13 March 2025
Countries navigating energy supply challenges and transitioning to cleaner systems have leveraged trade policies to maintain balance and reinforce energy security.
Pandemic disruptions, geopolitical tensions, and climate objectives have shaped global energy policies and recently influenced energy trade dynamics. COVID-19 spotlighted supply chain resilience even as a global shift toward renewable energy and decarbonization was discernible. Post-pandemic recovery strategies have prioritized green investments, offering solar panels, electric vehicles, and hydrogen technologies incentives. Amid all this, countries have adapted trade policies to enhance energy security by ensuring stable and diverse energy supplies, fostering investments, and encouraging innovation.
The geopolitical element of this troika was fragile even during the years preceding the pandemic. Globalization dominated energy flows, with relatively open oil, gas, and technology markets before the pandemic. However, post-COVID, energy, especially its trade, has become more of a geopolitical tool. Europe’s push toward reducing dependency on Russian natural gas after the Ukraine crisis is a case in point.
Similar realignments have been noticed in other energy landscapes. “European economies’ energy imports shifted dramatically away from Russia, while imports of some products from China, such as electric vehicles, boomed,” said the McKinsey Global Institute report, Geopolitics and the Geometry of Global Trade, earlier this year. [i] This report pointed toward “reconfiguring” global trade patterns. “More shifts are likely, and businesses need to be aware of the potential trade-offs of different paths ahead,” it said, adding that global energy trade will involve trade-offs. “Reducing geopolitical distance comes with increasing trade concentration, and vice versa,” it adds.
Climate goals have been increasingly influential in recent energy transition and sustainability policies. For instance, through the Kyoto Protocol and the Paris Agreement, countries agreed to reduce greenhouse gas emissions. [ii]Governments worldwide have been compelled to incorporate environmental considerations into energy trade deals and have supported technology transfer for renewable energy development. These factors have, mostly independently but often combined to influence energy trade and security decision-making in recent years, making the trade policy component increasingly relevant. Countries are routinely tasked to align trade policies with energy goals. They are expected to ensure sustainable, affordable, and reliable energy supplies, which are critical steps considering the energy mix transitions and shifting geopolitical landscapes. UN Trade and Development calls for comprehensive reform of the global trade system to align it with climate and other environmental objectives, [iii] while also advancing socio-economic Sustainable Development Goals (SDGs). One example is the BioTrade Initiative, which promotes sustainable methods and enables countries to leverage their natural resources for economic growth while protecting biodiversity. In South Africa, it has contributed to the creation of over 3,700 jobs and a 178% increase in BioTrade exports.
Energy Trade Policy: Critical Components
Energy trade policy has several critical components, including diversifying suppliers and sources. The motive here is to reduce dependence on a single country or region by promoting multiple trade partners for energy imports and encouraging trade in various energy sources (oil, natural gas, renewables).
Trade partnerships, encompassing bilateral and multilateral arrangements, are becoming increasingly vital to energy trade policies. The WTO convened a high-level panel of speakers during the fifth Trade and Environment Week, held from October 7–11, 2024, in Geneva, driven by the belief that trade policies can significantly accelerate the global transition to clean energy. These agreements, meant to ensure long-term supply stability, incorporate energy-specific provisions within trade frameworks. They formalize collaboration and foster mutual energy security. [iv] Addressing the gathering, WTO Director-General Ngozi Okonjo-Iweala, underlined the necessity to triple renewable energy production, and to double energy efficiency by 2030 to remain on track with the Paris Agreement on climate change.
Countries also focus more on cross-border infrastructure, like pipelines or power grids, to enhance energy flow. Trade policies looking to achieve these objectives gravitate toward joint investments in infrastructure projects. An example of this trend is the European Green Deal's emphasis on cross-border energy infrastructure. The EU has supported projects like the Baltic Energy Market Interconnection Plan (BEMIP), which integrates power grids and gas pipelines across member states. These efforts aim to enhance energy flow, reduce dependency on non-renewable sources, and foster regional cooperation through joint investments. Attached is the factor of tariffs and subsidies, which must be managed on imported energy products to balance domestic production and foreign dependency. Its more pronounced form these days is subsidizing renewable energy technologies to curb reliance on imported fossil fuels.
