This article first appeared in Forum, The Edge Malaysia Weekly on December 20, 2021 - December 26, 2021

On Oct 17, 1973, the Arab member states of Opec made a monumental and unprecedented move — they announced a total oil embargo on Western states in protest against the West’s support of Israel during the then raging October War against Egypt and Syria.

The resultant spike in oil prices triggered the worst recession in the developed world since the 1930s and heralded the rise of the Arab Gulf states as global powers, their new-found power based on their disproportionate control over global energy markets. As US statesman Henry Kissinger observed, “never before had nations so weak militarily — and in some cases, politically — been able to impose such strains on the international system”.

The Arab oil embargo of 1973/74 was a stark reminder of the geopolitical centrality of oil in the modern industrial economy. As the world begins its shift toward renewables and non-hydrocarbon technologies (accelerated by the race to net zero carbon emissions), there is speculation on what this will mean for energy security. Some proponents of green energy argue that the energy transition will make tensions over energy resources obsolete.

The energy transition will have particularly interesting implications for Asean. As a rapidly developing region, growth in electricity demand has averaged around 6% per year. With fossil fuels expected to continue dominating Asean’s future energy mix, the region is projected to become increasingly dependent on energy imports to meet future demand (in the case of oil, this dependence will exceed 80% by 2040). As such, some pundits argue that greater deployment of renewables can help offset these energy security concerns.

However, it is more likely that the nature of energy security will transform and bring new challenges. First will be regarding the pace of globalisation. Future energy geopolitics will be about command of key technologies and platforms, rather than control over natural resources. This emphasis on tech will have implications for resource suppliers, who will have less leverage over buyers. Thus, there may be less emphasis on integration between countries, which decide instead to veer towards energy self-sufficiency and protectionism. Second, the energy transition will inevitably impact the domestic stability of Asean’s traditional suppliers of hydrocarbons.

One Asean member state that has heavily gambled on its own renewable resources as a source of economic growth is Laos. This small landlocked country has bet on its abundant supply of hydropower to be its main source of foreign currency by 2025, with plans to export at least two-thirds of the power it generates to neighbouring countries in order to become the “battery of Southeast Asia”.

However, the collapse of the Xe-Pian Xe-Namnoy dam in July 2018, which displaced more than 3,000 people and also affected neighbouring Vietnam and Cambodia, demonstrates issues related to safety and emergency preparedness in relation to Laos’ hydropower strategy. Future dam failures, and the extensive disruptions it will bring within the grid infrastructure network, pose a risk to the industrial development of the larger region, and will possibly encourage Laos’ neighbours to find alternative sources.

Another country that hopes to gain from the new green economy will be Indonesia, which is looking to position itself as a central node in the global supply chains for electric vehicles (EVs). This is based on the country’s rich reserves of nickel, a key component of EV batteries. Not only did Indonesia lead the world in nickel production in 2020, at 760,000 tons, it also has the largest estimated reserves at 21 million tons.

However, in January 2020, its government put into effect a ban on exports of unprocessed nickel ore in order to compel companies to invest in the development of a downstream mineral processing industry and to move Indonesia up the global value chain. Such policies of resource nationalism are common and often serve as a cover for rent-seeking behaviour by Indonesia’s politically connected local mining companies. Whether such protectionist policies will succeed is debatable — if Indonesia’s trading partners suddenly find their sources of nickel ore stopped, they may merely search for alternative sources or substitutes.

Of course, Asean’s transition away from hydrocarbons will not be an easy process, especially when they play a significant role in how regional elites maintain power and legitimacy domestically. In Indonesia, for example, the prevalence of coal as the dominant technology in the power sector is due in part to vested interests and the rents Indonesia’s political elites derive from the coal industry.

Nowhere in Asean will the transition away from hydrocarbons pose a larger threat to internal stability than in Brunei. Its population of 437,000 is positively pampered by the country’s oil wealth, enjoying one of the world’s highest GDP per capita and zero income tax. However, with oil revenues accounting for over 50% of GDP, and with the country projected to have less than 15 years left of hydrocarbon resources at the current pace of extraction, the government is in a race against time to diversify its economy and encourage greater entrepreneurial talent.

Oil politics also play a significant role in Malaysia, not only with regards to the country’s fiscal health (over the past years, oil-related revenues on average have made up around 20% of government revenue), but also in terms of the cohesiveness of Malaysia’s federalised system. In particular, oil royalties have been a frequent point of contention between the federal government and the oil-producing Borneo states of Sabah and Sarawak, which are demanding a larger share beyond the currently stipulated 5%.

The challenges posed to future oil prices as the global economy transitions to renewables will no doubt create future headaches, as an increasingly cash-strapped federal government wrangles over declining oil revenues with state governments equally dependent on oil royalties for their own development ambitions. This will intensify the East-West divide in Malaysia and further fragment the country’s coalition-centric politics.

Ultimately, Asean’s ongoing energy transition will no doubt bring massive opportunities, helping raise the regional influence of countries with access to valuable resources such as Indonesia and Laos. However, greater Asean interconnectedness, both internally and with the larger global economy, will also become harder in the face of concerns over energy independence and resource nationalism.

As well, regional order in Southeast Asia is first and foremost built on the domestic legitimacy enjoyed by the region’s elites. Thus, the path to net zero will also bring new headaches for regional security, including the threat to traditional rentier networks and domestic stability.

While long overdue, Asean’s energy transition can be expected to create new geopolitical fault lines. Unfortunately, a cleaner future does not necessarily mean a more united future.

Imran Shamsunahar is executive for external relations at the Institute for Democracy and Economic Affairs (IDEAS)

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