Prices at the pump skyrocket as soon as a conflict flares up in the Middle East. But behind those rising oil and gas prices, a much larger shift is taking place. While the world watches the geopolitical tensions surrounding Iran, the economic balance of power is also changing. The dominance of the U.S. petrodollar is slowly crumbling, while China is gaining ground more and more emphatically with the yuan. According to Hans van Cleef, this marks the birth of the “electroyuan.”

Ever since the U.S. and Israel resumed their attacks on Iran and the Strait of Hormuz was closed, oil and gas prices have once again taken center stage. Qatar’s gas exports also came to a temporary halt. The economic consequences are being felt worldwide. But behind this energy crisis, another development is unfolding: the changing role of the United States in the global economy.

Anyone who buys a barrel of Brent crude still pays in U.S. dollars. The same is true for a large portion of international trade. The dollar has been the linchpin of the global financial system for decades. The foundation for this was laid with the Bretton Woods system in 1944. Even after the gold standard was abandoned in 1971, the dollar remained the dominant global currency.

This was mainly due to the rise of the petrodollar. In the 1970s, oil-producing countries agreed with the U.S. to trade their oil exclusively in dollars, in exchange for, among other things, military protection. Because the whole world needed oil, demand for dollars remained enormous. Moreover, oil revenues were often reinvested in U.S. Treasury bonds.

“The combination of high government debt, rising inflation, trade wars, and political pressure on the U.S. central bank is eroding confidence in the dollar”

As a result, the United States benefited for many years from low financing costs, a strong credit rating, and the dollar’s virtually unassailable position. Even today, approximately 58% of global foreign exchange reserves are held in dollars, and the currency is involved in about 88% of all foreign exchange transactions.

However, that long-standing position is coming under increasing pressure. The combination of high government debt, rising inflation, trade wars, and political pressure on the U.S. Federal Reserve is eroding confidence in the dollar. The currency is also increasingly being used as a geopolitical tool, for example through sanctions and trade tariffs. This is driving other countries to reduce their dependence on the U.S. financial system.

China has made the most progress in this area. The other BRICS countries are also looking for alternative payment systems to reduce their dependence on the dollar. At the same time, the global energy system is also shifting. While the petrodollar rose to prominence thanks to oil, China is growing alongside the energy transition.

“China plays a key role in virtually every aspect of the energy transition. As a result, the use of the Chinese yuan is also on the rise.”

China now dominates the extraction and processing of critical raw materials and produces a large share of the world’s solar panels, batteries, wind turbines, and electric cars. China plays a key role in virtually every stage of the energy transition. As a result, the use of the Chinese yuan is also on the rise. More than a third of China’s trade in goods is now settled in its own currency.

Whereas oil has driven demand for dollars for years, the energy transition could eventually have the same effect on the yuan. For the time being, the yuan will not replace the dollar as the dominant global currency. Confidence in the U.S. financial markets is still too strong for that to happen. But the world is indeed moving toward a system with multiple economic power blocs. The “electroyuan” is therefore not a new global currency, but it is a sign that the balance of power is shifting.

This also has implications for the stability of the financial system. Much of international trade, lending, and foreign exchange reserves are still based on the dollar. When confidence in the dollar wanes, the risks of financial shocks also increase. Normally, such a shift in power would take place over decades. However, Trump’s economic and geopolitical policies appear to be significantly accelerating that process.

“What about the euro? Europe remains economically important, but political divisions and slow decision-making limit its geopolitical influence.”

A stronger yuan could offer a partial alternative in this regard. Just as the United States has benefited for decades from the dollar’s international role, China will increasingly benefit from the growing importance of its own currency. At the same time, this also makes the country more vulnerable to the same financial risks that currently affect the U.S. in particular.

What about the euro? Europe remains economically important, but political divisions and slow decision-making limit its geopolitical influence. The euro will therefore likely remain primarily a supplementary reserve currency, alongside the Japanese yen, the Swiss franc, and possibly even Bitcoin.

