Geopolitical fragmentation is reshaping global energy markets - S&P Global SVP

Zawya

12-06-2025

Global energy markets are being reshaped by rising geopolitical tension, trade realignments, and a shift away from the old international order.
Against the backdrop of the 32nd Annual Middle East Petroleum & Gas Conference (MPGC 2025) in Bahrain last month, Carlos Pascual, Senior Vice President for Geopolitics and International Affairs at S&P Global Commodity Insights, offered a sweeping overview of how trade disputes, global rivalries, and supply chain realignments are redefining the global energy and commodity order.
Speaking to Zawya Projects, Pascual dissected the structural shifts underway—from US-China tensions and the decoupling of trade routes, to the reconfiguration of hydrocarbon flows and the emerging critical mineral economy—and why energy diplomacy, once again, is taking centre stage.
Erosion of the old order
'We've seen a shift in the development of the global and international order,' Pascual noted. 'We were in a global environment that was focused on the rule of law, on democracy, on open markets, on interdependence. And increasingly, we've moved to a world that is number one, transactional—and this is very much driven by the United States.'
Citing the political philosophy behind 'America First' and 'Make America Great Again,' Pascual framed the landscape as one where short-term, nationalist interests increasingly override multilateralism. 'As President Trump has said, his favourite tool is tariffs. Tariffs are a protectionist measure... they affect the pace and the tendency of globalisation.'
Rather than a new world order, the S&P executive argued, we are witnessing an erosion of the old: a structural uncertainty that has become embedded. 'It doesn't mean that the United States isn't the most powerful and richest country in the world, but it's operating in a different kind of environment... one in which there is much more polarisation. And I think we have to get used to a world where that kind of polarisation and uncertainty is going to be with us for a while.'
US-China rivalry and hydrocarbons
The real-world implications of this erosion are most evident in the energy and commodities trade, particularly in the context of US-China rivalry. 'There's obviously a phenomenal trade war. Both countries had this massive escalation of tariffs.'
A temporary truce struck in May 2025 signalled that both sides understood the damage. 'Even though the tariff levels are still high both sides recognise that it is not in their self-interest, nor is it their desire, to battle in that level of a trade war.'
In terms of hydrocarbon demand, China is no longer the insatiable buyer it once was. 'For two decades, China was the biggest source of global oil demand. Today... for the last six months of 2024 in China, they were selling well over 50 per cent of new vehicles as electric vehicles,' he said. 'Gasoline demand in China peaked in 2023. Oil demand is probably going to peak in 2027 or 2028. It's already flattened out.'
The broader backdrop of slowing demand, particularly in the US and China, adds downward pressure to oil prices. 'Our economists project that by the fourth quarter, the United States will be growing at less than 1 percent. You're seeing this softening of global demand... at the same time that OPEC+ countries are unwinding some of their previous cuts.'
Pascual warned that this supply-demand dynamic could push oil prices down significantly: 'We're seeing a potential for a very significant price decline... in the range of below $60 per barrel.'
Sanctions, realignment and the rise of energy blocs
Another consequence of the current geopolitical architecture is the reconfiguration of oil flows, particularly from sanctioned states. 'The obvious thing that we've seen as a result of the imposition of US and European sanctions on Russia, and sanctions on Iran, is that trade flows have changed,' he said.
These policy tools were never intended to eliminate Russian oil from global markets altogether. 'If you remove Russian oil from the market, everybody's going to pay. Every single consumer is going to pay,' he explained. Instead, the West's strategy was to constrain the logistics, by regulating shipping, while allowing the supply to continue flowing.
This, in turn, has triggered a redirection of trade: 'Russian oil [is] going to China and India, with some price discount. Iranian oil has been going to China for some time. China has put in place mechanisms where the shippers and the importers and the banks are completely removed from the US system.'
Even if sanctions were removed, Pascual believes their structural impact has already occurred. 'There may be a realignment... but that realignment of oil is going to depend on other things, like what happens in the war on Ukraine.'
