The energy transition has its own Strait of Hormuz

Recent energy crises, particularly the Iran war, have exposed how vulnerable many countries are to conflict, disruption, and coercion. Not surprisingly, governments worldwide are scrambling to reassess their energy-diversification and transition strategies.

The strategic logic is straightforward. The less a country depends on imported oil and gas moving through chokepoints like the Strait of Hormuz, the more secure it becomes. In 2025, nearly 34 per cent of global trade in crude oil passed through the Strait (with China and India alone accounting for 44 per cent of that flow), along with roughly one-fifth of the world’s liquefied natural gas exports.

But contrary to popular belief, the clean energy transition will not eliminate geopolitical risk so much as redistribute it. While a world powered by renewables, batteries, and clean electricity would rely less on tanker routes and fossil-fuel exporters, it would depend on critical minerals, processing chains, technical standards, grid equipment, and transmission networks. That raises its own vulnerabilities.

Three stand out: the concentration of critical-mineral refining and processing, the growing fragmentation of trade and standards, and the fragility of existing power grids. Together, these vulnerabilities make clear that the energy transition is not just a climate or industrial project. Above all, it is a coordination challenge, and great-power rivalries are making it harder to achieve.

Structural chokepoints

Raw materials are a case in point. While much of the public debate focuses on control over mineral reserves, the real chokepoint lies further downstream. The average market share of the top three mineral-refining countries rose from roughly 82 per cent in 2020 to 86 per cent in 2024, with supply growth concentrated in a handful of dominant suppliers: Indonesia for nickel, and China for cobalt, graphite, and rare earths.

This is the clean energy equivalent of the Strait of Hormuz. The strategic bottleneck is not in mining itself but in the later stages of production: refining hubs, chemical plants, rare-earth separation facilities, and export-control regimes.

When tensions rise in countries supplying lithium, cobalt, nickel, graphite, or rare earths – or  when major powers restrict certain exports – the effects ripple through a wide range of industries, including batteries, electric vehicles (EVs), wind turbines, and grid infrastructure.

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While a world powered by renewables, batteries, and clean electricity would rely less on tanker routes and fossil-fuel exporters, it would depend on critical minerals, processing chains, technical standards, grid equipment, and transmission networks. That raises its own vulnerabilities.

The imbalance is structural, not cyclical, as refining is expected to remain highly concentrated well into the next decade. By 2035, China is projected to supply more than 60 per cent of refined lithium and cobalt, and around 80 per cent of battery-grade graphite and rare-earth elements. Rapid demand growth intensifies the risk: lithium demand rose by nearly 30 per cent in 2024, while demand for nickel, cobalt, graphite, and rare earths grew by roughly 6-8 per cent.

The United States has responded with a multi-layered strategy that includes launching the Forum on Resource Geostrategic Engagement, an international effort to ensure a reliable supply of critical minerals for the US and its allies; devising a joint mineral action plan with Japan; and pushing for a new trade bloc involving dozens of countries to counter China’s mineral dominance (among other measures).

But restrictions on processing equipment, technical expertise, and intermediate products continue to impede progress. These constraints are largely geopolitical: China has imposed export controls on rare-earth materials, processing technologies, and technical expertise, while the US and its allies have restricted access to advanced manufacturing equipment and related technologies. Together, these reciprocal controls have fragmented supply chains and slowed diversification.

That helps explain why diversification remains costly and politically fraught. To reduce dependence on Chinese imports, the US and its allies have turned to industrial policy, long-term offtake agreements, government-backed financing, and tighter coordination. But building a supply chain that does not rely on China requires a wide range of processing capabilities, along with sustained price support until commercial viability is achieved.

At its core, this is a problem of industrial capacity. Abundant resources alone are not enough. What matters is the time, capital, and coordination needed to build an integrated system around them, especially in the face of a dominant incumbent with deep industrial networks and formidable pricing power.

Interoperability vs. geopolitical uncertainty

The absence of common standards is another source of vulnerability. Clean energy technologies do not spread globally simply because they exist or become cheaper. They scale only when markets can recognise, certify, finance, insure, and connect them across borders. Fragmented and incompatible standards, contested certification systems, local-content requirements, and shifting industrial-policy regimes all act as barriers to coordination.

Moreover, the clean energy economy is inherently transnational. A battery may depend on minerals mined in one country, processed in another, used for assembly in a third, financed in a fourth, and subsidized in a fifth. Similarly, a wind turbine must often satisfy multiple technical and regulatory requirements before it can be financed, shipped, installed, and connected.

When interoperability breaks down, diffusion slows sharply. Technologies may be available and even cost-competitive, yet still fail to scale across markets. Under stable geopolitical conditions, these frictions can be managed through technical harmonisation and mutual recognition.

In times of heightened geopolitical tensions, they become instruments of economic statecraft, enabling governments to undermine competitors through certification rules, subsidy design, local-content provisions, procurement preferences, and export restrictions.

As a result, clean technologies risk fragmenting along geopolitical lines rather than scaling globally. Such an outcome would impose disproportionate costs on middle-income and developing countries, which are least able to absorb duplicated compliance systems and forced technological alignment.

Because clean power is only as useful as the networks that deliver it, fragile grids and infrastructure pose a growing strategic risk. Whereas the fossil-fuel system depends on tankers, ports, and pipelines, the clean energy system depends on well-integrated transmission lines, transformers, and cross-border interconnectors.

Here, the gap between ambition and capacity is most acute. To meet global climate targets, grid investment must increase 50 per cent to $600 billion a year by 2030, but outlays have stagnated, even as investment in generation has surged. In emerging and developing economies outside China, grid investment has declined, despite robust demand and rising energy-access needs.

