Energy transition faces new “Strait of Hormuz” vulnerabilities

The strategic logic is simple. The less a country depends on imported oil and gas passing through bottlenecks such as the Strait of Hormuz, the safer it becomes. In 2025. almost 34% of global crude oil trade passed through the Strait (with China and India alone accounting for 44% of this flow), as well as about one-fifth of global liquefied natural gas exports.

But contrary to popular belief, the transition to clean energy will not eliminate geopolitical risks, only redistribute them. While a world powered by renewables, batteries, and clean electricity will be less dependent on the routes of tankers and fossil fuel exporters, it will be dependent on critical minerals. The energy supply chain, refining chains, technical standards, power grid equipment and transmission networks. This creates its own vulnerabilities.

Three stand out: the concentration of processing and production of critical minerals, the increasing fragmentation of trade and standards, and the vulnerability of existing power grids. Taken together, these vulnerabilities make it clear that the energy transition is not simply a climate or industrial project. Above all, it is a coordination challenge, and great power rivalries make it difficult to achieve.

Structural bottlenecks

Raw materials are a prime example. While much of the public discussion centers on control of mineral reserves, the real bottleneck is further down the chain. The average market share of the top three countries in processing minerals has risen from approximately 82% in 2020 to 86% in 2024. This growth in supply is concentrated in the hands of a few dominant suppliers: Indonesia for nickel, and China for cobalt, graphite and rare earth elements.

This is the clean energy equivalent of the Strait of Hormuz. The strategic bottleneck is not in the extraction itself, but in the later stages of production: refining centers, chemical plants, rare earth element separation facilities, and export control regimes. When tensions rise in lithium, cobalt, nickel, graphite or rare earth element supplier countries – or when major powers restrict exports of certain commodities – the consequences affect a wide range of industries, including batteries, electric vehicles (EVs), wind turbines and grid infrastructure.

This imbalance is structural rather than cyclical, as refining is expected to remain highly concentrated over the next decade. By 2035, China is projected to account for more than 60% of recycled lithium and cobalt and about 80% of battery-grade graphite and rare earth elements. Rapid demand growth exacerbates the risk: in 2024, demand for lithium grew by almost by 30%while demand for nickel, cobalt, graphite and rare earth elements increased by about 6-8%.

The United States has responded with a multi-layered strategy that includes the launch of the Geostrategic Resource Engagement Forum. a Forum on Geostrategic Resource Engagement – an international initiative aimed at securing a reliable supply of critical minerals for the U.S. and its allies; the development of a a joint mineral action plan with Japan; and advancing the creation of a a new trade bloc involving dozens of countries to counter China’s dominance in minerals (among other measures).

However, restrictions on the supply of technological equipment, technical knowledge, and intermediate products continue to hold back progress. These restrictions are primarily geopolitical in nature: China has imposed export controls on rare earth materials, processing technologies, and technical knowledge, while the United States and its allies have restricted access to advanced manufacturing equipment and related technologies. Together, these mutual restrictions have fragmented supply chains and slowed diversification.

This helps explain why diversification remains costly and politically challenging. To reduce dependence on Chinese imports, the U.S. and its allies have turned to industrial policy, long-term procurement agreements, government-backed financing, and greater coordination. However, building a supply chain independent of China requires a wide range of processing capacity as well as sustained price support until commercial viability is achieved.

This is essentially a capacity problem. Abundant resources alone are not enough. The time, capital and coordination required to build an integrated system around them are important, especially in an environment dominated by an incumbent player with deep industrial networks and enormous pricing power.

Collaboration against geopolitical uncertainty

The lack of common standards is another source of vulnerability. Clean energy technologies do not spread globally simply because they exist or become cheaper. They only scale when markets can recognize, certify, finance, insure, and interconnect them across borders. Fragmented and incompatible standards, contentious certification systems, local content requirements, and shifting industrial policy regimes all serve as barriers to coordination.

Moreover, the clean energy economy is inherently transnational. A battery may depend on minerals mined in one country, processed in another, used for assembly in a third, financed in a fourth, and subsidized in a fifth. Similarly, a wind turbine often must meet a multitude of technical and regulatory requirements before it can be financed, shipped, installed and connected.

When connectivity is disrupted, technology diffusion slows dramatically. Technologies may be available and even cost-competitive, but still fail to scale in markets. In stable geopolitical environments, these frictions can be resolved through technical harmonization and mutual recognition. In periods of heightened geopolitical tensions, they become economic policy instruments that allow governments to undermine competitors through certification rules, subsidy structures, local content provisions, procurement preferences and export restrictions.

As a result, clean technologies risk fragmenting along geopolitical lines rather than scaling globally. Such an outcome would impose disproportionate costs on middle-income and developing countries, which are least able to absorb overlapping compliance systems and forced technological equalization.

Because clean energy is only useful to the extent that the networks that supply it allow, unsustainable energy systems and infrastructure are a growing strategic risk. While the fossil fuel system depends on tankers, ports, and pipelines, the clean energy system depends on well-integrated transmission lines, transformers, and cross-border interconnections.

This is where the the gap between ambition and opportunity is most acute. To achieve global climate goals, investments in energy networks must by 2030 to increase by 50% to $600 billion a year by 2030, but spending on them has stagnated at the same level, even as investment in generation has risen sharply. In emerging and developing economies outside China, grid investment has declined despite robust demand and growing energy access needs.

