Recently, I explored the link between energy policy and economic policy. Now I want to follow that up with the United States last month elevating the dimension of national security to energy policy in its National Security Statement of the USA. Specifically, it stated the following priority under the heading of economic security:
“Energy Dominance – Restoring American energy dominance (in oil, gas, coal, and nuclear) and restoring the necessary key energy components is a top strategic priority. Cheap and abundant energy will produce well-paying jobs in the United States, reduce costs for American consumers and businesses, fuel reindustrialization, and help maintain our advantage in cutting-edge technologies such as AI. Expanding our net energy exports will also deepen relationships with allies while curtailing the influence of adversaries, protect our ability to defend our shores, and—when and where necessary—enables us to project power. We reject the disastrous “climate change” and “Net Zero” ideologies that have so greatly harmed Europe, threaten the United States, and subsidize our adversaries.”
This is a significant statement, prioritising both national security and the economy. Let’s unpack it.
- “Restoring the necessary key energy components is a top strategic priority”.
This places energy as a strategic asset. It is vital to national security because energy dominance underpinned by low-cost, reliable, and abundant energy, promotes reindustrialisation and industrial competitiveness. It ensures control over energy, reducing dependence on foreign supply.
- “Cheap and abundant energy will fuel reindustrialization”.
A recognition that without affordable and reliable baseload energy, technological and manufacturing dominance would not be possible. This is particularly applicable to AI data centres, heavy industry, and manufacturing, which intermittent energy sources cannot support.
- “Expanding our net energy exports will also deepen relationships with allies while curtailing the influence of adversaries”.
This is geopolitical logic. Exports to Europe and Asia reduce the influence and leverage of adversaries.
- “We reject the disastrous “climate change” and “Net Zero” ideologies that have so greatly harmed Europe, threaten the United States, and subsidize our adversaries”.
This implies that net zero policy is economically harmful due to higher energy costs, that it is strategically harmful because of a dependence on foreign critical minerals, and that it benefits adversaries who seek to take advantage over those who prioritise emissions reduction. Europe is beginning to recognise these concerns with its aggressive climate policies leaving it dependent on Russian gas, deindustrialising due to high energy costs, and being generally vulnerable to energy price shocks.
Expanding on the European experience and the lessons learned by the US, Europe experienced a major energy shock in 2021-22 when Russia cut gas supplies. It began in late 2021 with tight markets post-pandemic and heightened after Russia’s invasion of Ukraine in February 2022. This saw natural gas prices increase by multiples, with electricity prices hitting levels far in excess of US and Asian competitors. Smelters and fertiliser plants either shut down or cut production, with some industries simply packing up and leaving to set up in countries with cheaper electricity.
Europe had become dependent on Russian gas because of policy choices it had made. Germany, for example, shut down nuclear plants assuming renewables and gas would replace them. In many instances, Europe put the climate policy cart before the energy transition horse.
This was a giant wake-up call for European policymakers, who have begun to acknowledge that climate policy ambition has outpaced energy capacity. In turn, the US has heeded the warnings and under Trump, embraced a revival of fossil fuel derived domestic energy, a revival of nuclear energy, framing energy as a cornerstone of national security.
And now, governments almost everywhere are coming around to the fact that cheap energy underpins strong economies. That energy abundance is required to keep manufacturing in the country, AI data centres are going to require enormous amounts of energy, and that climate targets should not ignore economic reality.
There are implications for Australia also, as it goes down the same path as Europe, but lagging in its experience. It is becoming exposed to the same risks of energy price inflation, with households, manufacturing, and heavy industry under significant pressure. Europe was first cab off the rank with over-zealous climate ambition and should be seen as the model to avoid.
In a recent CEO Survey 2026 by The Australian, a number of CEOs delivered a blunt assessment of the state of the energy transition here. Some comments include:
- “The transition must also balance economic viability and energy security. For advanced manufacturing businesses like ours, predictability in energy pricing and supply is essential to support growth and global competitiveness”.
- “Energy policy settings need to be anchored in reality rather than ideology and consider the real world challenges of the energy transition and the likely implications”.
- “Rising energy costs are already affecting parts of our portfolio, and we factor this into long-term planning”.
- “We cannot simply turn off the taps on oil and gas before replacement technologies are technically feasible, affordable and available”.
- “Decarbonisation of our economy by deindustrialisation is a worst-case scenario which must be avoided at all costs to protect sovereign manufacturing in-country”.
And this is more than energy ‘transition’ we are talking about. It’s about energy ‘addition’, because we are going to need vast amounts of new energy over the ensuing decades. Consider AI data centres alone.
These data centres contain industrial-scale specialised computer chips, banks of storage and memory, and cooling systems. They are extremely power intensive with a single AI training model run (learning from data) consuming as much electricity as thousands of households would use in a year. These models can run for weeks, carrying out trillions of computations per second. The power requirements are enormous, with continuous energy at maximum load essential. Intermittent energy without firm backing would be insufficient.
Aside from model learning, there are the energy requirements to actually run these models, with AI queries already running into the billions on a daily basis. Again, the energy demand is huge, with a modest AI data centre requiring the energy equivalent of that of a small town. According to the International Energy Agency, global AI-related electricity consumption is expected to triple in just the next few years.
All this explains why the US national security strategy links AI technology to affordable, reliable energy and national power. It really is a case of sort your energy systems out, or be left behind when it comes to employing AI at scale. The worst-case scenario for any nation is a deficiency in reliable and affordable electricity, forcing AI data centres to be built and run offshore, thereby creating sovereign risk. The alternative would be to forgo participation in the AI revolution altogether, which really isn’t an alternative for any advanced economy.
Tony Dillon is a freelance writer and former actuary. This article is general information and does not consider the circumstances of any investor.