Geopolitical Crosscurrents: How US-Colombia Tensions Are Upending Energy Markets

The geopolitical rift between the U.S. and Colombia, crystallized by the January 2025 FTC Decision revising the U.S.-Colombia Trade Promotion Agreement (TPA), has unleashed volatility in commodity markets and reshaped the calculus for energy sector investors. As tariffs, trade disputes, and reinterpretations of investment protections collide, the ripple effects are now destabilizing regional trade dynamics—and creating both risks and opportunities for equity holders.

The TPA Reinterpretation: A New Era of Risk for Energy Investors

The FTC Decision's narrowing of investment protections has directly impacted Colombia's appeal as a destination for energy sector capital. Key provisions now restrict foreign investors' recourse to international arbitration (Article 10.4 MFN clause restrictions) and limit claims tied to regulatory changes (indirect expropriation). This has led to a chilling effect on projects requiring long-term certainty, such as oil and gas exploration or renewable infrastructure.

For example, the exclusion of “frustration of legitimate expectations” from Minimum Standard of Treatment (MST) obligations means investors can no longer challenge sudden regulatory shifts—such as environmental policy overhauls—unless backed by explicit written assurances. In a country where 22% of GDP is energy-related (including oil, coal, and renewables), this uncertainty is forcing companies to reassess risk-adjusted returns.

Ecopetrol, Colombia's state-owned oil giant, has seen its stock underperform global peers like Chevron amid these uncertainties. Investors now demand higher risk premiums for Colombian energy equities, reflecting concerns over policy unpredictability and reduced dispute resolution safeguards.

Tariffs and Trade: A Double-Edged Sword for Commodity Prices

The U.S. tariffs on Colombian steel (25% in March 翻倍 to 50% in June 2025) have indirect but significant consequences for energy markets. Steel is a critical input for oil rigs, pipelines, and renewable infrastructure. The higher costs of imported steel could delay or shrink energy projects in Colombia, reducing supply-side capacity and potentially tightening global commodity markets.

Meanwhile, Colombia's pivot toward BRICS nations and the Pacific Alliance to offset U.S. trade pressures may boost demand for its coal and nickel (used in batteries), but at the cost of higher geopolitical complexity. Chinese state-owned firms are already eyeing Colombian lithium deposits, signaling a shift in resource diplomacy that could disrupt traditional energy supply chains.

Currency volatility exacerbates these risks. The CLP has weakened 7% against the dollar year-to-date, raising the cost of dollar-denominated energy project financing. This creates a “double whammy” for firms operating in pesos but reliant on imported equipment or international debt.

Structural Weaknesses: Colombia's Growth Mirage

Despite a projected 4.7% GDP growth in 2025, Colombia's economy remains hamstrung by structural inefficiencies. Weak infrastructure and low productivity—ranked 107th globally—limit its ability to capitalize on energy export opportunities. The government's fiscal deficit (8.5% of GDP in 2024) further constrains public investment in energy projects, forcing reliance on foreign capital.

This creates a paradox: while Colombia's shale gas reserves and renewable potential (ranked 5th in hydropower) are vast, the lack of stable policy frameworks and investor confidence may delay their development. For equities, this means higher downside risks in sectors like coal (Colombia's second-largest export) as global energy transitions accelerate.

Investment Strategy: Navigating the Crosscurrents

1. Short-Term Plays:
2. Go long on U.S. steel alternatives: U.S. firms like Nucor (NUE) or AK Steel (AKS) may benefit if Colombian steel imports decline further.

3. Hedge against CLP depreciation: Use inverse ETFs like UDN or short CLP futures to offset currency risks tied to Colombian equities.

4. Medium-Term Opportunities:

5. Asian energy firms with BRICS exposure: Companies like China National Offshore Oil Corporation (CNOOC) or Brazil's Petrobras (PETR4) could gain from Colombia's pivot to Asian markets.

6. U.S. energy service providers: Firms like Halliburton (HAL) or Schlumberger (SLB) may see demand rise if Colombia's energy sector shifts toward North American partnerships post-tariff negotiations.

7. Avoid:

8. Colombian energy equities (e.g., Ecopetrol) unless valuations reflect geopolitical and regulatory risks.
9. Coal miners like Drummond (DRUM) due to overlapping risks of falling demand (global decarbonization) and rising production costs.

Conclusion: A New Energy Order in the Making

The U.S.-Colombia tensions are accelerating a tectonic shift in regional trade patterns, with energy markets at the epicenter. Investors must now treat Colombia's energy sector as a high-risk, high-reward frontier—where geopolitical volatility and policy uncertainty demand disciplined hedging and selective exposure. For those willing to navigate these crosscurrents, the rewards could lie in sectors that benefit from Colombia's pivot to Asia or the U.S. steel sector's renaissance. But for the unprepared, the costs of ignoring these geopolitical tremors could be steep.

The data tells the story: as geopolitical tensions reshape trade flows, energy investors must stay agile—and wary of the next wave of policy shocks.