As the carnage unfolding on battlefields in Ukraine, Gaza and Lebanon understandably dominates global headlines, a recent decline in energy prices that has the potential to turn the world upside down has barely been noticed outside the industries involved. But given the role that energy prices often play as an underlying factor shaping global crises, if the fall in oil and natural gas prices over the past few months turns out to be a lasting trend rather than just a temporary blip, the world could be on the cusp of a geopolitical shock whose impact would be as great as any battlefield developments.
Over the past year, a range of factors, including interest rate cuts by the U.S. Federal Reserve, signs of distress in China’s economy and concerns about economic growth in Europe, have contributed to the creeping decline of oil prices to $73 per barrel this month, down from eye-watering highs of $120 per barrel after Russia’s invasion of Ukraine in February 2022. But investors and analysts remain unsure about whether this is a long-term trend. In addition to lingering uncertainty over the extent to which OPEC member states, particularly Saudi Arabia, will react to declining prices, as well as Russia’s opaque role as it tries to circumvent U.S. and European Union sanctions on its energy sector, several other factors could generate further big shifts in global energy markets.
Perhaps the most consequential though often underappreciated recent change to those markets is the transformation of the U.S. in the late 2010s from a net energy importer to a net exporter of oil and the leading exporter of gas. Whether U.S. energy self-sufficiency will give Washington greater scope to shift the dial when it comes to global energy prices remains unclear. But a scenario in which the U.S. can reshape energy market trends in its own strategic interest could weaken the ability of Saudi Arabia and other OPEC states to do so for theirs.