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Abundance with Friction

The return and rapid obsolescence of energy coercion in global markets will have a profound effect on energy prices – just not the intended one. The strategic logic of force remains consistent: restrict supply, induce panic, extract political concessions. And yet, energy markets in 2026 are structurally different from earlier networks: more liquid, more diversified, and far less patient with political force. The acts of aggressive leverage have accelerated adaptation across infrastructure, supply chains and capital reallocation away from chokepoints.

Ham-handed use of political coercion has produced three unintended consequences: dilution of market power, fragmentation of enforcement regimes into kinetic rather than legal tools, and a decisive shift in how risk is priced across global energy flows. Sanctions, once symbolic, have become physical, kinetic and risky. Yet none of this meaningfully removes barrels from the market, it raises the cost of moving them, benefiting unsanctioned producers and broadening supply. The result is not scarcity, but surplus.

At the same time, demand is softening and diversifying. While the US economy looks stable, sluggish global GDP growth, maturing industrial consumption, and the expansion of renewables and nuclear capacity are eroding the old pricing power. Even energy-hungry AI is accelerating long-dated, post-fossil investment beyond chokepoints.

What appears as disorder is market resilience and it points structurally lower prices, weaker leverage and permanently diminished energy weapons.

Key Take-aways:

• Enforcement—not sanctions themselves—has changed market behavior

• Higher geopolitical risk no longer guarantees higher prices

• Oversupply and flexible demand are reshaping the energy price floor

• What fragmentation into neo-imperial blocs means for future supply chains

The Oil Weapon

When the Arab world deployed the dread “oil weapon” in the 1970s, global markets learned two hard lessons. First, the modern economy was frighteningly vulnerable to supply shocks. Second, the weapon was single-use; markets adapted and diversified quickly so the weapon wouldn’t work a second time.

The modern energy sector grew out around those old chokepoints as markets restructured in a number of fundamental and structural ways as a fury of exploration broadened and expanded global supply. Meanwhile, technological leaps created greater efficiencies and first steps towards sustainable and green alternative started to splinter the nature of energy demand itself. The result is an energy sector that is now too liquid, too diversified, and too ruthlessly efficient for any single actor to exert lasting leverage.

That is a lesson Vladimir Putin has learned the hard way.

The corpses in overcoats running the old USSR never fired the oil weapon fired the oil weapon because, while Marxist as a New York mayor, they knew which commodity was bankrolling the 20th century’s most enduring bad idea. They also seemed to have a working concept of market share, and how to lose it. Which you can’t say about the new management in the Kremlin.

In late 2013, Putin cut off the gas to Ukraine to keep Kyiv from taking a massive  bail-out from Western Europe. The resulting Euromaidan protests ended with Ukraine’s pro-Russian president fleeing to Moscow. Never one to slow his roll, Putin then launched a deniable “grey” invasion of the Donbas region in 2014 to probe Europe’s resolve. It turned out that there wasn’t much resolve to probe. Still, as long as Moscow kept insisting that it hadn’t invaded, Europe could pretend the same. Until it couldn’t.

Betting its 2022 full-scale invasion would be a fait accompli, Moscow was unprepared for Kyiv to derail its war aims in the first weeks of the war. So was the rest of the world. Prices spiked as Europe scrambled, clumsily and expensively, for alternatives. LNG terminals appeared faster than anyone had imagined, contracts were signed and new supply chains stretched and stabilized. The result hasn’t been increased Russian market leverage, but it’s dilution.

History’s jokes are cruel but consistent: force accelerates the adaptations that make it obsolete.

Get deeper context on Moscow's ill-advised use of the energy weapon:

Horrible Political Jokes in Ukraine

Sanctions, but With Teeth

For decades, sanctions were more theater than strategy. The long-running restrictions on Russia and Iran — together roughly 15% of global oil supply and nearly a quarter of natural gas — have not removed hydrocarbons from the market but merely redistributed supply across two parallel systems: an “open” market and a shadow one. What has changed is enforcement.

Ukraine’s reported drone strike on the Oman-flagged tanker QENDIL in the Mediterranean, more than 2,000 kilometers from Ukrainian territory, was not merely audacious but declarative. The unexplained explosions aboard the tanker Mersin off Senegal, an aging vessel with no cargo, reinforced the message. The shadow fleet, long assumed safe in commercial sea lanes, is no longer operating in neutral space.

