How Energy Dependency Destroyed the Liberal Order: Helen Thompson's Masterful Analysis of Modern Geopolitical Chaos

Helen Thompson's groundbreaking analysis reveals how fossil fuel dependency has driven every major geopolitical crisis of the past century, from the rise and fall of empires to the current breakdown of Western democracy.

Key Takeaways

• The 20th century belonged geopolitically to the United States and Russia—the world's first major oil producers—while coal-rich European empires declined into permanent energy dependency.
• The 1970s oil shocks didn't just cause inflation; they fundamentally restructured Western democracies by weakening organized labor and strengthening independent central banks.
• European Union integration represents technocratic responses to energy vulnerability, removing democratic control over economic policy to manage resource dependency.
• The Iraq War was fundamentally about oil security, attempting to break Middle Eastern sanctions regimes that constrained supply during rising global demand.
• The Soviet Union's rapid dissolution was accelerated by the 1986 oil price crash, which eliminated energy export revenues needed to finance food imports.
• Current inflation patterns mirror 1970s energy-driven price shocks, but central bankers still struggle to understand inflation's non-monetary causes.
• The shale oil boom compensated for Iraq War failures, providing domestic US energy security through zero-interest-rate monetary policies enabling unprofitable extraction.
• Democratic consent has eroded as international capital flows and EU treaties removed key economic policies from national democratic control.

Timeline Overview

• 00:00–03:30 — Introduction and Context: Overview of Helen Thompson's work on energy geopolitics and the connection between fossil fuel dependency and 21st century political disorder
• 03:30–08:45 — Thompson's Academic Evolution: From international monetary politics to energy geopolitics, triggered by 2008 crash connections between monetary policy and oil markets
• 08:45–15:20 — Book Structure and Thesis: Three-part analysis of geopolitics, economics, and democracy, using energy as connecting thread to explain 2010s disruptions
• 15:20–22:30 — The Energy Foundation of Modern Power: How early 20th century oil production in US and Russia displaced European coal-based empires, creating permanent dependency problems
• 22:30–28:45 — European Energy Predicaments: From imperial competition in Middle East to post-WWII constraints, explaining European vulnerability and Russian gas dependency
• 28:45–35:15 — The 1980s-90s Energy Interregnum: Lower oil prices providing macroeconomic relief while Soviet Union collapsed due to energy export revenue crisis
• 35:15–42:00 — The 1970s Transformation: Oil shocks shifting Middle East power balance, weakening organized labor, and creating independent central bank mythology
• 42:00–48:30 — Energy and Democratic Politics: How financial liberalization and energy costs constrained democratic policy options while strengthening international capital
• 48:30–55:45 — Vietnam War and Middle East Strategy: Covert action history and the impossibility of controlling Middle East oil through traditional imperial methods
• 55:45–62:00 — Understanding 1970s Inflation: Energy versus monetary explanations, the political implications of different inflation theories, and labor union scapegoating
• 62:00–68:30 — Central Bank Energy Responses: 2005-2008 oil price spikes, Fed concerns about secondary effects, and the failure to recognize energy-driven inflation
• 68:30–75:00 — Iraq War Energy Logic: Bush administration's attempt to reset Middle East sanctions regimes and increase oil supply through military intervention
• 75:00–81:45 — Shale Oil as Iraq War Compensation: How zero-interest-rate policies enabled unprofitable shale extraction, providing domestic energy security solution
• 81:45–88:30 — Democratic Consent and Elite Credibility: Iraq War's impact on liberal order legitimacy and the hypocrisy of European security dependency on US
• 88:30–end — EU Technocracy and Democracy: Maastricht Treaty consequences, removing economic policy from democratic control, and Brexit as nationalist backlash

The Energy Foundation of 20th Century Geopolitics

Helen Thompson's analysis begins with a simple but profound observation: the early 20th century featured only two major oil producers—the United States and Russia—while European imperial powers had built their dominance on abundant domestic coal supplies. This shift from coal to oil fundamentally altered global power dynamics and created permanent energy security problems that continue to drive geopolitical conflict today.