Meanwhile, dependence on China continues to grow—not only in the production of clean technology, but also in the financial settlement of those transactions. That is why I foresee one major shift in the coming decades: from the petrodollar to the electroyuan.

 

Hans van Cleef is Head of Energy Research at EqoLibrium (this column was written in a personal capacity and was previously published on Studio Energie Opinie)

During a vacation on the French Côte d’Azur, the contrast with the Netherlands is immediately apparent: while we struggle with grid congestion and rising energy costs, France seems far more carefree thanks to decades of investment in nuclear energy. The key lesson: the energy transition requires not only plans and ambition, but above all courage, investment, and political perseverance.

Over the past two weeks—after a hectic spring on the energy markets—I took some time off with a vacation on the Côte d’Azur. There, French life flows along peacefully, and the sun, wine, and outdoor cafés make life good. The local jet set doesn’t seem to worry about the cost of gasoline or diesel; massive motor yachts come and go in the picturesque little harbors.

The average French person doesn’t seem to worry about electricity usage either. During the first few days, the air conditioner could be set to the heating mode in the evenings during the last cool spring nights of the year. But summer soon arrived in full force, and temperatures soared. The air conditioners switched to cooling mode and hummed away at full speed. Grid congestion, excessive costs, and a government urging people to use as little electricity as possible between 4:00 p.m. and 9:00 p.m. are not an issue.

In the Netherlands, waiting lists for new connections or upgrades have grown to unprecedented lengths. In France, on the other hand, businesses are being attracted by the promise of stable and largely low-carbon electricity. This is due in no small part to its 57 nuclear reactors, which account for nearly 70% of the country’s electricity. Add some solar and wind energy to that, and for many countries, it serves as a model of what a mix of local and sustainable energy can—and perhaps must—look like.

“Over-reliance on energy imports makes a country vulnerable”

Of course, everyone knows that an energy transition isn’t the same as a transformation, and that it takes a lot of time (and money) to successfully transition to a good (read: reliable) new energy system. After all, the French didn’t rush into it either.

Although the first nuclear power plant in Marcoule began operations in 1956, France did not truly become a major power in this field until the 1980s. Following the 1973 oil crisis, the French government decided to focus on greater energy independence. After all, the oil crisis demonstrated that excessive dependence on imports makes a country vulnerable. This is a topic that is particularly relevant again today, proving once more that history always repeats itself.

If history repeats itself so often, you’d expect people to learn from it. After all, a donkey doesn’t stumble over the same stone twice. And although public opinion on nuclear energy in Europe shifted after the Fukushima disaster (2011)—think of Germany’s nuclear phase-out—France had other concerns. The old reactors were showing signs of wear and tear and therefore required more maintenance. On top of that, the problem of drought or excessively warm cooling water is becoming increasingly common. Yet this has not deterred President Macron from once again making a strong commitment to nuclear energy. His plans focus on new reactors (EPR2) and the construction of small modular reactors (SMRs).

“Transitions take time and money. And it takes political courage to acknowledge that and sell it to your supporters.”

It is one of many examples that show that vision, courage, and dedication can take you a long way. The French learned lessons from the oil crisis and resolved in 1973 that they didn’t want to go through that again. That’s why they fully committed to investments that paid off in the decades that followed, right up to the present day. It’s somewhat comparable to the Dutch storm surge barrier, which was also built after lessons were learned from the past and from which we still benefit today.

The lessons from recent events are plain to see. The COVID-19 crisis demonstrated that it is unwise to rely too heavily on imports of critical goods (such as face masks). The energy crisis (2021–present) shows that over-reliance on energy imports from a single country is problematic when a conflict arises with that country.

Although we have rapidly reduced our dependence on oil and gas imports from Russia, this has now been replaced by an excessive dependence on the United States—a country that brandishes trade tariffs and threatens to link those tariffs to the security of LNG supplies to Europe if no agreement is reached. China, too, regularly threatens to halt or reduce the supply or processing of critical metals.

