Geopolitical risk index for guiding international sustainable energy trade
Tansu Galimova, Chieh-en Chou, Dominik Keiner, Christian Breyer
Abstract
Global fossil fuel markets are volatile, influenced by supply chain disruptions and geopolitical instability. As renewable energy capacities expand and emission reduction efforts intensify, more resilient and equitable trading structures are critical to avoid reproducing similar fossil fuel market vulnerabilities. This study supports informed decision-making in electricity-based fuel trade by developing a Geopolitical Risk Index tailored to the energy sector. The index was constructed through a structured selection and evaluation of existing risk indicators. Relevant indices were identified via literature review and selected based on predefined criteria. Selected indices were categorised into four dimensions: resilience, institutional quality, conflicts, and business conditions. The resulting index provides a quantitative tool for assessing geopolitical risks and evaluating energy trade partnerships. Applied to green e-fuel trade, the index assesses traded volumes and costs based on country-specific production potentials, demand, and risk scores. Results indicate that the European Nordics, Singapore, New Zealand, and Canada are the most geopolitically reliable partners, while conflict-prone nations score lowest. Excluding high-risk partners increases import costs by only 1.7% but reduces supply risks. Without considering risks, Brazil, Yemen, and several sub-Saharan countries dominate exports. Applying risk scores eliminates Yemen and increases export shares from Brazil, Namibia, Angola, and Peru. The index correlates with Moody's sovereign ratings, suggesting it captures broader factors influencing both credit worthiness and trade reliability. Incorporating the Geopolitical Risk Index into energy trade planning can help governments and investors reduce exposure to unstable regions, enhance supply security, and promote a more resilient and sustainable global energy system. • Geopolitical risk scores calculated for 190 countries across the world. • Resilience, institutional quality, conflicts, and economy are considered. • Geopolitical risk scores have an impact on potential e-fuel trading in the future. • Nordics, Singapore, and New Zealand are ranked as most reliable trade partners. • Geopolitical risk scores can be applied in energy modelling.