themselves at a disadvantage. Instead a more integrated, forward-looking approach is required that ensures boards have visibility across all dimensions.
Energy is no longer an operational cost for business but a strategic variable that needs senior-level oversight. When a single supply chain disruption can threaten profitability, contractual performance, and the availability of capital, boards must regularly assess their exposure and consider their risk mitigation options, including alternative or captive supply.
Like other industries reliant on critical minerals (including automotive, technology, and defense), energy businesses should similarly take steps to build politically aligned and reliable supply networks while ensuring their procurement strategies must take human rights and environmental due diligence obligations into account.
Businesses in the energy sector must stay alert to policy changes and geopolitical developments that affect their core activities. Here, robust analysis of government policy commitments in the context of available investment protections, and the impact of regulatory divergence on the cost of capital, the availability of insurance and access to project finance, is essential.
The stakes that surround shifting energy markets are high—supply chain disruption, regulatory penalties, economic impact, stranded assets, litigation exposure, and reputational harm are all potential consequences of inaction or a fragmented response. Conversely, the businesses that are agile in adapting to a changing energy landscape can secure a competitive advantage.
How to navigate cross-border divergence of sustainability regulations
With governments moving at different speeds and in different directions on energy policy and sustainability regulation, the resulting divergence carries significant risk for businesses in virtually every sector. Companies that operate across borders or that have securities traded in different markets may be exposed to regulatory regimes that impose potentially incompatible expectations in relation to disclosures and governance at a time when enforcement risk is high and stakeholder scrutiny is intensifying.
In response, boards should focus on mapping their legal exposure across sustainability frameworks in different jurisdictions, including federal, state and local laws in the U.S. A nuanced understanding of the laws and regulations that govern sustainability commitments and disclosures in different markets, and how they interact with efforts to prevent such commitments or disclosures elsewhere, is essential.
Communications and government affairs strategies are central to managing risk and seizing opportunities in this evolving landscape. Marketing language should be reviewed with the litigation landscape in mind, and reporting processes adapted to operate across jurisdictions with different expectations. Care should also be taken with voluntary sustainability disclosures, including in annual reports and leadership speeches. Given the transactional and relationship-based approaches that are increasingly a feature in the U.S. in particular, a focused attention to lobbying efforts is a must.
Looking ahead, business leaders should continue to actively manage climate-related threats, and balance their sustainability practices with tangible business and financial impacts and their overall approach to enterprise risk, in an environment where the number and severity of climate events (e.g., storms, floods, wildfires etc) is growing. It is critical to ensure that these risks are managed in a way that is consistent with wider requirements to protect business integrity, the company’s obligations to its stakeholders, and the requirements of applicable laws.
Governance structures should be calibrated to ensure that issues are identified and handled at the appropriate level, with escalation to legal teams, management and the board in preparation for potential regulatory inquiries and enforcement, as well as possible lawsuits. Consideration should be given to legal privilege and how to maintain it in different contexts, for example when developing sensitive assessments and related communications. In areas where regulatory enforcement is in retreat, businesses should keep in mind that their conduct today could result in litigation being brought against them far into the future.