Two blocs’ blockages

Europe’s experience offers a cautionary tale. The European Union has spent years promoting electricity-market integration as a pillar of energy security, competitiveness, and decarbonization, yet many member states are not on track to meet the bloc’s 2030 target of connecting 15 per cent of domestic generation across borders. Translating regional initiatives into national action has proved difficult.

Permitting is slow, and cost allocation is politically contentious. Infrastructure often delivers regional benefits while imposing environmental and political costs on local communities, fueling public resistance. Grid planning remains fragmented, and network operators’ incentives are not always aligned.

At the same time, aging infrastructure is colliding with growing demand from EVs, heat pumps, data centers, and renewables. Roughly half of Europe’s transmission lines are at least 40 years old, requiring more than $2 trillion in upgrades by mid-century to prevent large-scale failures.

The Iberian Peninsula illustrates the scale of the challenge. Spain and Portugal remain poorly connected to the rest of Europe, with interconnection levels well below the EU’s stated goals. Major projects, such as the Bay of Biscay interconnector, will take years to complete.

Europe’s experience points to a broader lesson: it is far easier to set renewable targets than to build the cross-border networks needed to achieve them. While the technical case for interconnection has long been clear, the political and administrative capacity to facilitate it has failed to keep pace.

The Asean Power Grid, a collaborative effort aimed at connecting Southeast Asia’s electricity networks by 2045, brings these challenges into sharp focus. Often framed as a future-looking integration project, it is effectively a test of whether clean energy interdependence can work in a region with diverse political systems, uneven regulatory capacity, and fragmented power markets.

Few doubt the strategic logic. Regional transmission and cross-border electricity trading are essential to integrating renewables, improving resilience, and lowering costs. But progress has been slow, with only half of the 18 planned interconnection projects completed and operational.

The main obstacles are not technological but institutional and financial. Asean still lacks common technical standards, transparent trading rules, workable pricing arrangements, clear rules for allocating grid capacity, reliable dispute-resolution frameworks, and the legal frameworks needed for regional investment. Trust is also a major constraint, as interconnection depends on confidence that rules will hold across jurisdictions over time.

Energy security is climate security

Geopolitical shifts add another layer of uncertainty. When US President Donald Trump and his Chinese counterpart Xi Jinping meet in May, rare earths and industrial leverage will likely be at the top of their agenda. Tensions have intensified in recent months as the US has sought to offset China’s dominance in mineral processing by securing access to oil from Venezuela and, to a lesser extent, sanctioned Iranian and Russian producers.

Venezuela, which holds about 303 billion barrels of proven reserves – roughly 17 per cent of the global total – is central to this effort. Following the capture of former President Nicolás Maduro in January, the Trump administration has moved to reopen the country’s energy sector, authorising transactions with the state oil company PDVSA and easing sanctions to allow major firms to resume operations and negotiate new investments.

The US has also shown flexibility in its use of sanctions, especially after the outbreak of the war in Iran and the resulting surge in oil prices. In an effort to curb market volatility, for example, the Trump administration has waived sanctions on purchases of Iranian and Russian oil already at sea for 30 days.

This flexibility gives the US some leverage over China. By boosting Venezuelan output and selectively easing pressure on Iranian or Russian exporters, America can curb price spikes, contain inflation, and reduce industrial-cost pressures that would otherwise impede reindustrialisation. Because China remains a major oil importer, these measures could also factor into negotiations over rare-earth access, export controls, and magnet shipments.

But buying time is not the same as solving the problem. Additional oil supply cannot substitute for rare-earth separation, metal refining, alloy and magnet production, or diversified mineral-processing capacity outside China. At best, it provides the US and its partners macroeconomic breathing room while they expand these capabilities. True energy resilience requires building a new industrial ecosystem from the ground up, not doubling down on oil.

The broader lesson is that policymakers can no longer treat the clean energy transition and energy security as separate agendas. To integrate, they should focus on five priorities.

First, governments must accelerate diversification efforts. This means reducing exposure to chokepoints like the Strait of Hormuz and diversifying the entire supply chain, including refining, processing, manufacturing, and logistics. Diversification is no longer just about having more fuel suppliers; it now means reducing dependence on midstream and infrastructure bottlenecks.

Second, markets remain indispensable, but private firms alone cannot be relied upon to deliver energy resilience amid geopolitical upheavals. Governments will have to play a larger role in mobilizing private capital by leveraging strategic procurement, storage, stockpiling, domestic-capability development, supply-chain diversification, and risk-sharing.

Third, countries must take steps to accelerate the adoption of EVs, not only for climate reasons but also to reduce dependence on oil exporters. Electrified transport minimises direct exposure to maritime fuel chokepoints and price volatility, even as it increases reliance on minerals and batteries.

Fourth, governments should expand nuclear power where politically and institutionally feasible. Nuclear energy can reduce dependence on imported hydrocarbons and provide stable low-carbon electricity alongside renewables. It may also become a new arena of geopolitical competition, with governments vying for control over reactor technologies, fuel-cycle services, and uranium enrichment.

Above all, policymakers must confront the geopolitical realities of today’s emerging energy systems. The clean energy transition is often framed as an escape from geopolitics, and in one sense, it is: a less oil-dependent world would indeed be less vulnerable to maritime chokepoints and petrostate coercion.

Escaping one form of geopolitical vulnerability, however, does not eliminate geopolitics. Processed minerals, industrial ecosystems, standards regimes, and electricity infrastructure are just as politically fraught as the Strait of Hormuz. There is still time to avoid repeating the mistakes of the fossil-fuel era, but the window will not be open for long.