Energy system resilience in a time of growing geopolitical and climate risks

January 2026  |  SPECIAL REPORT: ENERGY & UTILITIES

Financier Worldwide Magazine

January 2026 Issue

Since the invasion of Ukraine by Russia in 2022, and the subsequent strategic repositioning of energy supply and infrastructure as economic and physical targets for warfare, the landscape for global energy geopolitics has rapidly and significantly shifted.

Global policymakers and business leaders are no longer principally focused on decarbonisation of the energy system, if they ever truly were, and are instead now also recalibrating their focus to energy security, reliability and affordability.

The increasingly chaotic global picture, driven by political uncertainty, economic and security conflicts, alongside more intense impacts of climate change, are leading to a new complex picture of energy risk.

Countries and companies are increasingly evaluating their energy needs, dependencies and interdependencies from a strategic lens of resiliency and affordability.

The portfolio of energy supply covers traditional molecules such as oil and gas, alongside electricity supply, including those that can be produced domestically, either from fossil fuels or from renewable sources such as solar, wind, geothermal, nuclear or hydropower. The resiliency of supply chains, the verification of supply options and the impacts on price are of growing importance.

For power grids, reliability and affordability are increasingly critical, particularly when it comes to cross-border connections, and cyber and physical resiliency to growing shocks. With the digitalisation of sensors and controls, as well as communications for operating coordination, cyber security also remains and is growing as a constant threat to reliability. Physically, all facets of the energy systems are vulnerable to the more frequent and severe impacts of climate change, such as severe drought or extreme precipitation and wind events. For much of global energy supply, the broad picture is one of evolving risk of chokepoints.

Over the past decade, oil and gas export concentration has evolved to have broader diversification to combat bottlenecks, with increased exports from the US of both liquefied natural gas and oil, as well as traditional producers in the Middle East. For ocean vessel delivery, supply chain concentration and chokepoint risk remains of paramount consideration. Pipelines also represent critical supply links and have become increasingly vulnerable to security threats.

For clean electricity technologies, supply chains are heavily concentrated in China, particularly for critical mineral inputs and for solar photovoltaics, and increasingly batteries, where China supplies 90 percent of global capacity. This raises concerns of economic monopoly power and potential security risks for the importing nations and companies. Such concerns have accelerated goals of diversification of chains throughout governments and corporate boards, and are being actively pursued as a strategic priority. But many alternate supply chains or technologies may take decades to develop.

With governments increasingly eyeing energy supply through a lens of chokepoint risk and potential weaponisation – with potential threats to the delivery of molecules, electrons or supply chains – many are also newly considering their web of alliances. For some countries, there may be sufficient depth and diversity of options in the oil and gas markets, as well as strong contractual ties with a variety of global players.

Traditional trading alliances, such as those created upon geopolitical alignment and geography, such as North America, Europe, Latin America or Southeast Asia, are being reevaluated within the critical infrastructure framework of critical security risks to supply chains, not just for their economic benefits.

Meanwhile, global trade shocks, rising tariffs, and threats to cut off the limited production of critical input materials, have become significantly more prominent considerations among nations and companies with ties, given their implications for affordability, reliability, and increasingly sovereignty and security.

For power systems, while larger interconnected grids offer potential significant benefits, particularly in the form of lower costs and greater reliability, they come with increasing potential risk of weaponisation or sabotage. The financial constructs of remuneration for electric power grids are also significantly more complex than straightforward oil and gas purchases, given the significant capital cost and long payback times.

Alongside wide swings in electoral prioritisation for decarbonisation investments, it appears that in the short term, power grids are perhaps more vulnerable to political uncertainty and change, given a limited amount of market and trading diversification, compared to traditional oil and gas markets.

Meanwhile, the impacts of our rapidly warming world are themselves introducing a flurry of new risks across the energy system, and indeed across the entire economy. Extremes are the new normal, from heatwaves to drought, to intense windstorms and precipitation events, to sea level rise along the coasts, all of which interact with the whole of the supply chain.

As the International Energy Agency has described: “Climate change directly affects every aspect of the energy system, from the extraction, processing and transport of fuels and minerals, to the potential, efficiency and reliability of power generation, to the physical resilience of energy infrastructure, as well as impacting energy demand patterns.” And with electricity demand and prices steadily rising, energy infrastructure is facing stressors from extreme weather just as usage is also spiking.