US policy uncertainty hits investments
The volatility in US foreign policy—and the energy sanctions environment in particular—is increasingly weighing on long-term investment. 'Inventories right now are relatively low... if we see the continued increases that we're projecting out of the OPEC+ countries, in a very short time we'll be at the high end of inventories.'
He noted a significant trend emerging domestically: 'What we're already seeing in the United States is that most of the major oil companies are reducing their capex.'
When it comes to long-term energy demand, Asia still dominates the global outlook. 'The energy requirements of both [India and China] are massive. Growth in China has slowed, but even at 4 to 5 percent, you're still going to see massive energy demand.'
While oil demand is flattening, Pascual emphasised the rise of natural gas and renewables in Asia's energy mix. 'We're going to see the biggest increases in primary energy demand throughout Asia.'
Batteries and renewables are rapidly gaining ground as viable, cost-effective sources. 'We're going to see greater competitiveness out of batteries... not that we're going to see a shift out of oil and gas, but they're going to plateau.'
The Gulf's dual focus: hydrocarbons and decarbonisation
In Pascual's recent visits across the Gulf, including MPGC in Bahrain and meetings in Saudi Arabia and Doha, he observed a 'recognition' of the need for diversification.
'The investments that you see in Saudi Arabia, in particular in solar energy... and the increased competitiveness of batteries, even with natural gas, are emerging as real opportunities,' he said. 'It's not taking away the importance of gas... but there's a new competitiveness that we're seeing arise with solar and with batteries, especially in the Middle East.'
This, in turn, has triggered a regional awakening around critical minerals. 'People used to talk about that especially related to electric vehicles, but now they're looking at it as grid storage as well,' he said. 'It's becoming such an important factor in the energy mix.'
Asked about the message of MPGC 2025 in Bahrain, Pascual underscored the role of diplomacy and regional leadership. 'The importance of energy diplomacy and the engagement of international players has never been more important,' he said. 'Local actors are making decisions... Saudi Arabia, UAE, Kuwait—these are the players setting the tone in oil markets.'
He warned, however, of upcoming volatility in the gas sector: 'There's a potential for oversupply over a period of three years, from 2027 to 2030, but then a rebalancing of the market.'
Interestingly, he noted that US policy on sanctions could have a major commercial effect, especially on LNG investments. 'The biggest impact is on Final Investment Decisions (FIDs) on projects in the United States. It could potentially affect what we've estimated would be $120 billion worth of investment decisions.'
Despite ongoing reliance on fossil fuels, Pascual believes the private sector recognises the climate imperative. 'Companies are recognising that climate change is a reality, and the need to decarbonise is going to be a necessity,' he said. 'Simply putting those concerns aside isn't going to work.'
Strategic resource politics
Looking ahead, Pascual sees South Asia and Southeast Asia as the fastest-growing energy consumers, but another set of commodities is fast becoming central: critical minerals.
'These are important for the energy transition, for artificial intelligence, and for defence,' he said. 'Previously, there was a huge amount of discussion about this related to electric vehicles. But what we're also finding is that the growth of AI... has now made that a national security imperative.'
Countries that can mine and process lithium, cobalt, graphite, and rare earth elements will become essential to global supply chains. 'There's going to be a push for diversification,' he said. 'Latin America is going to become much more important on lithium and copper... and Africa too.'
Pascual's analysis paints a picture of an energy system shaped not just by technology and transition, but by geopolitical dislocation and realignment. From trade wars and decoupling to investment delays and new energy blocs, the system is undergoing a reconfiguration that is as strategic as it is structural.
Despite the proclamations of 'drill, baby, drill,' in the end, it's oil markets—and geopolitical reality—that are the 'fundamental determinants of where we go', he concluded.
(Reporting by Rajiv Pillai; Editing by Anoop Menon)
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