A new energy cycle is looming, the shift could be brutal

For much of the past four years, global energy markets have appeared deceptively calm.

Oil prices have fallen by more than half since their US$ 130 peak in 2022. Natural gas prices have normalized after the shock of the war in Ukraine. Renewable energy headlines dominate the narrative, reinforcing the idea that fossil fuels are gradually being relegated to history.

At first glance, the world seems well supplied.

Yet beneath this surface calm lies a far more unstable reality — one shaped by chronic underinvestment, physical depletion, geopolitical concentration, and rising structural demand. The global energy system today is not resilient. It is balanced on a knife edge.

The Illusion of Oversupply

At around $60 per barrel, oil prices suggest abundance. The International Energy Agency projects global oil supply growth of 3.1 million barrels per day in 2025, comfortably outpacing consumption. The consensus among analysts points toward continued weakness, reinforcing the belief that energy scarcity belongs to the past.

But prices at these levels come with a cost.

When oil trades below the marginal cost of new production, investment slows. Not immediately, and not dramatically — but persistently. Over time, this erodes the system’s ability to respond to shocks.

In the United States, shale oil — the backbone of global supply growth over the past decade — is already showing signs of strain. Shale production was the primary driver behind America’s shift from being the world’s largest oil importer to achieving self-sufficiency and eventually becoming a net exporter.

Today, shale dominates U.S. crude production, accounting for roughly two-thirds of total output, driven by technological advances such as hydraulic fracturing and horizontal drilling, with the Permian Basin as the main contributor.

However, when WTI trades below the marginal cost of new supply — currently estimated at $70 per barrel by Enverus Intelligence Research for U.S. shale, with all-in corporate breakevens closer to $62.50 according to Rystad Energy — investment inevitably contracts.

Drilling activity has already begun to decline as prices fall below incentive levels. Because shale wells decline rapidly, losing up to 50% of their output in the first year, continuous drilling is required simply to maintain production. Today’s drilling weakness therefore translates into lower production tomorrow.

Globally, conventional oil fields decline by 4 to 6 percent per year. Maintaining current output requires replacing millions of barrels per day annually. When investment falls short, shortages do not appear instantly. They accumulate quietly.

This is how energy markets flip from surplus to deficit. And when deficits emerge, repricing can be violent.

Natural Gas: The Logistical Fault Line

The global energy system rests on a quadrangular equation:

Oil remains the backbone, supplying roughly 30% of total global energy

Renewables provide intermittent supply

Nuclear provides baseload — slowly

Natural gas delivers flexibility, reliability, and speed

Natural gas has become central to modern electricity systems. It provides the responsiveness and stability that renewables cannot yet deliver at scale.

Natural gas is uniquely sensitive to temperature — not because demand is speculative, but because heating and cooling are non-negotiable. Cold winters in Europe, North America, or Northeast Asia immediately tighten balances. Hot summers do the same through power demand. Gas fills the gap.

Gas production is not immune to decline. Persistently low prices over the past two years have led to reduced drilling in dry-gas basins, capital reallocation toward oil-weighted plays, and deferred investment in pipelines and infrastructure.

Unlike oil, however, the primary constraint for natural gas is not production, but distribution: pipelines, LNG terminals, shipping fleets, specialized storage facilities, and port infrastructure.

Liquefied natural gas has globalized the market. Europe, having sharply reduced its reliance on Russian pipeline gas, now depends heavily on LNG imports. Asian demand continues to grow. The United States has emerged as the world’s largest LNG exporter, tying domestic gas markets ever more closely to global demand and logistical capacity.

As a result, disruptions are no longer regional. They are systemic.

Energy Demand Is Rising Again, Quietly

While public attention remains focused on declining fossil-fuel demand driven by electric vehicles and the spectacular growth of solar power, a new driver of energy demand is emerging: artificial intelligence.

The AI revolution is not only about chips and software. It is about energy.

By 2030, global data-center electricity consumption is projected to reach between 950 and 1,600 terawatt-hours, driven primarily by AI workloads. For comparison, total U.S. electricity generation in 2024 was approximately 4,400 terawatt-hours.

AI alone could increase U.S. power demand by more than 20% within five years.

This energy must come from somewhere.

Nuclear power plants have long lead times. Solar energy, while growing rapidly, still represents only around 5% of total electricity generation, and is expected to reach roughly 20% by 2050. Natural-gas infrastructure is complex and slow to develop.

Oil therefore remains, for now, the cheapest and most immediately available source of energy.

The result is a paradox: even as the energy transition accelerates, energy demand is becoming more rigid — not less.

Concentration of Marginal Supply: Where the Fault Line Lies

The United States is both the world’s largest consumer and the world’s largest producer of oil. It is effectively self-sufficient.

China, by contrast, is the second-largest consumer, at roughly 16 million barrels per day, and the world’s largest importer. It relies on a diversified set of suppliers including the Gulf countries, Russia, Iran, Venezuela, and to a lesser extent Asian producers such as Indonesia, Brunei, and Myanmar.

Until recently, China imported roughly 400,000 barrels per day from Venezuela, around 4% of its consumption — a flow that ended abruptly on January 3, 2026.

In 2025, Iran ranked as China’s second-largest crude supplier in 2025, exporting 1.61 million barrels per day, or nearly 20% of China’s total imports.

The greatest vulnerability in the global energy system lies not in demand, but in the concentration of marginal supply.

Outside the United States, spare production capacity is extraordinarily concentrated. As of late 2025, OPEC+ spare capacity stood near 4 million barrels per day, roughly 4% of global consumption. On paper, this appears comfortable.

In reality, it is not.

Saudi Arabia controls approximately 2.4 million bpd

The UAE controls around 850,000 bpd

Iraq controls roughly 320,000 bpd

Together, three countries hold around 70% of global spare capacity. Most other producers are already operating near maximum output.

This concentration turns spare capacity from a buffer into a single point of failure.

Concentration of Logistics: Where Geopolitical Risk Lies

Nowhere is fragility more evident than in the Middle East.

20% of global oil consumption and a critical share of global LNG exports transit the Strait of Hormuz every day— a narrow maritime corridor between Iran and Oman with no realistic alternative.

Any disruption, even temporary, would immediately expose how thin global buffers truly are.

With Iran’s clerical regime facing its most serious internal and external pressures in decades, the risk of asymmetric escalation cannot be dismissed. Among the most consequential scenarios would be an attempt to disrupt maritime traffic through the strait.

Such an event would represent a genuine Black Swan for global energy markets, forcing a sudden repricing of both oil and natural gas, particularly during peak winter demand in the Northern Hemisphere.

A System Priced for Calm, Not Shock

The prevailing narrative assumes stability: stable supply, manageable geopolitics, and a smooth energy transition.

History suggests otherwise.

Energy markets do not fail gradually. They fail at the margin — when low investment constrains long-term supply, when new technologies drive unexpected demand surges, and when high production and logistical concentration renders the system fragile. Under such conditions, shocks have outsized effects.

Today, that margin is uncomfortably thin.

Donald Trump’s renewed focus on Venezuelan oil — and potentially Iranian oil tomorrow — can also be interpreted through the lens of China’s strategic dependence on imported energy.

The world is not short of energy yet.

But it is dangerously short of resilience.