The result of these climate shocks to the system is wide-ranging economy and security impacts. Power outages following intense heat, flood or storms – even utilities asking customers to pre-emptively reduce power to prevent outages – are expanding the economic costs beyond physical damages.

Ageing grid infrastructure, already vulnerable to physical or cyber threat, needs to be upgraded and hardened more frequently, but is increasingly lacking in ‘downtime’ to run needed maintenance. Extraction of molecules and minerals is also increasingly stressed, as a third of global oil and gas refineries are in low-lying coastal areas, and mining operations are hit by severe droughts which rely on large amounts of water for processing. Pipelines carrying oil or natural gas are vulnerable to storms, and increasingly in the Arctic region they are also encountering unstable ground and risk of deterioration due to permafrost thaw.

These stressors will have downstream impacts, not just across the energy sector, but rippling across critical industries worldwide. Agricultural commodities are already witnessing a growing picture of risk due to weather conditions, and many crops and feedstocks are particularly vulnerable to energy price spike, which would push rising food prices even higher.

Similarly, semiconductors are a critical input to much of the digital economy, but PwC recently projected that as much as one third of their supply is at risk as copper production faces disruption from extreme weather and drought. These climate risks compound alongside an increasingly uncertain trade, investment and security picture, while climate policies and political backlash to them also introduce volatility into each domain.

For the whole of the global energy system, from production and delivery to conversion and use, there are a plethora of financial and physical risks. Physical risks, as noted above, are growing, as the increased intensity and frequency of extreme events continues to stress systems beyond prior anticipated limits. This leads to physical limitations and damages, but also financial implications.

While financial products have been developed over the past decade to potentially mitigate some risks from extreme weather, an increasingly changing climate, threats of cyber attack or physical sabotage risk, these financial products will have to continue to evolve to incorporate the dynamic risk environment, intersections in these risk vectors and their growing scale.

Trillions of dollars per year are at risk in both the oil and gas markets and electric power markets –  and that is just based on the physical infrastructure and energy component. Broader and deeper economic risks abound as direct results of energy supply disruptions, which are an inherent input to all aspects of the global economy, and must increasingly be taken into account. This is reflected in the increased concern over resiliency and reliability, which is increasing cost for weather and climate hardening, cyber hardening and other emergent risks.

The international policy landscape continues to evolve rapidly, given the rebalancing to address resiliency, reliability, affordability and sustainability alongside growing political polarisation. For some governments, this has led to a scaling back of decarbonisation investments to prioritise traditional fossil fuel forms of energy or a more diversified mix, and pursuing policies that address resiliency, reliability and affordability goals.

In the medium to long term, this rebalancing of priorities may have unforeseen implications regarding decarbonisation progress, particularly if countries or investors become increasingly reluctant to buy from concentrated supply chains or if damages caused by climate impacts strike more intensely than forecasted.

Compared to today, the oil embargos and price increases of the 1970s offer a strategic opportunity for reflection. In reaction to that chapter in history, energy markets today have evolved to have some increased diversification, particularly in oil and gas. However, global markets are also evolving to have high concentrations in the supply chains for clean electricity technologies and inputs.

And all nodes across these systems are at risk from both sudden and slow impacts of a rapidly changing global environmental picture. The implications of these evolving dynamics suggest the need for a strategic reset of electrification supply chains for addressing resiliency, reliability and affordability, while also addressing geopolitical risk and potential weaponisation, economic or otherwise.

Against this backdrop, successful leaders across companies and countries will be the ones who look to advance strategic reset of risk assessment for energy and climate realities, stretching across investments, portfolios and planning. Those who are likely to fare best in an increasingly risky world will likely be those who build new partnerships, which stretch across public and private sectors, and who embrace unconventional structures with an eye toward building robust and resilient energy systems that adequately address physical, cyber, climate and geopolitical risk.

 

Doug Arent is a global fellow and Kate Guy is a senior fellow and managing director of the Geopolitics of Climate Change and the Energy Transition at the Center on Global Energy Policy, Columbia University SIPA. Dr Arent can be contacted on +1 (212) 853 2475 or by email: da3266@columbia.edu. Ms Guy can be contacted on +1 (212) 853 2475 or by email: k.guy@columbia.edu.

© Financier Worldwide

BY

Doug Arent and Kate Guy

Center on Global Energy Policy

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