Strategic reserves and stockpiling, regulated through trade, provide another layer of energy security. Trade policies support creating and maintaining these reserves and rules on emergency energy trading or stock-sharing among partner nations. For instance, in July this year, Reuters reported a United States contract to purchase 4.65 million barrels of crude oil for the Strategic Petroleum Reserve, [v] the latest purchase in a string of contracts intended to refill the nation’s emergency oil stockpile following a record release of 180 million barrels in 2022.
Measures associated with market regulation and standardization harmonize energy standards across borders to facilitate easier and safer trade and implement regulatory frameworks, thereby preventing market manipulation. An example of this approach is the European Union's Network Codes for Electricity and Gas. These standardized rules harmonize energy trading practices and technical standards across member states, ensuring a reliable and efficient energy market. By establishing clear regulatory frameworks, the codes facilitate cross-border energy trade, enhance grid stability, and prevent market manipulation. Implementing such measures leads to policies securing foreign investments in energy infrastructure and trade-related mechanisms to protect investors from political or economic instability.
The shifts witnessed in energy trade globally have a lot to do with policies governing energy transition and sustainability. These policies incorporate climate considerations into energy trade deals and support technology transfer for renewable energy development. They also look at critical factors such as supply chain resilience to ensure the security of energy technology supply chains (such as solar panels or battery storage). In other words, trade policies address geopolitical risks in critical energy supply chains.
The UN Trade and Development (UNCTAD recently reported that trade in solar and wind energy technologies is booming, supporting the overall transformation of the electricity sector. [vi] Emphasizing that trade costs along solar and wind energy technology value chains remain high, the report underlined the scope for fostering regional integration by tackling tariffs and non-tariff barriers.
Sanctions and export controls are the broader geoeconomic tools associated with energy trade. They are used during geopolitical turmoil to control energy exports. A notable example of such an export control measure is the sanctions imposed by the United States and the European Union on Russian energy exports following Russia's actions in Ukraine. These sanctions targeted oil and gas exports, restricting access to global markets and advanced technologies for energy production, aiming to limit Russia's revenue from energy trade while exerting geopolitical pressure. The larger motive behind using them is ensuring domestic supply or enforcing political objectives. Restrictions on energy trade have also been imposed for security reasons. The purpose is to balance economic efficiency, environmental goals, and national security, contributing to a stable global energy landscape.
The Clean Energy Trade Shift
A September 2024 Deloitte study – Economics of Green Transition – delineated the implications of demand-supply dynamics and the race toward energy security, which are visible globally and have gained momentum. [vii] “In 2023, global investment in clean energy technologies touched US$ 1.7 trillion, with an increase of 7.6 percent year-over-year, while investment in conventional fuels has moderated,” it said. The study also highlighted a critical transition, a tipping point if one looks at it that way. (Figure 1).
“The world is now following a more cautious approach toward new investments in fossil fuels, with a clear focus on lower carbon investments. In addition, one can expect a shift in energy trade equations due to differences in renewable endowments, changing energy security dynamics, and nations’ capacity to scale up faster,” the report emphasized.
Figure 1
The Deloitte report underlined a significant global trend related to the intersection of trade policies and climate impact, which it said “is gaining traction as lawmakers look to address emissions embedded in globally traded goods that are subject to different jurisdictions’ climate regulations.”
The International Energy Agency (IEA) State of Energy Policy 2024 confirmed the shift to cleaner energy, highlighting that trade policies related to key clean energy technologies sharply increased in the early 2020s. “Trade policies encompass analysis of tariffs and non-tariff measures, as well as free trade agreements (FTAs) that impact key clean energy technologies and commodities,” it posited. [viii] According to this report, Asia Pacific and European countries account for the most recent changes in trade-related measures linked to clean energy technologies.
However, despite the renewed focus on renewables, the reliance on conventional fossil fuels is far from over, and its relevance to the energy trade cannot be ignored. Even amid the recent rapid transition, it has been observed that shipping cannot shift to cleaner fuels and decarbonize independently. [ix] “Decarbonization and energy transition efforts need to bring together the broader industry, including carriers, ports, manufacturers, shippers, investors, and energy producers and distributors,” the United Nations Conference on Trade and Development was told in February 2024, stressing the need for policy intervention.
Numbers speak louder than words in this domain. “In 2023, the total international trade of oil, gas, and coal was 53 percent higher than in 2000,” the Energy Institute’s Statistical Review of World Energy 2024 reported. Not surprisingly, the Middle East dominated exports, accounting for 41 percent of the total, while China was the single largest importer, at 0.6 billion tonnes, 27 percent of the total globally (Figure 2).
