Geopolitics of the energy transition:

The global energy system is undergoing a reconstruction. For decades, an open, trade-friendly, market-based order underpinned integrated supply chains and converging energy prices. That order is now fragmenting into competing regional coalitions creating new barriers to investment. Energy transition narratives have shifted from economic efficiency and decarbonisation to national security concerns. However, this reordering carries real commercial consequences: it alters cost structures, redirects capital flows and reshapes legal risk across energy value chains.

We anticipate the shift from globalisation to fragmentation will continue throughout 2026, as a result of defensive trade measures, foreign direct investment (“FDI”) screening and export controls. We consider the concrete steps that can help to recalibrate risk-return equations for energy transition technologies, and the concrete steps that can help to structure, contract and govern for resilience.

From open markets to security-led ordering

Energy is, once again, a geostrategic domain in which dependence equates to vulnerability. But now, due to heightening political tensions between major economic powers, governments are increasingly pursuing protectionist agendas to achieve both energy sovereignty and domestic supply chains. This is heightened by energy demand through increasing use of AI, which is perceived by many as critical to future economic growth. In particular, some governments are responding through investment screening, local content rules and export restrictions on raw materials to reduce exposure to adversarial suppliers and anchor domestic capacity. These measures reinforce interventionist, state-led industrial policies across multiple regions, each with different priorities for hydrocarbons, nuclear fuels and clean technology manufacturing.

We are seeing “golden share” equity investments, direct subsidies and public-private consortia spanning upstream extraction, midstream processing and downstream assembly. State-backed investments and interventions proliferate for activities such as in steel production, lithium extraction and battery gigafactories. Sovereignty over energy inputs, supply chains and technologies has become a standalone policy objective, frequently outweighing efficiency gains from globalised sourcing.

Fragmentation into regional coalitions

Together, these policy tools are steadily fragmenting a once-global market into regional ecosystems with competing standards and priorities:

• Firstly, export restrictions and quotas on critical minerals and technology supplies - including advanced machinery and semiconductors - curtail cross-border flows, elongating lead times and increasing working capital needs across solar, wind and battery supply chains.
• Secondly, FDI screening regimes now encompass minority interests, supply agreements and data-rich energy platforms, treating security threats expansively.
• Thirdly, measures to reduce dependence on foreign markets - including local content mandates, so called “friend-shoring” and preferential procurement - are rescaling production networks. Certain measures risk straining the delicate architecture of non-discrimination rules enshrined in international trade law and may signify a more fractious trading landscape marked by escalating disputes.

For corporates, these measures may now demand localising production, duplicating critical value chain stages across regions and moving from just-in-time delivery to higher inventories of critical components, fuels and materials to manage disruption risk. Global trade persists, but is being reshaped by security imperatives and activist industrial policy.

Recent policy packages such as the US Inflation Reduction Act, the EU’s Clean Industrial Deal and Net-Zero Industry Act, and Japan’s economic-security legislation include measures promoting local content or export controls. We expect to see these further hard-wired into energy and clean technology supply chains in 2026 via support regimes for energy transition technologies.

Prices, inflation, and competitiveness

Fragmentation carries material cost. As supply chains reconfigure around new bottlenecks, and redundancy replaces just-in-time optimisation, input prices for energy and energy-adjacent goods have become more volatile. Energy-intensive industries face higher and less predictable power and fuel costs, with direct effects on margins and investment planning.

Where states underwrite domestic capacity with subsidies, tax credits or other support mechanisms, they are increasingly imposing stringent conditionality - such as local content, data localisation or technology transfer requirements - which can raise total lifecycle costs despite generous headline incentives. These dynamics shift the competitiveness frontier, favouring businesses able to secure less-volatile (and often low-carbon) energy supplies and to pass through cost increases without eroding demand or market share.

Operational complexity and regulatory divergence

Cross-border regulatory divergence intensifies operational complexity. Standards for cyber and data governance, product safety, environmental assessment and sustainability disclosures are diverging, whilst access to energy markets and grids remains disjointed. Overlapping rules multiply certification burdens and fragment product lines. Sanctions and trade controls compound these difficulties, forcing granular mapping of counterparties, beneficial ownership and data flows. In addition, compliance increasingly operates as a continuous function woven into core business operations, rather than an occasional process conducted at transaction close. Boards should recognise a growing gap between what is legally possible on paper, and what regulators, licensing authorities and communities are likely to approve within commercial timelines.

Recalibrating risk-return profiles

Policy volatility, supply chain constraints and cross-border frictions are reconfiguring the risk-return profile of energy infrastructure. Lenders and sponsors are beginning to treat supply chain security and policy durability as core underwriting criteria, particularly for new build projects and critical operations and maintenance inputs.