• Britain's 19th century industrial supremacy and Germany's unified state formation both depended on abundant domestic coal supplies that gave them energy independence unavailable to oil-dependent nations.
• The transition to oil-powered military and economic systems transferred geopolitical advantage to countries with domestic petroleum resources while creating existential vulnerabilities for import-dependent nations.
• European attempts to manage oil dependency drove imperial competition in the Middle East, Nazi Germany's invasion of the Soviet Union, and post-WWII alliance structures.
• American refusal to support Britain during the 1956 Suez Crisis marked the definitive end of European energy imperialism and forced European dependence on either Middle Eastern or Russian suppliers.
• The West Germany-Soviet Union gas relationship that emerged in the early 1970s represented European accommodation to American power while maintaining alternative energy sources to Middle Eastern oil.
• This fundamental energy geography explains why the 20th century "belonged geopolitically to the United States and Russia" while European empires declined into resource dependency despite technological and financial advantages.

The 1970s: Energy Shocks That Restructured Western Democracy

The oil crises of the 1970s didn't just cause temporary economic disruption—they fundamentally restructured Western political economies by shifting power from organized labor to international capital while establishing central bank independence as the dominant monetary framework.

• The balance of power shifted decisively toward oil-producing countries, particularly in the Middle East, as Western oil majors ("Seven Sisters") lost control of Middle Eastern production to state-owned companies.
• Rising oil prices created inflationary pressures that were blamed on organized labor's wage demands, when labor was actually responding to energy-driven cost increases rather than causing them.
• The monetary policy response to 1970s inflation—extremely high interest rates and central bank independence—was based on a misreading that blamed democratic politicians rather than energy costs.
• Financial liberalization that accompanied energy crisis responses created new constraints on democratic politics by subjecting government policies to international capital market discipline.
• Anti-trade union legislation across Western countries weakened organized labor's bargaining position precisely when energy costs were reducing living standards for working populations.
• The coincidence of China's integration into the world economy provided manufacturing outsourcing opportunities that further weakened labor's political influence in Western democracies.

Central Banks and the Energy-Inflation Paradox

Despite decades of experience with energy-driven inflation, central bankers continue to struggle with understanding non-monetary inflation causes, revealing fundamental limitations in economic models that don't adequately account for energy's role in price formation.

• During the 2005-2008 oil price surge to $150/barrel, Fed, ECB, and Bank of England officials worried about energy inflation's "secondary effects" on wage bargaining and inflation expectations.
• Mervyn King's 2005 declaration that "the years of NICE were over" (Non-Inflationary Continuous Economic Growth) directly linked rising oil prices to the end of stable monetary policy.
• The 2008 financial crisis obscured parallel energy crises, leading to banking-focused explanations that missed energy's role in economic instability.
• 2011 oil price spikes above $100/barrel produced different central bank responses: Fed and Bank of England "toughed it out" while ECB raised rates twice under Trichet.
• Current inflation patterns mirror 1970s energy-driven dynamics, but European countries experienced similar inflation without large fiscal stimulus, pointing to energy rather than monetary causes.
• Jay Powell's admission that "we understand better how little we understand about the causes of inflation" reflects the economics profession's inadequate framework for analyzing energy-driven price dynamics.

Iraq War as Energy Security Strategy Gone Wrong

The 2003 Iraq invasion represented a coherent attempt to solve Western energy security problems by breaking Middle Eastern sanctions regimes and increasing oil supply through military intervention, but failed due to unrealistic assumptions about American military capabilities in nation-building.

• By the early 2000s, the US faced sanctions on three major Middle Eastern oil producers—Iran, Iraq, and Libya—constraining supply during rising global demand concerns.
• The Bush administration's strategy assumed that removing Saddam Hussein would create a stable Iraq capable of producing 12 million barrels daily through partnerships with Western oil companies.
• This approach required American military power to not just win wars but "construct a stable, peaceful Iraq" while avoiding strengthening Iranian regional influence.
• The strategy's fundamental flaw was overestimating American capacity for post-conflict state-building rather than conventional military victory against state opponents.
• The Iraq War's failure was ultimately compensated by the domestic shale oil boom, which provided energy security without Middle Eastern intervention.
• Shale extraction became financially viable through zero-interest-rate monetary policies following the 2008 crash, offering higher returns to investors unconcerned with short-term profitability.

