Energy Geopolitics and Market Fundamentals

Anas Alhajji spent his career studying how geopolitics shapes energy markets. His core insight: geopolitical risk isn't a secondary variable that occasionally disrupts markets. It's a primary driver of supply, pricing, and investment decisions.

This matters for your company because traditional financial planning often treats geopolitical risk as an "externality" - something you account for with a probability-weighted scenario. That's backwards. Geopolitics should be central to your strategy.

The Saudi Arabia and Iran Dynamic

Saudi Arabia is the single largest swing producer in global oil markets. Its decisions on production levels, investment timing, and strategic partnerships directly impact global oil prices and energy market confidence.

Iran is the second-order variable. Sanctions, regional tensions, and geopolitical escalation can remove 1-3 million barrels per day of production from global markets with little notice.

The relationship between these two countries - competing for regional influence, managing their own economic pressures, and responding to US policy shifts - is not stable. It's contingent. It's geopolitically driven.

Energy markets that treat this as a predictable variable are ignoring reality.

How Geopolitical Volatility Affects Energy Companies

For Oil and Gas Producers: A geopolitical disruption that tightens markets benefits your economics. Higher oil prices, faster payback, easier financing. But the inverse is also true - if markets open up, prices fall, and your projects become marginal. Your financial planning needs to account for both scenarios explicitly.

For Power and Infrastructure Companies: Geopolitical risk affects fuel costs, supply chain timing, and political stability in regions where you're developing assets. A 2-3 year delay in project execution due to geopolitical instability dramatically changes your cost of capital and project returns.

For Midstream and Logistics Companies: Supply routes, trade flows, and export corridors are geopolitically determined. A shift in regional tensions can reroute supply flows, stranding assets or creating new opportunities. This isn't something you can forecast. It's something you need to plan for.

The Narrative vs. Reality Gap

Alhajji's research shows that energy market narratives often lag reality. The consensus story - driven by IEA forecasts, Goldman Sachs models, and media coverage - can be 6-18 months behind actual geopolitical developments.

Example: When US sanctions on Iran tighten unexpectedly, global oil markets take time to fully price in the supply loss. During that gap, companies with hedges or early visibility capture advantages. Companies that relied on consensus forecasts are surprised.

This asymmetry in information and forecasting creates financing opportunities for companies that see geopolitical risk clearly and early.

Building Geopolitics Into Your Financial Plan

Credible financial leadership in an energy company means explicitly modeling geopolitical scenarios, not hiding them in aggregate risk adjustments.

This means:

• Multiple scenarios: Base case (current geopolitical status quo), Tightening case (supply disruption), and Easing case (regional de-escalation). Each with explicit assumptions about oil/gas prices, supply availability, and trade flows.
• Regional exposure mapping: Where is your company exposed to geopolitical risk? Permian shale? Gulf of Mexico? Middle East infrastructure? Each has different geopolitical risk profiles.
• Supply chain resilience: Can you source key equipment and materials from multiple geographies, or are you dependent on single-source suppliers in geopolitically unstable regions?
• Hedging and optionality: Are you positioned to benefit from higher prices if geopolitical tightening occurs? Or are you exposed to price collapse if markets ease?

Why Investors and Lenders Care About This

Sophisticated energy investors have watched oil markets for decades. They've seen geopolitical shocks destroy business plans and surprised companies with large losses. They're skeptical of financial models that treat geopolitics as incidental.

When you present a financing case to a major lender or PE firm, they're evaluating whether your management team understands geopolitical risk and has planned for it. If your financial model shows a narrow range of outcomes around a base case, and you haven't explicitly addressed geopolitical scenarios, they'll reduce your credibility.

Conversely, a team that clearly understands geopolitical risk, has built it into planning, and can articulate scenarios across multiple geopolitical outcomes looks like experienced stewards of capital.

The Energy Security Question

Global energy security - the reliable, affordable supply of energy globally - is increasingly contingent on geopolitical stability. Alhajji's work highlights that energy security can't be decoupled from geopolitics.

For mid-market energy companies positioned in this landscape, that's actually an opportunity. Companies that solve energy security problems - reliable supply, resilient infrastructure, diversified sourcing - are valuable to acquirers and investors who care about energy stability.

Position yourself as part of the energy security solution, not just a commodity producer.