Weakening Global Energy Demand: Macroeconomic Risks to Energy Equities in a Shifting Landscape

The global energy landscape is undergoing a seismic shift. In 2024, energy demand surged by 2.2%, driven by extreme weather and digitalization, with electricity demand rising by a record 4.3% Global trends – Global Energy Review 2025 – Analysis - IEA^[1]. Yet, as we enter 2025, the momentum is faltering. Emerging markets—once the engine of global energy growth—are now showing signs of strain. China's energy demand growth, for instance, has halved from its 2023 pace, while India and other developing economies face similar deceleration Global trends – Global Energy Review 2025 – Analysis - IEA^[3]. This slowdown is not merely a statistical blip; it signals a recalibration of macroeconomic risks for energy equities, particularly in fossil fuel-dependent sectors.

The Paradox of Growth and Stagnation

The International Energy Agency (IEA) notes that renewables accounted for 38% of energy supply growth in 2024, with solar and wind leading the charge Global trends – Global Energy Review 2025 – Analysis - IEA^[1]. However, the energy intensity of the global economy improved by just 1%, underscoring a stubborn reliance on carbon-intensive sources Global trends – Global Energy Review 2025 – Analysis - IEA^[1]. For energy equities, this duality is a double-edged sword. While renewables offer long-term growth, the near-term outlook for oil and gas is clouded by weakening demand.

Emerging markets, which contributed 80% of global energy demand growth in 2024, are now grappling with affordability crises. Inflation and energy price volatility have eroded purchasing power, particularly in lower-income populations What is energy equity and why is it stalling globally?^[2]. The World Economic Forum warns that energy equity in these regions is stalling, as governments struggle to balance decarbonization goals with fiscal constraints What is energy equity and why is it stalling globally?^[2]. For example, coal demand in China and India rose by 1% in 2024, despite global efforts to phase out thermal power Global trends – Global Energy Review 2025 – Analysis - IEA^[1]. This highlights a critical tension: while the world races toward net-zero, emerging economies are still tethered to fossil fuels for energy security.

Macroeconomic Risks and Sector Volatility

The slowdown in energy demand is amplifying macroeconomic risks for energy equities. First, revenue declines are inevitable for fossil fuel producers. China's post-COVID reopening initially spurred demand, but growth has since moderated, reducing pressure on global oil prices. Meanwhile, geopolitical tensions—such as conflicts in the Middle East—continue to disrupt supply chains, creating a volatile environment for investors 6 shifts reshaping global energy markets | World Economic Forum^[4].

Second, policy shifts are reshaping the sector. The World Economic Forum's Fostering Effective Energy Transition 2025 report underscores a global pivot toward energy security and affordability, with LNG repositioned as a “destination fuel” due to advancements in carbon capture 6 shifts reshaping global energy markets | World Economic Forum^[4]. This could benefit natural gas equities in the short term but poses long-term risks for coal and oil. Emerging markets, in particular, face a dilemma: they must invest in renewables to meet climate targets while ensuring energy access for their populations.

Third, sector volatility is rising. The Russia-Ukraine war has already demonstrated how energy shocks can destabilize economies. A potential China-Taiwan conflict could disrupt $565 billion in trade, with cascading effects on global supply chains The Economic Fallout of Regional Conflicts: Global Markets^[5]. Energy-dependent emerging markets are especially vulnerable, as energy price spikes exacerbate inflation and strain foreign exchange reserves.

Strategic Implications for Investors

For investors, the key lies in navigating this transition. Energy equities tied to fossil fuels must adapt to a world where demand growth is no longer guaranteed. Conversely, renewables and energy storage technologies present opportunities, albeit with high upfront costs. The IEA projects that energy demand will continue to rise through 2050, but the pace will depend on efficiency gains and policy continuity Global trends – Global Energy Review 2025 – Analysis - IEA^[1].

Emerging markets, which still account for 85% of global fossil fuel consumption, will require significant investment in infrastructure and financing mechanisms to accelerate the energy transition What is energy equity and why is it stalling globally?^[2]. Governments and private sector players must collaborate to bridge the gap between sustainability and affordability.

Conclusion

The weakening of global energy demand is not a singular event but a symptom of deeper structural shifts. For energy equities, the path forward is fraught with macroeconomic risks—from revenue declines and policy pivots to geopolitical volatility. Yet, within this uncertainty lies an opportunity to rethink the role of energy in a decarbonizing world. As the IEA and World Economic Forum emphasize, the future belongs to those who can balance energy security, affordability, and sustainability. Investors who recognize this now will be better positioned to navigate the storms ahead.