Changes on global energy markets caused by the US shale revolution may lead to geopolitical tensions and a heightened risk of instability in oil- and gas exporting countries near the European Union (EU).


By Sijbren de Jong and Willem Auping. Published 31 January 2014.

Sijbren de Jong  Willem Auping

More Weight on Europe’s Shoulders

The ‘shale revolution’ is dramatically changing the US energy landscape. The technological advances of horizontal drilling in combination with a process known as hydraulic fracturing, or ‘fracking’, have greatly expanded the ability for USproducers to profitably extract natural gas and oil from low-permeability geological plays, shale plays in particular. Despite consistently having been projected to remain an energy importer for the long term, the tables now seem to have turned for the US. Almost all of the demand for natural gas in the US can currently be met by domestic production, while a surge in oil output has set America on course to overtake Saudi Arabia, and – at least temporarily – become the world’s largest oil producer by mid-2020 and a net oil exporter by 2030. (1)

On a strategic level, as US energy import dependency is greatly decreasing, a "rebalancing” of US foreign policy focus is taking place from the Middle East toward other regions, notably the Asia/Pacific. Any void left by the US in the Middle East, in terms of oil and natural gas demand, is likely to be filled by emerging economies, China and India in particular. It is not unimaginable that this brings about increased competition between China and India in an already politically unstable region. This development could render the old ‘Pax Americana’ a thing of the past. This means that safeguarding stability in the Middle East and North Africa will increasingly have to be a European responsibility, at a time of severe austerity measures on foreign and defense policy. (2)

Traditionally, in countries heavily dependent on resource rents from oil and natural gas sales, such as Saudi Arabia, Algeria, Qatar, Russia, Azerbaijan, and others, these rents are used as part of the social contract between government and society. This can take different forms, for example job creation, or enhancing purchasing power by food or fuel subsidies. In our recent study on the geopolitical implications of the US shale gas revolution, we found that the advent of shale gas and other unconventional energy sources could have as a consequence that this precarious social contract becomes unsustainable in the long term, leading to popular resentment and instability in important gas and oil exporting countries. (3)


More Gas, less Oil?

Since shale gas and other unconventional energy sources in essence are expensive energy sources, the extraction of these resources will only take place when price levels are high enough. This is one reason why it is unlikely that the shale revolution will take off at a similar rate globally as currently witnessed in the US.

Nevertheless, the onset of American shale gas caused the global available supply of natural gas to increase, as more extraction capacity for natural gas became available. Taking into account that worldwide demand for natural gas is projected to increase strongly, the mix between natural gas and other fuels is thus set to change. In the short term (until 2020), this already takes place in North America, but in the medium (2020 till 2030) to long term, this may have effects globally. (4)

The greater availability of liquefied natural gas (LNG) worldwide has prompted transportation companies, as well as governments to look at ways in which LNG can be used in commercial transport. Heavy duty vehicles, buses, and particularly shipping are thought to have great potential. Moreover, gas can also substitute oil for use in power stations, (petro)chemical plants, and domestic and industrial heating systems. The onset of shale gas could thus act as a catalyst for accelerating the shift from oil to natural gas in energy-intensive sectors of the economy. (5)

However, greater energy efficiency is another key-factor to watch. Important in this regard is that emerging economies are beginning to impose tougher fuel-efficiency standards on vehicles – although not (yet) up to the level of developed economies. Notwithstanding a growing demand for energy, such developments do contribute to a slowdown in the projected demand for oil in the coming years. The advent of shale gas adds to this potential. For countries heavily reliant on the income generated through oil exports, this is particularly bad news.


Risk of Instability in the EU Neighbourhood

Not all oil and gas exporters are equally vulnerable to such a development. Most exposed are young democracies suffering from high youth unemployment, while having limited financial buffers in place (in the form of sovereign wealth funds) to compensate for a reduction in export earnings caused by a lower oil price. Countries that emerged from our analysis as particularly vulnerable are Algeria and Russia. This is not least due to both countries’ sheer addiction to resource rents misallocated in their economies, but also due to their lack of buffers. (7)

Europe could thus be confronted with heightened instability in two of its most important natural gas and oil providing countries, when indeed oil demand growth slows down in the long term leading to lower oil prices. This could potentially lead to situations in which reduced oil rents cause a worsening of national economic circumstances, rising youth unemployment, and, when food and fuel subsidies are cut, strongly reducing the purchasing power of the population. In many cases, a worsening of these variables has led to severe internal unrest, eventually leading to regime change. (8)

Therefore, in anticipation of instability, and to balance out the effects of European policy choices aimed at greater energy self-sufficiency, the EU should therefore seek alternate interdependencies with the oil and gas exporters in its immediate neighborhood, leading to a further development of these nations.


Dr. Sijbren de Jong is Strategic Analyst at the Hague Centre for Strategic Studies (HCSS), and specialized in EU energy security and the security implications of natural resource extraction. Willem Auping is Strategic Analyst at HCSS and PhD candidate at the Delft University of Technology, and specialized in System Dynamics Modeling in combination with Scenario Discovery and Robust Decision Making approaches.



1 World Energy Outlook 2012, World Energy Outlook (Paris: International Energy Agency (IEA), 2012), 23; John Sfakianakis, "Oil Kingdom,” Foreign Policy, August 7, 2013,

2 Sijbren de Jong, Willem Auping, and Joris Govers, The Geopolitics of Shale Gas -  The Implications of the US’ Shale Gas Revolution on Intra-State Stability within Traditional Oil and Natural Gas Exporting Countries in the EU Neighborhood, HCSS & TNO Strategy and Change (The Hague: The Hague Centre for Strategic Studies (HCSS), 2014), 19.

3 Traditional oil- and gas exporting countries analyzed in the course of the study were Algeria, Azerbaijan, Egypt, Kazakhstan, Qatar, Russia, and Saudi Arabia. See Ibid., 20.

4 Ibid., 129.

5 "The Future of Oil: Yesterday’s Fuel | The Economist,” The Economist, August 3, 2013,; de Jong, Auping, and Govers, The Geopolitics of Shale Gas -  The Implications of the US’ Shale Gas Revolution on Intra-State Stability within Traditional Oil and Natural Gas Exporting Countries in the EU Neighborhood, 130.

6 "China Imposes Strict Fuel Economy Standards on Auto Industry | Reuters,” March 20, 2013,

7 de Jong, Auping, and Govers, The Geopolitics of Shale Gas -  The Implications of the US’ Shale Gas Revolution on Intra-State Stability within Traditional Oil and Natural Gas Exporting Countries in the EU Neighborhood, 125–127 and 130–131.

8 An example thereof is the step down of Indonesian President Suharto on 21 March 1998 after a decision to slash fuel subsidies sparked major social unrest, leading to over 1,200 deaths in the country.