For instance, in the solar photovoltaics sector, manufacturing concentration for polysilicon purification, wafer production and cell assembly introduces potential procurement risk and commissioning delays. If export controls on certain key inputs were introduced (as seen in technologies for rare earth processing), or exposure to anti-dumping and countervailing duties introduced, this could affect both technology choice and financing availability.

This is a live issue under discussion in the offshore wind industry, which is seeing escalating turbine and vessel costs, and so is actively exploring cheaper turbine supply options from new markets. This, coupled with congested grid build-out and compressed returns, has impacted bids in recent European auctions. Projects once bankable on fixed-price revenues may now require tariff renegotiations, enhanced indexation or carefully drafted contractual reopeners.

In this context, nuclear energy has benefited from renewed governmental commitments to low-carbon power and system stability, with expanded public support, insurance backstops and sovereign co-investment. Initiatives such as Great British Nuclear in the UK and small modular reactor partnerships illustrate how states coordinate to anchor technology ecosystems and secure fuel supply chains. However, in this sector also, fuel cycle and supplier-state geopolitics, together with long-lived dependencies on specific technology ecosystems, simultaneously elevate political risk. Careful partner selection, fuel supply diversification and rigorous long-term political risk assessment therefore become central to investment decisions.

For battery storage, competition for copper, lithium, nickel, manganese and other critical minerals - together with evolving rules of origin, sustainability criteria and recycling mandates - reconfigure siting economics and revenue models. Value is enhanced by second-life applications, closed-loop recycling and chemistries less exposed to single-mineral chokepoints.

Across these technologies, bankability turns increasingly on policy durability, the ability to localise supply chains and the potential to ringfence political and regulatory risk within project and financing documents.

Structuring, contracting and capital generation

Corporates will need to translate geopolitical uncertainty into contractually manageable risk, whilst preserving operational scale across competing regulatory spheres.

• Realigning portfolios: Businesses may need to consider parallel supply chains for critical components, design regionalised product variants and pursue selective friend-shoring partnerships with counterparties aligned on export control and security standards.
• Screening and diligence: Transactional diligence should try to incorporate FDI-screening, sanctions and export control analysis early-on, with pre-consultations where available, and embed mitigation structures - such as tailored governance rights, data silos and proxy or trust arrangements - in deal documentation where necessary.
• Contracting: Offtake and supply agreements might, where appropriate, deploy price indexation to baskets of relevant inputs - for example, composites of power prices, freight rates and key commodities - rather than relying on a single benchmark. They should also provide for the consequences of tariff, sanctions and export control events: such as the imposition or material increase of carbon border adjustment mechanisms, new export licensing requirements on critical components or the reclassification of counterparties or jurisdictions as restricted. These risks can be allocated through targeted change-in-law and political risk clauses, coupled with robust dispute resolution procedures. Modernised force majeure provisions or standalone clauses should capture sanctions, export licence denial, cyber security events and supply chain disruptions, with clear notice, mitigation, relief and termination regimes. Step-in rights and robust cure periods can help manage counterparty distress in volatile markets.
• Capital structuring: To anticipate policy volatility, sponsors can use blended finance and risk sharing with export credit agencies, development finance institutions, or domestic green banks - for example, by wrapping senior debt with guarantees, using public sector first-loss tranches or adding political risk insurance on key exposures - to derisk projects and crowd in private capital. Where governments seek to anchor capacity, strategic or golden share investments may lower capital costs, but bring regulatory constraints. Sponsors should seek to negotiate clear remits, ringfenced veto rights, dispute resolution pathways and parallel shareholder arrangements preserving operational flexibility.
• Stockpiling and inventory strategies: Holding inventories of critical inputs might raise working capital needs, but materially reduce schedule risk. Contracts should specify storage quantities, title, risk transfer points and insurance coverage. Structures such as warehouse-receipt financing, escrowed stock or trust arrangements over inventory can help secure dedicated supply, whilst providing lenders and investors with comfort on collateral and control.

The new corporate playbook

Ultimately, the energy transition’s commercial opportunities remain substantial, but these are increasingly conditional on geopolitical resilience. The organising principle can be simple: build for resilience so that when geopolitics intrudes, projects bend rather than break, capital remains deployed and stakeholder confidence endures. Effective integration of geopolitical risk into capital allocation, contracting architecture and regulatory strategy - for example, structured engagement with regulators on licensing, security reviews and subsidy conditionality - from inception will determine success