Once again, there is talk in Europe of greater energy independence. The vision is there. However, the courage and commitment are lagging far behind. Transitions take time and money. And it takes political courage to acknowledge that and sell it to your constituents. Costs come before benefits. Right now, we’re still too focused on quick fixes and temporary measures, when what’s really needed is to scale up major long-term investments.

“You can’t bring about the energy transition from your bed”

The 113th Tour de France kicks off on Saturday, July 4. This year’s route features no fewer than two finishes on Alpe d’Huez, the mountain we like to call “the Dutch mountain.” This reminds me of a famous quote by Dutch Tour hero Joop Zoetemelk. In 1980, he said that you win the Tour in bed. What Zoetemelk meant by that was that only by resting well and taking time to recover can you endure such a grueling race and thus have a chance at victory.

You can’t bring about the energy transition from the comfort of your bed. But just like in the Tour de France, you need a plan, a team to carry it out, and time to take a breather now and then so you can finish the entire race. We have plenty of plans in Europe (and the Netherlands). Now we just need the courage and commitment to make them a reality. That requires determination, a lot of money, and courage.

Determined to give it our all for years to come. Funds to cover unprofitable peaks and enable the business community to physically bring about the transition. And the courage to keep explaining this to the public—and thus the voters—even in the face of headwinds or setbacks. In short, not with a slapdash approach, but with a French level of commitment!

 

Hans van Cleef is Head of Energy Research at EqoLibrium (this column was written in a personal capacity)

Extreme price fluctuations in the electricity market seem to have become the new normal. From sharply negative prices during periods of oversupply to spikes during shortages: the system is buckling under its own dynamics. Yet the solution does not lie in more market intervention or in splitting the market into one for renewable electricity and one for natural gas. The solution lies primarily in smart choices, because the government already holds the key levers for controlling costs.

It happened again at the end of last month. Electricity prices dropped to a record low of minus 550 euros across virtually all of Northwestern Europe. A combination of wind, plenty of sunshine, and lower demand meant that all the electricity needed could be generated from renewable energy sources for several hours straight.

In fact, there was so much of it that it led to a significant oversupply of electricity. After all, negative prices are always the result of an imbalance between supply and demand. Too much supply leads to the need for load shedding to keep the grid in balance. And that is why the grid operator has to dig deep into its pockets to entice parties to use more and, if that does not fully succeed, to shed load.

It’s the new normal. Not just negative prices, but above all an increasingly frequent imbalance between supply and demand. Price fluctuations in the electricity market are now many times more volatile than, for example, in the oil and gas market. After all, the electricity market must always—that is, every second—remain stable at 50 Hertz. That requires a great deal of balancing. For commodity markets such as oil and gas, the situation is slightly different. There, too, markets seek a supply-demand balance based on the most cost-efficient mix, resulting in significant price fluctuations. Yet, the requirements there are just a bit less strict.

Recently, in the UK, the national grid operator NESO (essentially the UK’s equivalent of TenneT) issued a call to households to use more electricity this coming summer. Not only to take advantage of low electricity prices and balance the grid, but also to save producers from having to pay substantial curtailment fees. Higher consumption would then lead to lower costs. This stands in contrast to the call from Brussels and the International Energy Agency to consumers of gas, oil, and petroleum products. There, we are seeing shortages as a result of the war in Iran, and lower consumption would help balance the market.

At the same time, policymakers sometimes tend to go too far in this regard. Just as during the energy crisis of 2021–22, there are renewed calls to decouple the electricity and gas markets. In fact, in the UK, they are actually going to try it—against all advice. After all, gas prices are high as a result of the U.S.-Israeli war against Iran. And when the wind blows less and the sun shines less or not at all, it is mainly the gas-fired power plants that keep our electricity grid in balance. And those cost money. Not only because the price of gas is higher now, but because they have to make their business case work in fewer and fewer hours. If they can’t do that, there would no longer be an incentive to keep the plants available at all in case they are needed.

And that is where policymakers’ reasoning goes wrong. The idea behind decoupling the electricity and gas markets is that the price of electricity can sometimes be too high when gas is needed in the mix. After all, all electricity prices are then calculated based on the cost of the highest bidder—which is usually gas. This would lead to excessively high prices for consumers.

