By Prof Evelyn S Devadason
Energy remains deeply geopolitical, with production concentrated in a limited number of regions and key shipping routes exposed to disruption. The current environment reflects a broader sequence of global shocks that began with the pandemic, continued through trade and tariff disputes, and is now evolving into what can increasingly be described as an energy-driven phase of geopolitical competition. Each stage has exposed a different layer of vulnerability in the global economic system.
During Covid-19, global trade volumes collapsed and many countries-imposed food export restrictions, revealing how quickly highly efficient supply chains can become fragile under systemic stress.
The subsequent trade and tariff disputes reinforced this shift, as barriers between major economies reshaped sourcing decisions and pushed firms to prioritise geopolitical risk over pure cost efficiency. Energy now adds a deeper structural constraint, with the cost and availability of power becoming central to production, investment and location decisions.
Energy markets are experiencing a similar but more immediate and far-reaching macroeconomic impact. In 2022, following the Russia-Ukraine war, oil prices surged above US$120 per barrel amid sanctions and supply uncertainty. By 2026, tensions in the Strait of Hormuz have further intensified pressures, exposing global oil flows to direct physical and geopolitical risk through critical maritime chokepoints.
Together, these developments illustrate how energy supply can be constrained, politicised and effectively weaponised during periods of geopolitical stress.
The implications extend well beyond energy markets. Energy now acts as a foundational input across nearly all sectors, meaning price shocks propagate rapidly through the global economy. Energy-intensive industries such as chemicals, metals and transport account for roughly one-third of global energy consumption and a significant share of manufacturing costs.
In chemicals and fertilisers, energy can represent 30%-60% of production costs. As a result, rising energy prices cascade through supply chains, from petrochemical feedstocks such as naphtha used in plastics production, to industrial gases such as helium critical for semiconductor manufacturing and medical applications, and to synthetic resins used in packaging, electronics and automotive components.
This transmission mechanism tightens inter-sectoral linkages and turns energy volatility into a broad-based cost shock. It also raises concerns for global fertiliser markets and food security, as higher input costs feed directly into agricultural production.
For Asia, including Malaysia, home to major refining, petrochemical and electronics hubs, these pressures erode export competitiveness and compress industrial margins. The region’s relatively high energy intensity and reliance on imported oil and gas, much of it transiting strategic chokepoints such as the Strait of Hormuz, further heighten its exposure.
The challenge is no longer simply diversifying trade, but sustaining growth in an energy-constrained and geopolitically fragmented global environment.
If earlier disruptions reshaped global trade, energy is now reshaping global growth. Unlike previous shocks, energy price volatility feeds directly into inflation, production costs and industrial competitiveness, influencing investment decisions and industrial location across almost all sectors.
This shift is also reshaping corporate supply-chain strategy. The focus is moving beyond diversification toward stability and geographic security. Reliable and affordable electricity has become a strategic input, particularly for energy-intensive industries and digital infrastructure. Global data-centre electricity demand is projected to more than double by 2030, driven by cloud computing and artificial intelligence.
This surge is already creating bottlenecks. In several major economies, grid constraints are delaying data-centre approvals, while electricity price volatility is reshaping where hyperscale facilities are located. Energy availability is increasingly the binding constraint, as data-centre operators compete directly with heavy industry for long-term power contracts and renewable capacity.
Malaysia is beginning to face similar pressures, particularly in Johor and the Klang Valley, where rapid expansion is raising questions around grid capacity, transmission investment and long-term planning. Ensuring reliable and competitively priced electricity is becoming central to maintaining its position as a regional digital infrastructure hub.
More broadly, electricity reliability and long-term power pricing are emerging as decisive location factors. Regions with abundant, stable and affordable energy are attracting digital and advanced manufacturing investment, while those facing grid congestion risk losing future projects. For energy-importing economies in Asia, this creates a dual challenge: Securing sufficient power for both traditional industry and an expanding digital economy.
Energy uncertainty is also reshaping global sourcing patterns and strategic alignment. While firms previously sought to diversify production away from China toward Southeast Asia, volatile energy prices and supply risks are prompting reassessment. China continues to account for roughly 30% of global manufacturing output, supported by large-scale and relatively stable energy infrastructure, and is increasingly deepening energy and connectivity links with Central Asia. As a result, energy security and policy alignment are becoming as important as labour costs and market access in capital allocation decisions.
Going forward, the key challenge for economic forecasting is understanding how geopolitical risk feeds through energy markets and ultimately into the broader economy, especially as these shocks are often systematically underestimated.
Recent oil price swings reflect not just supply and demand dynamics, but broader macroeconomic uncertainty, from shifting demand expectations to changing industrial activity and input costs. Overlaying this is a geopolitical layer: Risks to critical chokepoints that intensify perceptions of scarcity and amplify volatility far beyond what fundamentals alone would suggest.
Ultimately, the greatest risks may come not only from the shocks themselves, but from the policy responses they trigger. The real test ahead is whether countries can design frameworks that remain resilient in a world defined by sustained geopolitical and energy uncertainty.
In an era where energy has become a strategic foundation of growth, securing reliable, affordable and sustainable power is no longer just an economic objective, it is a prerequisite for competitiveness, supply-chain resilience, and long-term stability.
The author is a Professor at the Faculty of Business and Economics, University Malaya, and Vice-President of the Malaysian Economic Association