Soviet Collapse Through the Energy Lens

The rapid dissolution of the Soviet Union was significantly accelerated by the 1986 oil price crash, which eliminated the energy export revenues that had become essential for financing food imports and maintaining the empire's economic viability.

• The Soviet Union became the world's largest oil producer when US production peaked in 1970, generating crucial hard currency export revenues primarily from sales to Western Europe.
• Since the 1970s, Soviets used energy export revenues to finance agricultural imports, including wheat from the United States, creating dependency on volatile commodity prices.
• The mid-1980s oil price collapse eliminated export revenues needed for food imports, creating food crises that required borrowing from Western banks and governments.
• This financial dependency contributed to the "speed at which the Soviet Union dissolved" rather than causing the underlying problems of economic inefficiency and imperial overstretch.
• The Soviet case demonstrates how energy-exporting countries can become vulnerable to price volatility even when possessing vast natural resources.
• Current Russian economy faces similar structural dependence on energy exports, making it vulnerable to price manipulation and sanctions despite resource abundance.

European Union Technocracy as Democratic Displacement

The European Union's integration process represents systematic removal of economic policy from democratic control, driven partly by energy dependency management needs but creating fundamental tensions between technocratic governance and popular sovereignty.

• The 1991 Maastricht Treaty established Monetary Union and extended EU law into new policy areas while ending national veto rights, beginning systematic democratic displacement.
• Successive treaties through the 2009 Lisbon Treaty created "constitutional rules for the European Union that couldn't actually be contested within a member state's democratic politics."
• Treaty ratification removed entire policy areas from democratic competition, as changing EU rules required unanimous consent from all member states regardless of domestic political changes.
• France's narrow approval of Maastricht in September 1992 revealed early evidence of "division and dissensus" about European integration despite elite consensus.
• The "wear and tear" of expanding constitutional rules created "significantly smaller space for democratic political contests" particularly in economic policy areas.
• Brexit represented democratic backlash against this technocratic displacement, especially regarding free movement of labor within the EU that couldn't be democratically contested.

The Shale Revolution and Monetary Policy

America's shale oil boom represented the ultimate vindication of energy security through domestic production, but required unprecedented monetary accommodation that distorted financial markets and created new dependencies on ultra-low interest rates.

• Shale extraction technology existed for decades but required specific "monetary and financial environment" to become economically viable at scale.
• Zero interest rate policies and quantitative easing following 2008 crash created investment conditions where shale companies could access capital despite questionable short-term profitability.
• The boom offered "higher returns to investors who didn't have to care too much about whether this production was profitable in the short term" due to yield-starved monetary environment.
• This domestic energy solution eliminated the need for Middle Eastern intervention, making Iraq War strategic assumptions obsolete through technological and financial innovation.
• Shale production's dependence on accommodative monetary policy created new vulnerabilities as interest rate normalization threatened extraction economics.
• The model demonstrates how energy security strategies interact with monetary policy in ways that create unintended financial system dependencies and distortions.

Energy Transition and Persistent Geopolitical Logic

Despite green transition rhetoric, the fundamental geopolitical imperatives created by energy dependency will persist as countries compete for control over renewable energy supply chains, critical minerals, and grid infrastructure.

• The energy transition represents another chapter in energy security competition rather than escape from geopolitical constraints created by resource dependency.
• Countries will compete for control over lithium, cobalt, rare earth elements, and other critical materials needed for renewable energy infrastructure.
• Grid infrastructure and energy storage technologies will create new vulnerabilities and dependencies requiring geopolitical management strategies.
• Climate change policies interact with traditional energy security concerns in ways that complicate rather than simplify international relations.
• European attempts to reduce Russian energy dependence through renewables still require transition period management and alternative supply arrangements.
• The "longstanding predicaments that energy invariably shapes will remain firmly in place" regardless of technological changes in energy production methods.

