Energy and geopolitics – plus 4 investment ideas

Geopolitics over the past five years have created uncertainty, increased volatility and disrupted long-established trade routes and partnerships.

So, we’re looking at how energy disruption could affect different regions, and four ways to invest in them.

This article isn’t personal advice. All investments can rise and fall in value, so you could get back less than you invest. Past performance also isn’t a guide to the future. If you're not sure if a course of action is right for you, ask for financial advice.

What is happening in the world of energy?

In the aftermath of the Russian invasion of Ukraine, we saw higher energy costs, greater inflation and upward pressure on interest rates. Subsequent sanctions exposed Europe’s dependence on Russian gas imports, triggering a complete rethink of the region’s import-led energy policy.

The US war with Iran has highlighted similar global dependencies, this time on fossil fuel rich nations in the Middle East. Specifically, from nations highly dependent on oil and gas exported via the Strait of Hormuz. This is a critical maritime chokepoint through which around 20% of global oil supply flows.

While these are different situations, they do highlight the competing energy systems being shaped by energy importers and exporters, and by the three core objectives of energy policy – security, sustainability and affordability.

Investing in the energy sector

Investing in exchange traded funds (ETFs) isn’t right for everyone. Investors should only invest if the ETF’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. You should understand the specific risks and charges before investing and make sure any new investment forms part of a diversified portfolio.

For more details on each ETF and its risks, use the links to their factsheets and key investor information.

As ETFs trade like shares, both buying and selling instructions will be subject to our share dealing charges.

All the ETFs below use securities lending to try to generate additional returns that help pay for the costs of running them. This adds risk.

Please note as these ETFs are domiciled outside of the UK, they’re not normally covered by the UK Financial Services Compensation Scheme.

China – an emerging electrostate

It will not be surprising that a country once called the world’s factory is the globe’s biggest energy consumer, using almost double the second biggest, the US. Almost half of final consumption is dedicated to industry, fuelling the production of goods that the economy is deeply dependent on.

China is the world’s largest importer of oil, liquefied natural gas and coal, exposing it to energy security risks. And the Iran war has only highlighted Asia’s heavy reliance on crude shipments through the Strait of Hormuz.

Out of the 14mbpd (million barrels per day) that leave the Strait, around 12mbpd go to Asia. China alone imports around 4mbpd and India is the second largest importer at 2mbpd.

China recognises this vulnerability and has sought to hedge against price swings and supply disruptions by building strategic crude stockpiles as a buffer. It’s estimated China’s surplus was around 1mbpd in 2025, with imports rising to 13mbpd in December.

China has also been building out its renewable energy capacity at an unprecedented rate, with its share of consumption rising almost 400% since 2000. It has recognised that renewables can offer energy security, environmental sustainability and, if managed efficiently, affordability.

Most impressively, China has leveraged this commercially. Reports suggest that growth in clean energy was a core part of China meeting its 2025 GDP target.

So, while it’s exposed to current energy shocks, there’s a clear strategy in play to avoid volatility and move towards electrified energy independence.

US – the petrostate

Over in the US it’s very different.

The US is a net exporter of energy and ranks as the world’s second largest exporter of oil. It’s also the largest producer of both oil and natural gas, following the shale gas revolution in the late 1990s.

From an energy security perspective, the US is well-positioned, offering a strategic advantage in times of energy shocks.

The Trump administration has leaned into this with its “Drill Baby Drill” slogan. It aims to encourage the increased production of hydrocarbons, even coal, which has been in structural decline for years.

But this pivot back to fossil fuels comes at a cost. It risks exposure to long-term volatility and the supply issues that come with hydrocarbons.

Even focusing on the short-term risks, we see coal plants struggling to compete economically with gas and renewables, in part due to the ageing US coal fleet. On top of this, it’s bad for the environment and public health.

This is part of a wider trend of the US rapidly reversing its international leadership on climate change, another notable divergence with China.

Ultimately, what’s most economic will prevail, even in the face of state intervention in markets. Interestingly, solar and wind made up around 90% of new US electrical generating capacity in 2025. But as subsidies cool and shift back to dirtier alternatives, installations will fall.

So, while US energy independence offers protection from near-term supply shocks, the economy’s continued reliance on fossil fuels maintains exposure to longer-term market and transition risks.

Europe – the transitioner

Europe is the region most reliant on fossil fuel imports. In fact, the only other G20 nations with a higher share of imports are Japan, South Korea and Turkey.

The Ukraine war showed how import dependencies can expose European consumers to a risk like price volatility and supply interruptions. This can have an ongoing impact on industrial competitiveness and the cost of living. And there’s been a clear response to this, with the region striving for rapid energy independence.

The EU has launched the REPowerEU plan, aiming to save energy, diversify sources and produce clean energy. The plan contains a binding target to increase the share of renewable energy in overall consumption to 42.5% by 2030, mobilising nearly €300bn to finance this. The latest available data shows that in 2024 the share was around 25%.

In the UK, a similar policy was launched, and the UK has now adopted the Clean Power 2030 Action Plan, aiming to reach 95% clean power by 2030. The current share from low-carbon sources, including nuclear, is around 74%.

Europe understands that low-carbon energy has the potential to provide a clean, secure and, if managed efficiently, affordable energy source.

However, it’s worth considering that the energy transition will impose costs on industry and the broader economy, as significant upfront investments are required – for long term gain. In addition, Europe and the UK may remain partially dependent on imports of clean technologies, particularly from countries such as China.