It remains a strange principle that we apparently have no problem with negative prices during times of oversupply, yet struggle with higher prices during times of shortage. Regardless of the scenario, there are winners and losers in the market. When prices are negative, investors in solar and wind energy earn nothing, and policymakers even feel compelled to use subsidies to coax out even more investment. When prices are high, parties that are making a profit at that moment are almost treated like criminals, whereas you should actually be grateful that they are solving “the problem of shortages” at a higher price.

Selective intervention—or the lack thereof—in markets not only leads to uncertainty in financial markets and misaligned incentives regarding demand management and investments in energy sources. Above all, it leads to a less efficient market. Decoupling gas and electricity will result in the creation of two separate markets. Each with its own supply-and-demand balance, its own backup systems to ensure security of supply, and its own rules and oversight. And this at a time when liquidity in those markets will be lower.

The fact that consumers sometimes pay more for gas as a backup or for curtailing renewable energy sources during periods of oversupply is a result of the current electricity mix. Do you want to eliminate gas from the mix entirely? Then you’ll need to install even more renewable electricity sources. In many cases, this leads to more frequent negative prices, making the business case unsustainable without corresponding growth in electricity demand. On the other hand, if you still want a fixed price, sign a fixed-rate contract as a household, or, as a business, enter into a Power Purchase Agreement (fixed price) or a Contract for Difference(variable price within a range).

Fragmenting markets and thereby making them even more complex is a recipe for uncertainty, resulting in even greater volatility with much higher and much lower prices. And this is despite the fact that energy bills are primarily determined by energy taxes, grid fees, transmission costs, and VAT. So if the government actually wants to do something about high prices, it already has the most important tools at its disposal.

 

Hans van Cleef is Head of Energy Research at EqoLibrium (this column was written in a personal capacity and previously published on Studio Energie Opinie)

Anyone who dismisses calls for energy conservation as patronizing is turning a blind eye to reality. While global shortages are mounting rapidly and the crisis is deepening, the Netherlands remains mired in complacency. This underestimation is not only naive, but could end up costing us dearly.

Just over a week ago, Fatih Birol, Executive Director of the IEA, warned of the biggest energy crisis in decades. The impact could be greater than that of all the oil crises of the last century combined. That is why the IEA presented a 10-point plan to conserve energy. With every passing day of the war, global shortages of oil, petroleum products, and natural gas are worsening.

The IEA has already released more than 400 million barrels of oil (out of 1.6 billion) from strategic reserves and is considering increasing this amount further. However, that is nowhere near enough to offset the loss of exports from countries around the Persian Gulf. We have no strategic reserves of natural gas.

“Even if peace comes tomorrow, it will still be a long time before the situation returns to normal”

EU Energy Commissioner Dan Jørgensen stated this week that EU countries need to consider energy-saving measures in light of a potential prolonged disruption to international energy trade. He rightly pointed out that it will be a long time before oil and gas exports from the region return to pre-war levels, even if peace is achieved quickly.

Critical gas infrastructure in Qatar has been damaged, and repairs could take months or even years. In addition, hundreds of tankers are currently idling in the Persian Gulf. From the period following the COVID-19 lockdowns, we know how long it takes for global shipping to return to full capacity.

“Focusing solely on national consequences is not only short-sighted, but also selfish”

“Paternalistic,” is how VVD party leader Brekelmans described the calls from the International Energy Agency (IEA) and the European Commission to use energy more sparingly. It sounds a bit like: “Go ahead and sleep soundly; the crisis will get worse even without you.” Yet discussions about shortages here remain strikingly limited to the Netherlands. That is not only short-sighted, but also selfish. After all, energy markets are global. Disruptions elsewhere have ripple effects on the global market—and thus here as well.

Moreover, the Netherlands is not a typical country within this system. Our role as a transit country and gas hub makes us more resilient on the one hand: thanks to our ports, infrastructure, and refineries, physical shortages are likely to be delayed here. On the other hand, that same position makes us more vulnerable to price fluctuations and international developments.

