Beyond fossil fuels: how the energy transition is redefining economic security

Recent crises – from the Russia-Ukraine conflict to pandemic-related supply chain disruptions – have exposed the vulnerabilities of global supply chains and prompted governments to reconsider their reliance on external sources of energy and raw materials. 

As the world shifts from fossil fuels to electrification, the structure of global commodity demand is undergoing a fundamental transformation, with profound implications for economic resilience, inflation and geopolitical influence.

This shift is further complicated by the unequal distribution of critical resources, with regions such as Europe facing particular challenges. Geopolitical tensions, including conflict in the Persian Gulf, threaten to disrupt industrial activity in the short term but may also accelerate the energy transition in net energy-importing economies.

The foundations of energy independence

Energy and commodities underpin modern economies. Their availability and price stability directly affect industrial production, inflation and national security. The International Energy Agency (iea) defines energy security as “the uninterrupted availability of energy sources at an affordable price”, emphasising both supply stability and economic efficiency. This dual objective often creates tension between market integration and national self-sufficiency.

Dependence on imported energy exposes economies to geopolitical risks and price shocks. Commodity price volatility can have significant macroeconomic effects, particularly for net importers, influencing inflation and growth stability. Energy independence can mitigate these risks by reducing exposure to supply disruptions, enhancing bargaining power in international markets and stabilising domestic prices. However, full independence is rarely achievable or efficient. Most economies remain integrated into global energy markets, where diversification – rather than self-sufficiency – is the primary strategy.

Efficiency versus resilience: the policy trade-off

Economic theory suggests that specialisation and trade improve efficiency. Yet, excessive reliance on external suppliers can create systemic risks. The Organisation for Economic Co-operation and Development (OECD) highlights this trade-off, noting that “policies aimed at resilience may come at the cost of short-term efficiency but reduce long-term vulnerability”. This tension is central to modern energy policy, as governments must balance cost minimisation through global sourcing with risk mitigation through domestic capacity or diversification.

The expanding scope of strategic commodities

The scope of strategic commodities has broadened beyond fossil fuels to include critical minerals such as lithium, cobalt and rare earth elements, as well as agricultural commodities like wheat and fertilisers, and industrial inputs such as semiconductors. These commodities are essential for energy systems, particularly in the transition to renewables. The World Bank notes that demand for critical minerals could rise sharply, stating that “the production of minerals such as graphite, lithium and cobalt could rise by nearly 500% by 2050” to meet clean energy needs.

Many strategic commodities are geographically concentrated. Processing of rare earths, a subset of critical minerals, is dominated by China. Such concentration creates supply chain vulnerabilities, increasing the risk of disruption due to political instability, trade restrictions or environmental constraints.

Policy instruments for energy and commodity security

Governments use a range of tools to enhance energy independence and secure commodity access. Policies promoting domestic energy production include subsidies, tax incentives and regulatory support. For example, investment in renewable energy infrastructure aims to reduce dependence on imported fossil fuels. Rather than full independence, many countries pursue supplier diversification.

Strategic stockpiles of oil, gas and critical materials provide a buffer against short-term disruptions and are a key component of energy security frameworks. Export controls, tariffs and local content requirements are increasingly used to secure access to critical inputs, though such measures can contribute to global market fragmentation.

The energy transition: from fuel-intensive to material-intensive systems

The move from fossil fuels to electrification is not just a technological shift but a fundamental transformation in global commodity demand. Traditional energy systems are dominated by energy-dense fuels – oil, gas and coal – where energy is extracted, transported and consumed with relatively limited upstream material requirements. By contrast, electrified systems require large upfront inputs of metals.

The IEA highlights that clean energy technologies are significantly more mineral-intensive:

• An electric vehicle requires about six times more mineral inputs than a conventional car.
• Electricity grids require large volumes of copper and aluminium.
• Wind turbines depend on rare earth elements for permanent magnets. 

This creates a structural shift from flow commodities (oil, gas) to stock commodities (metals embedded in infrastructure).

Supply concentration: a structural vulnerability

A defining feature of energy transition minerals is extreme geographical concentration, often higher than for fossil fuels: 

• The top three countries control about 86% of refining capacity across key minerals (2024).
• Lithium refining: ~96% controlled by the top three countries.
• Rare earth refining: ~97% controlled by the top three countries. 

China dominates refining for most critical minerals, the Democratic Republic of Congo dominates cobalt mining and Indonesia dominates nickel supply growth. Moreover, supply growth is even more concentrated than existing production, with almost all supply growth coming from the single top supplier of several minerals.

Comparing fossil fuel and mineral dependency

The energy transition does not eliminate dependency – it transforms its nature:

• Fossil fuel systems require continuous supply (flow system), with price volatility driven by geopolitics and relatively liquid global markets.
• Electrified systems are characterised by high upfront material intensity, long project lead times (mines take 10–15 years), limited substitutability, and more rigid supply chains. Metals are embedded in infrastructure and are recyclable (a long-term advantage), but are constrained in the short to medium term.

Supply expansion versus demand growth: a tight balance

Supply is rising but it is constrained by structural factors: 

• Output of battery metals has grown at twice the pace seen in the late 2010s, yet investment in the sector slowed to about 5% growth in 2024. 
• Demand, by contrast, is expanding exponentially, while new supply is slow, and capital intensive. 
• The result is a familiar cycle: brief periods of oversupply trigger price collapses (e.g. lithium prices fell  by about 80% after their 2022 peak) followed by a looming risk of  medium-term shortages as underinvestment bites.

A new geopolitical economy of resources

The electrification transition is reshaping global economic power:

• Countries now compete to secure mining rights, build refining  capacity, and control downstream supply chains.
• Export restrictions affect over half of key energy minerals. Strategic  stockpiling and industrial policy are increasing globally.
• This may lead to competing supply blocs, reduced efficiency in global markets, and increased costs. 

The energy transition fundamentally reconfigures the relationship  between energy and commodities,  reducing dependence on fossil fuels but introducing new strategic dependencies on critical minerals. Over the long term, we are positive on commodity prices due to persistent and growing tensions between supply and demand and high supply concentration. 

However, it is important to recognise that countries are not equal in facing these challenges. Nations with limited access to primary resources – such as European countries – are  particularly vulnerable and must rely on imports to meet their needs. 

The conflict in the Gulf further complicates the outlook, with the  potential to negatively affect industrial activity in the short term. Nevertheless, such disruptions are likely to  provide additional impetus for the energy transition, especially in net energy-importing economies, as they seek to enhance their resilience and reduce exposure to external shocks.

Successfully managing this transition will require not only technological innovation but also coordinated  industrial policy, supply diversification and international cooperation to avoid replacing one form of dependency with another.