When oil undermines order
Fossil fuel dependence is becoming a liability for markets, institutions and peace
By María Mendiluce
The United States’ recent intervention in Venezuela is being argued, predictably, in the language of energy security and geopolitics. But beneath the headlines sits a more uncomfortable truth for policymakers and companies alike: the erosion of the rule of law - through discretionary intervention by consuming powers and institutional breakdown in producer states - is not a side issue in the global energy system. It is central to whether economies function, investment can flow and societies remain stable.
For businesses operating across borders, the rule of law is not a moral abstraction. It is the scaffolding that allows contracts to hold, capital to be deployed and long-term decisions to make sense. When that scaffolding weakens - through selective enforcement, coercive state power or the normalisation of legal exceptions - the costs do not stay contained. They ripple through markets, raise risk premiums and shorten investment horizons. Energy security pursued at the expense of legal order is, ultimately, self-defeating.
At the International Renewable Energy Agency’s assembly in Abu Dhabi this month, leaders from across Africa, Asia and small island states framed renewables less as a climate ambition than as a response to geopolitical risk. The focus was practical: cheaper power for consumers, reduced exposure to volatile fossil fuel imports, stronger energy security and more resilient public finances. In a world shaped by fossil-fuel-linked conflicts, the appeal of clean electricity is increasingly tied to stability as much as sustainability.
Venezuela illustrates this more clearly than most. It is not simply a story of oil abundance squandered. It is a case study in how dependence on fossil fuel rents – state income derived from oil and gas extraction rather than citizen taxation – reshapes political incentives in ways that corrode institutions. Many countries rich in oil and gas often struggle to build durable systems of accountability, not because resources are inherently harmful, but because they alter the relationship between state and society, weakening the social contract.
That dynamic is set out with clarity in The Peace Formula by economist Dominic Rohner. He argues the “resource curse” is caused by easy access to poorly scrutinised revenues that weaken democracy, allow wealth and influence to concentrate among a small elite, and make conflict economically viable. Violence persists not because peace is unattainable, but because, under these conditions, fossil fuel rents can make continued conflict economically rewarding.
Crucially, resource rents also sever the fiscal link between citizens and the state. Governments that do not rely on taxation do not depend on consent in the same way. Accountability and democracy weakens. Repression becomes cheaper than representation. The result is a political economy where elites extract value, institutions are hollowed out, and democratic participation struggles to take root.
This helps explain a broader empirical pattern: many of the world’s most stable, prosperous democracies are not resource-rich. Countries without large fossil fuel resources have historically been forced to build growth elsewhere - in skills, education, innovation and diversified economies. Human capital, rather than extraction, becomes the route to competitiveness. Stronger institutions tend to follow.
This is where the global energy transition intersects with a deeper debate about prosperity and peace. Clean energy systems are not simply lower-carbon substitutes for fossil fuels. They have different political and economic characteristics. They are more distributed and accessible. They reward engineering, maintenance, planning and digital capability. They reflect economies built on work rather than extraction.
This does not mean renewables automatically produce democracy. It is just that it changes the economic incentives. Violence recedes when citizens have a meaningful voice, when economic opportunity raises the cost of conflict, and when institutions credibly enforce rules. Rohner’s “peace formula” rests on three pillars: voice, work and warranties - participation, livelihoods and security under law. Clean energy reinforces them.
And the energy transition is well under way. According to recent projections, 24 million electric vehicles are expected to be sold globally this year, a 15.7% increase in 2025, with growth sharply accelerating in China. Record renewable additions of around 800GW are estimated to have been installed worldwide last year - a rise of 11% in 2024. The IEA stated that $2.2 trillion was expected to flow collectively to renewables, nuclear, grids, storage, low-emissions fuels, efficiency and electrification in 2025, twice as much as the $1.1 trillion going to oil, natural gas and coal.
By 2026, the rooftop solar boom in Pakistan is expected to supply around 20 % of national electricity. Driven by rising power tariffs, falling panel costs and uptake across households, businesses and farms, the rapid uptake illustrates how electrification can build resilience even where national finance and policy capacity are constrained.
The markets are factoring this transition. In fact, even as geopolitical tensions have flared, global oil prices have remained reasonably steady near the low-$60s per barrel mark. Brief price hikes over citizen protests in Iran and the hardline response of the regime have reflected geopolitical risk, but they settled quickly.
The oil majors see that demand for oil is declining - even with talk of tapping Venezuela’s reserves as part of US strategy, ExxonMobil’s CEO described the country as “uninvestable” without deep legal and commercial reforms. By contrast, clean electrification strengthens economic competitiveness by delivering lower-cost, more stable and more efficient energy systems, while reducing exposure to geopolitical risk.
An unmanaged decline in fossil rents, however, risks producing more fragile states, not fewer. As fossil fuel rents diminish, the fiscal mechanisms that have underpinned stability in many producer countries weaken, raising the risk of social and political unrest. Supporting credible transition pathways is therefore not charity or aid. It is a form of long-term risk management.
In the Global South, for many countries, oil and gas revenues remain central to public finances. The question is not whether these countries should move away from fossil fuels, but how they replace lost revenue and employment in a way that strengthens, rather than weakens, social contracts. That logic was reflected in COP30 discussions around a voluntary fossil fuel transition roadmap pledged by the presidency to be developed post-summit.
Diversification cannot be left to market forces alone. It demands investment in grids, industry, skills and domestic value creation, access to affordable finance, and international cooperation that supports industrial development. Clean energy supply chains, manufacturing, electrification and services can offer new sources of income - but only if the policies and institutions support them, and capital and capability are aligned.
For companies, the implications are equally stark. Firms depend on predictable rules, when working to 20-30-year investment cycles. Markets price institutional risk quickly. In a world where oil demand is slowing and renewables are the preferred investment option, the long-term competitiveness of economies will be shaped less by what sits underground than by what sits in schools, courts and labour markets.
Venezuela, then, is not an outlier. It is a warning. Energy debates are often framed as technical transitions between fuels. But the deeper transition underway is institutional. Prosperity in the decades ahead will depend on how societies organise around participation, work and law.
That is the logic of peace - with the uncomfortable implication that stability may be secured less by controlling oil fields than by moving beyond the systems that make them politically decisive.
An abridged version of this piece first appeared in Time magazine.
María Mendiluce is the CEO of the We Mean Business Coalition.