Democratic Consent and the Crisis of Elite Credibility

The Iraq War's violation of liberal order principles, combined with energy-driven economic pressures and EU technocratic governance, has created a crisis of elite credibility that threatens the foundations of Western democratic legitimacy.

• The Iraq invasion "struck at the heart of the presumptions about the rules-based liberal order" by violating the very principles America claimed to uphold and enforce globally.
• European complicity in this hypocrisy was particularly acute given their "luxury of offloading their security to the United States for so many years" while critiquing American actions.
• Energy-driven economic pressures combined with financial liberalization made democratic politics more "transactional" as policy options became constrained by international capital flows.
• EU treaty processes removed key economic policies from democratic control precisely when energy costs were creating economic stress requiring political responses.
• The combination of elite hypocrisy, technocratic governance, and economic constraint created conditions where "consent of the governed" became increasingly problematic.
• Popular backlash movements from Brexit to Trump represent attempts to restore democratic control over policies that had been removed to technocratic or international management.

Conclusion

Helen Thompson's masterful analysis reveals how energy dependency has been the hidden driver of virtually every major political and economic transformation of the past century. From the rise and fall of empires to the current crisis of democratic legitimacy, the struggle to secure reliable energy supplies has shaped monetary policy, international relations, and domestic politics in ways that most analysts fail to recognize. The 1970s energy shocks didn't just cause temporary inflation—they fundamentally restructured Western political economies by weakening organized labor, strengthening central bank independence, and enabling the financialization that constrains democratic choice today.

The Iraq War, Soviet collapse, European integration, and current democratic backlash all reflect different aspects of the same underlying challenge: how societies organize politically to manage energy dependency in a world where fossil fuels remain central to economic and military power. Even the much-heralded green transition cannot escape these fundamental dynamics, as competition for control over renewable energy supply chains and critical materials will simply create new forms of resource dependency requiring geopolitical management. Thompson's work demonstrates that until we understand energy as the foundation of modern political economy rather than a mere economic input, we will continue to misdiagnose the sources of political disorder and prescribe inadequate solutions to the challenges facing Western democracies.

Common Questions & Answers

Q: How did oil dependency change the balance of global power in the 20th century? A: Oil shifted geopolitical dominance from European coal-rich empires to the United States and Russia as the world's first major petroleum producers. European countries went from energy independence through domestic coal to permanent dependency on imports, creating vulnerabilities that drive foreign policy and domestic economic constraints to this day.

Q: Were the 1970s inflation problems really caused by energy prices rather than monetary policy? A: Thompson argues that organized labor was blamed for inflation it didn't cause—unions were responding to energy-driven cost increases rather than initiating them. The myth that central bank independence solved 1970s inflation ignores oil prices falling from 1981 onwards, which actually ended inflationary pressures regardless of monetary policy changes.

Q: Why did the Iraq War make sense from an energy security perspective? A: The Bush administration faced sanctions on three major Middle Eastern oil producers (Iran, Iraq, Libya) during rising global demand. Iraq represented the best opportunity to break these constraints and increase supply through Western oil company partnerships with a new Iraqi government, potentially producing 12 million barrels daily.

Q: How did the Soviet Union's collapse relate to energy markets? A: The 1986 oil price crash eliminated Soviet export revenues needed to finance food imports, creating financial dependency on Western banks and accelerating dissolution. While the USSR had many problems, the speed of collapse was significantly influenced by losing energy export income that had become essential for imperial maintenance.

Q: Does the European Union represent technocratic governance displacing democracy? A: Yes, according to Thompson's analysis. From Maastricht onwards, successive treaties removed economic policy areas from democratic competition within member states. Once ratified, these policies couldn't be changed without unanimous EU consent, creating "constitutional rules that couldn't be contested" through normal democratic processes.

Q: Will the green energy transition solve these geopolitical problems? A: No—Thompson argues that "longstanding predicaments that energy invariably shapes will remain firmly in place." Countries will compete for control over critical materials (lithium, cobalt, rare earths), renewable energy supply chains, and grid infrastructure, creating new forms of resource dependency requiring geopolitical management.