Obstacles of the two blocs

Europe’s experience serves as a cautionary tale. The European Union has for years promoted electricity market integration as a foundation for energy security, competitiveness and decarbonization, but many member states are not on track to meet the bloc’s 2030 goal of connecting 15% of domestic generation across borders. Turning regional initiatives into national actions has proven to be a challenge. The authorization process is slow and cost allocation is politically contentious. Infrastructure often brings regional benefits while imposing environmental and political costs on local communities, fueling public resistance. Power system planning remains fragmented and grid operator incentives are not always aligned.

At the same time, aging infrastructure faces growing demand from electric vehicles, heat pumps, data centers and renewables. Approximately half of Europe’s transmission lines are at least 40 years old. at least 40 years old. This requires more than $2 trillion in upgrades by mid-century to prevent large-scale outages.

The Iberian Peninsula illustrates the scale of the problem. Spain and Portugal remain poorly connected to the rest of Europe, with interconnection levels well below stated EU targets. Major projects such as the Bay of Biscay interconnection will take years to complete.

Europe’s experience points to a more general lesson: it is much easier to set renewable energy targets than to build the cross-border networks needed to meet them. While the technical feasibility of interconnections has long been clear, the political and administrative capacity to facilitate them has not kept pace.

The ASEAN Power Grid (ASEAN Power Grid), a cooperative initiative to interconnect Southeast Asia’s power grids by 2045, puts these challenges acutely on the agenda. Often presented as a promising integration project, it is in fact a test of whether clean energy interdependence can work in a region with diverse political systems, uneven regulatory capacity and fragmented energy markets.

Few doubt the strategic logic of this project. Regional transmission lines and cross-border electricity trade are critical to integrating renewable energy, increasing resilience and reducing costs. But progress has been slow: of the 18 planned interconnection projects, only half.

The main obstacles are institutional and financial, rather than technological. ASEAN still lacks common technical standards, transparent trading rules, effective pricing mechanisms, clear rules for allocating grid capacity, robust dispute resolution mechanisms, and the legal framework necessary for regional investment. Confidence is also a major constraint, as interconnection depends on confidence that rules will be respected in all jurisdictions over time.

Energy security is climate security

Geopolitical shifts add another layer of uncertainty. When US President Donald Trump and his Chinese counterpart Xi Jinping meet in May, rare earth metals and industrial influence are likely to be at the top of their agenda. Tensions have escalated in recent months as the U.S. has sought to offset China’s dominance in mineral processing by securing access to oil from Venezuela and, to a lesser extent, oil from sanctioned Iranian and Russian producers.

Venezuela, which has about 303 billion barrels of proven reserves – approximately 17% of the world’s total – is central to this effort. Since the takeover of former President Nicolas Maduro in January, the Trump administration has taken steps to reopen the country’s energy sector, authorizing deals with state oil company PDVSA and easing sanctions to allow major firms to resume operations and negotiate new investments.

The U.S. has also shown flexibility in its use of sanctions, especially since the outbreak of war in Iran and the ensuing spike in oil prices. For example, in an effort to curb market volatility, the Trump administration for 30 days lifted sanctions on purchases of Iranian and Russian oil already at sea.

This flexibility gives the U.S. a definite advantage over China. By increasing production in Venezuela and selectively easing pressure on Iranian or Russian exporters, America can contain price spikes, contain inflation, and reduce input cost pressures that would otherwise impede reindustrialization. Because China remains a major oil importer, these measures could also affect negotiations on access to rare earth elements, export controls, and magnet supplies.

However, buying time is not the solution. Additional oil supplies cannot replace rare earth element separation, metal refining, alloy and magnet production, or diversified mineral processing capacity outside China. At best, it gives the U.S. and its partners macroeconomic respite while they expand these capabilities. True energy sustainability requires building a new industrial ecosystem from scratch, not doubling down on oil.

The broader lesson is that policymakers can no longer treat the clean energy transition and energy security as separate agendas. To integrate them, they should focus on five priorities.

First, governments must accelerate efforts to diversify. This means reducing vulnerability to bottlenecks such as the Strait of Hormuz and diversifying the entire supply chain, including refining, processing, production and logistics. Diversification is no longer just about increasing the number of fuel suppliers; it is now about reducing dependence on transportation and infrastructure bottlenecks.

Second, markets are still indispensable, but private companies alone cannot be relied upon to ensure energy sustainability in the face of geopolitical turmoil. Governments will have to play a greater role in mobilizing private capital through strategic procurement, storage, stockpiling, domestic capacity development, supply chain diversification and risk sharing.

Third, countries must take action to accelerate the adoption of electric vehicles not only for climate protection reasons but also to reduce dependence on oil exporters. Electric vehicles minimize direct vulnerability to bottlenecks in marine fuel supply and price volatility, although they increase dependence on minerals and batteries.

Fourth, governments should expand the use of nuclear energy where politically and institutionally feasible. Nuclear power can reduce dependence on imported hydrocarbons and provide stable low-carbon electricity generation alongside renewable sources. It can also become a new arena of geopolitical competition, with governments vying for control over reactor technology, fuel cycle services and uranium enrichment.

Above all, policymakers must take into account the geopolitical realities of today’s evolving energy systems. The transition to clean energy is often presented as a way to escape geopolitics, and in a sense it is: a world less dependent on oil will indeed be less vulnerable to maritime bottlenecks and pressure from oil states.

But getting rid of one form of geopolitical vulnerability does not eliminate geopolitics. Processed minerals, industrial ecosystems, standards systems, and electricity infrastructure are as politically significant as the Strait of Hormuz. There is still time to avoid repeating the mistakes of the fossil fuel era, but this window of opportunity will not be open for long.