At the same time, Washington has begun experimenting with something more muscular than designation lists: high-tempo maritime interdiction. At the time of this writing, the US has boarded or seized five sanctioned tankers and doesn’t appear to be winding down the operation.The last two were sailing under the protection of the Russian navy, which put up no resistance. Repeated boardings of several tankers in the Caribbean signal a willingness to physically block and confiscate sanctioned flows. Arguments over international law are going to rattle, but not much else. The strategic message is, however, clear.

That said, Venezuela’s escalating dysfunction is unlikely to trigger a true supply shock. The country’s heavy, sour crude remains underground—and largely will—until extraction infrastructure is rebuilt. That is a multi-year project under the best circumstances, which these are not. Chevron, the only US company operating in Venezuela, has seen its shares rally. Exxon, on the other hand, declared the country “uninvestable.” Before capital returns, Caracas must first prove it can accept investment without expropriating it.

Currently, markets are not pricing Venezuela as supply but as institutional uncertainty: sanctions enforcement, maritime risk, shadow shipping, and the distant possibility of reintegration under new political arrangements. Signals from Washington suggest a potential evolution from sanctions containment toward asset control and reintegration. Insurers, on the other hand, will price risk as mobile, kinetic, and contagious.

Crucially, none of this meaningfully tightens global supply, it only reduces margins on producing and moving it. Unsanctioned producers, behaving rationally, are pumping, capturing share, and monetizing while they can.

They need to…

Diversification of Demand

The second anchor on prices is demand. Global growth in 2026 is forecast at roughly 1.2% year-on-year—the weakest since the post-pandemic slump of 2022. Industrial energy demand is cooling just as years of investment deliver new supply across a range of inputs.

Global energy demand is not merely soft; it is increasingly flexible. Markets are diversifying away from legacy fossil fuels even as supply gluts emerge. At first glance, cheap oil should slow the green transition by making sustainable alternatives less competitive. In parts of the U.S. and Europe, it will.

There is a longer, second-order effect. Unrealistic transition timelines hammered by ham-handed politicos are being pushed out to something more achievable. That may disappoint the sort of activists who throw oatmeal on the Mona Lisa, but it ultimately strengthens the transition by allowing capital to be allocated more efficiently rather than relying on the long record of failures produced by well-meaning governments and less charitable social justice sorts.

Even with flat oil prices, 2026 will likely to see a doubling of installed wind and solar GW capacity from just five years ago. Relatively oil-light Asia, particularly China, remains the engine of renewable energy demand and supply as price for enabling technology drops, adding more capacity.

The AI Genie

AI is already straining power grids, but its bets are long-dated and post-fossil. Big Tech hyper-scalers are underwriting nuclear projects, creating even more diversification in GW capacity. A full build-out won’t be realized for years, engineers are already asking ChatGPT how to build small nuclear reactors needed to fuel it. The tech sector will likely see a brutal AI correction sometime, that will be sharp, ugly, and hopefully brief, but it will be temporary. The direction is not.

Big Theater, Small Door: Artificial Intellegence Insight

So What?

While we can expect plenty of chaos, the common thread for the next years is adaptation. What looks like disorder might be reframed as accelerating new supply chains, rerouting capital, and dissolving old chokepoints.

Washington’s high tempo interdictions have created a lot of noise within the system, but so far markets have remained fairly disciplined. It isn’t entirely clear that US policy, if applied with more consistency that we are predicting, won’t have the second order benefit of actually strengthening global supply chains in the medium term.

Markets do not really hate uncertainty, but the humans involved really do. Predictable markets allow the comforting illusion of predictable returns and make forecasters look clever. Traders, being a Machiavellian bunch, tend to be more philosophical about these things: They reprice, reallocate, and move on.

A trifecta of expanding supply, sluggish demand, and geopolitical fragmentation points toward structurally lower energy prices. Normally, the current level of uncertainty will command a meaningful risk premium. Some of that remain for the short to medium term. The strange second order effect of a world splintering into ned-imperial blocs is radical diversification of supply, of routes, and of dependencies leading to a structural stability.

The energy weapon has been fired again. And once again, it has made itself obsolete.