Physical shortages are already being felt in poorer Asian countries. Richer countries in the region are actively competing with European players to secure scarce fuel supplies. LNG tankers that were originally headed for Europe are now changing course toward Asia.

Thanks to remaining inventories (although gas stocks are at historically low levels), lower seasonal demand, and our financial strength, we are currently seeing mainly higher prices. But it would be naive to think that the crisis has already peaked—and selfish to focus solely on our own situation.

“Where the comparison with the 2022 energy crisis completely falls short is the assumption that we’ve already reached the peak”

People often draw parallels with the 2022 energy crisis, but these comparisons fall short in key respects. Back then, too, we were all plunged into an energy crisis after Russia’s invasion of Ukraine led to mutual sanctions, forcing a rapid reduction in oil and gas supplies to Europe.

Still, there are significant differences. Many people are now pointing out that current gas prices, for example, are nowhere near as high as they were during the peak in August 2022. And that’s true. Indeed, current gas prices are still well below the August 2022 peak, when prices rose to around €306 per MWh. Currently, they are hovering around €50. But that is still double what they were just a few months ago.

Gas prices began to rise as early as the summer of 2021, initially without any apparent cause. It later emerged that Gazprom had deliberately failed to replenish European gas reserves. This led to shortages during the winter of 2021–2022. Russia’s invasion of Ukraine further exacerbated the situation, but the real price spike didn’t come until months later, when Europe decided to replenish gas reserves “at any cost.”

The current crisis is still in its early stages. The conflict between the U.S./Israel and Iran has only been going on for a few weeks, yet prices have already doubled. By way of comparison: in week six of the previous crisis, we were still well below the level that later turned out to be the peak. And now, too, we are on the verge of replenishing gas reserves. Not to mention the fact that this time, many more energy-related fuels and raw materials—such as diesel, kerosene, fuel oil, helium, methane, and fertilizer—are being affected.

“There is a good chance that the worst effects of this energy crisis are yet to come”

That is why it is unwise to dismiss international calls for energy conservation in our country as patronizing. If the crisis continues to escalate, more and more people will be unable to pay their energy bills, and physical shortages could arise here as well. Energy poverty is already a real problem, even in the Netherlands, and is likely to increase in the coming months.

The fear of losing voters or playing into the hands of populists by calling for austerity (too) early could backfire later on. Because if measures are implemented too late, the consequences will be more severe and the costs higher—and those costs often end up being borne by the taxpayer.

My advice to policymakers is therefore simple: be honest about the seriousness of the situation and err on the side of caution. It is better to err on the side of caution now than to be forced to take drastic measures later. Because the energy crisis is far from over. In fact, we may only be at the beginning.

 

Hans van Cleefis Head of Energy Research at EqoLibrium(This column was written in a personal capacity and was previously published in Studio Energie Opinie.)

The call for greater European cooperation is growing louder as geopolitical tensions rise. Energy security plays a central role in this. Recent agreements on offshore wind power seem to be an important step, but they mask an uncomfortable truth: without a strong commitment to electrification of demand, increased generation will remain a costly sham solution.

Last week, various government leaders in Hamburg announced that countries will be working together more closely in the field of wind energy. Norway, the United Kingdom, Germany, Denmark, Belgium, Iceland, Ireland, Luxembourg, and the Netherlands agreed to build 100 gigawatts (GW) of joint offshore wind projects. This is part of the existing ambition to have a total of 300 GW of offshore wind capacity by 2050.

The announcement was met with much enthusiasm. Rightly so, because there finally seems to be a growing awareness that greater European cooperation is not a luxury in a rapidly changing geopolitical world. Just a few days earlier, President Trump had threatened a number of EU countries with increased import tariffs because they—as NATO members—had sent troops to Greenland.

“Our most loyal ally is increasingly abandoning us Europeans.”

Although this heated debate has cooled down for the time being, there is a growing awareness that our most loyal ally is increasingly letting us down in many areas, including defense, IT, and energy. Greater strategic autonomy is therefore wise, including when it comes to our energy supply.