Figure 2: Inter-area movements 2023 – Refined product.
Source: Energy Institute, Statistical Review of World Energy, 73rd edition, 2024.
IAE’s Energy Technology Perspectives 2024 shares more specific inputs, highlighting three strategic areas of public policy – energy, industry, and trade – all of which are increasingly interwoven. “The emerging energy economy presents major opportunities for countries looking to manufacture clean technologies, their components, and related materials. However, it also presents challenging decisions for governments, which face tensions and trade-offs based on the industrial and trade policies they opt to pursue,” it says. [x]
Takeaways from the International Renewable Energy Agency’s (IRENA) April 2024 study on energy transition tell the story of a renewable energy surge changing how energy will be traded. [xi] Emphasizing that energy trade flows will change eventually, it shows how globalized trade will be key to implementing the needed solutions at scale. “New trade flows in electricity, hydrogen, materials, and clean technologies will emerge, differing significantly from traditional fossil fuel dependencies,” the report claims, adding that renewables change how we trade energy. Policy formulations will undoubtedly have to keep an eye on this trend.
Conclusion
Trade policy plays a critical role in energy security. As countries struggle to ensure reliable energy supplies and transition to cleaner energy systems, they can leverage trade policy to reinforce energy security while transitioning toward sustainable systems. Trade policy and energy security are deeply intertwined in the Gulf and broader Middle East with the region’s evolving role in the global energy landscape. The economies of many Gulf Cooperation Council (GCC) countries rely heavily on hydrocarbon exports and their trade policies governing oil and natural gas exports are central to their economic strategies, impacting global energy markets and influencing their geopolitical leverage.
Since the region’s geography includes critical trade chokepoints such as the Strait of Hormuz, policies ensuring open and secure trade routes are vital for both regional energy exporters and global energy consumers. Moreover, with global shifts toward decarbonization, Gulf countries are reconfiguring their trade policies to attract foreign investments in renewable energy and clean technologies. By shaping export controls, investment strategies, and multilateral agreements, trade policies in the Gulf and Middle East directly impact energy security at regional and global levels, reflecting the symbiotic relationship between the two.
Ehtesham Shahid is an editor and analyst base
[i] Geopolitics and the geometry of global trade, McKinsey Global Institute, https://www.mckinsey.com/mgi/our-research/geopolitics-and-the-geometry-of-global-trade
[ii] Lindsay Maizland, Global Climate Agreements: Successes and Failures, Council on Foreign Relations, December 5, 2023: https://www.cfr.org/backgrounder/paris-global-climate-change-agreements#:~:text=Through%20the%20Kyoto%20Protocol%20and,Earth%20at%20an%20alarming%20rate.
[iii] Making trade work better for the planet, UN Trade and Development (UNCTAD), June 9, 2024: https://unctad.org/news/making-trade-work-better-planet
[iv] Trade policies discussed as a key driver for clean energy at Trade and Environment Week, World Trade Organization, October 11, 2024: https://www.wto.org/english/news_e/news24_e/envir_11oct24_e.htm
[v] US buys 4.65 million barrels for emergency oil stockpile, Reuters, July 2024: https://www.reuters.com/business/energy/us-buys-465-million-barrels-emergency-oil-stockpile-2024-07-29/
[vi] Powering trade – Fine-tuning trade policy for solar and wind energy value chains, UN Trade and Development (UNCTAD): https://unctad.org/system/files/official-document/osgttinf2024d3_en.pdf
[vii] Economics of energy transition, Deloitte, September 2024: https://www2.deloitte.com/content/dam/Deloitte/in/Documents/about-deloitte/in-ad-economics-of-energy-transition-noexp.pdf
[viii] State of Energy Policy 2024, International Energy Agency Website: www.iea.org
[ix] The sustainable energy revolution: Trade and development implications in critical energy transition minerals markets and maritime transport, Trade and Development Commission, Fourteenth session
Geneva, April 22–26, 2024: https://unctad.org/system/files/official-document/cid57_en.pdf
[x] Energy Technology Perspectives 2024, IAE 50: https://www.iea.org/reports/energy-technology-perspectives-2024
[xi] Trade contributions to energy transition efforts, WTO Trade and Environment Committee, World Trade Organization: https://www.wto.org/library/events/event_resources/envir_2304202410/439_1440.pdf
