​Orderly exit: on India and energy transition issues

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Global energy shocks are not new. The world has seen them before — in the early 1970s after the Yom Kippur War; in 1979 following the Iranian Revolution; in 1990-91 after Iraq’s invasion of Kuwait, and in 2022 after Russia’s invasion of Ukraine. Yet, the present crisis triggered by American-Israeli strikes on Iran is materially different. While Russia’s war with Ukraine sharpened the geopolitical use of natural gas, the current conflict has simultaneously disrupted oil and gas flows. This disruption comes at a moment of profound transition in the global energy system. The International Energy Agency has underlined that transport electrification is firmly underway, with electric vehicles displacing about 0.9 million barrels per day (mb/d) of oil demand in 2023, rising over 30% to about 1.3 mb/d in 2024. This still amounts to barely 1%-1.3% of global oil demand, but it signals a structural shift. A supply shock of roughly 8 mb/d could accelerate the transition away from fossil fuels.

The energy transition could also unsettle the dollar’s long-standing dominance in global energy trade. The “petrodollar” system, forged in the aftermath of the 1970s oil shocks through U.S.-Gulf strategic alignment, ensured that oil was priced in dollars and that surplus revenues were recycled into U.S. financial markets. This underpinned both the financialisation of oil and America’s capacity to sustain large fiscal deficits. The emerging paradigm is more fragmented, with energy shifting from a globally traded commodity to geographically dispersed supply chains centred on critical minerals. Lithium reserves are concentrated in Chile (30%), Argentina (13%) and Australia (20%+). The Democratic Republic of Congo accounts for over 70% of global cobalt production, while Indonesia dominates the nickel market. Copper, crucial for electrification, is likewise concentrated in Chile and Peru. Canada is emerging as a key supplier of nickel, cobalt, and lithium, while Australia leads lithium production for western supply chains. Yet, the decisive advantage lies in processing and manufacturing, where China is dominant. This raises the possibility that a future energy system could be as dependent on Chinese industrial capacity — and potentially the yuan — as the old system was on dollar-denominated oil. For countries such as India, this presents a dilemma. The transition offers an opportunity to reduce fossil fuel dependence, but also risks creating new technological and supply chain dependencies. Navigating this landscape will require a conscious strategy rooted in the Global South’s legacy of non-alignment — securing resources, building domestic technological capabilities in manufacturing and processing, and avoiding a new form of dependence that merely shifts old hierarchies.