That is a lesson we could—or rather should—have learned during the energy crisis caused by the war between Ukraine and Russia. That war led to a rapid, forced reduction in our dependence on Russian gas. Although the ambition for 300 GW of offshore wind power arose at that time, it did not yet lead to much concrete action.

You know the reason why. Wind tenders were a flop, partly because wind energy has become significantly more expensive in recent years. Higher costs for materials and labor, combined with governments wanting to make money from tenders, made the business case unprofitable. Without subsidies, additional wind energy, including offshore, simply cannot get off the ground.

In the UK, new wind projects proved to be possible again – with subsidies. In the Netherlands, outgoing Minister Hermans has also made up to four billion euros available for a new 1 GW wind tender. A quick calculation shows how much money is needed for 100 GW, let alone 300 GW. And that's not even taking into account the necessary infrastructure.

“We don't import electrons at all, but molecules.”

Safety comes at a price. If we want to be less dependent on energy imports, we will have to extract and generate more energy ourselves. However, this is where the problem lies. We do not import electrons from Russia or the US, but molecules in the form of oil and gas. Building additional wind farms will not solve this problem by a long shot.

In fact, when there is strong wind and sunshine, we already have too much renewable electricity and have to scale back. The real key to reducing geopolitical dependence therefore lies not primarily in generating more power, but in electrifying our energy demand. Without demand, extra supply is pointless and a wasted investment.

Nevertheless, governments are repeating the same mistake they made in recent years. The idea that more supply will automatically lead to more demand has yielded little results to date. Electricity demand has been stable for years. Sustainability is therefore not being achieved through additional green supply, but through the relocation of CO2 emissions.

These governments would therefore have been better advised to actively stimulate the further electrification of energy demand. Greater demand for electrons naturally leads to a better business case for the generation of green electricity.

“If you want to become less dependent geopolitically, you have to ensure that industry remains in Europe.”

If you want to become less dependent geopolitically, you need to ensure that industry remains in Europe and become less dependent on imports. This requires time and space for companies to remain competitive and become more sustainable through electrification, just as in the built environment. Only if this extra demand for electricity is guaranteed will there be a real need for more domestic renewable energy generation, including offshore wind.

The announcement in Hamburg did state that governments want to stimulate electrification, but while the 100 GW of joint wind projects was presented with great force and determination, this aspect of the transition remained conspicuously vague. This is partly understandable: we are in a hurry. The sustainability targets clash with the time that large-scale electrification simply takes.

The CO2 reduction required to achieve the targets is happening faster than the industry can technically achieve. This results in leakage. Furthermore, anyone who wants to reduce dependence on energy imports must accept that businesses and households cannot do this alone and need financial support, which means that it will inevitably become more expensive. Independence, security, and the phasing out of efficient global trade simply cost a lot of money. And we will have to bear those costs together.

“Only if we tackle everything at once can we hopefully hold our own in the changing world order.”

The political promise that this will not affect our wallets is therefore an empty promise. Passing the bill on to "the big polluters" – often simply our employers – will not lead to sustainability, but to the impoverishment of our industry and thus our economy. Driving away industry may make us less dependent on imported molecules, but it will make us more dependent on semi-finished products and imported goods. The 'advantage' is that we achieve our national climate targets. A typical case of: operation successful, patient dead.

I therefore sincerely hope that the new cabinet will continue to see the bigger picture. And that European leaders will continue to realize that cooperation is the only way forward when it comes to security—not only defense, but also energy security and economic resilience. Not just the low-hanging fruit, such as energy supply, but the whole package, including demand for electrons and infrastructure.

Even if you go all in on this, our dependence will only decrease gradually. A transition takes time. Only by tackling everything at once can we, as Europe, gradually become less dependent on imports and hold our own in a changing world order. If we don't, we will remain a pawn in the power struggle between the US and China.

 

This column was previously posted on LinkedIn for Studie Energie Opinie.
Hans van Cleef is Head of Energy Research at EqoLibrium (this column was written in a personal capacity).