The spillover risks from producer fragility raise the prospect of an uncertain, volatile future for importers as well as producers.

Declining or less predictable demand can lead to fiscal stress in countries that depend on oil revenues. This can quickly spill over into weaker governance, eroded public services and domestic unrest, which can generate regional or even global spillovers.

Even in times of declining demand, producer instability can lead to perceived risks of disruption to supply, transport or investment. The world’s financial system remains exposed to successive energy price shocks.

Regional tensions due to displacement of people (as for example the migration crisis in Venezuela) or competition for declining rents may cause wider ripples. Overall, geopolitical relations are likely to become more transactional, reducing options for diplomacy.

Many producers, including core suppliers of the EU such as Algeria, are in a “risk zone”. Instability in North Africa resulting from declining fossil fuel demand can become a European security concern.

The pressures of the oil endgame are likely to show up first on sovereign balance sheets, not in physical supply disruptions. Oil-dependent economies are exposed through their debt burdens, exchange rates, investor confidence and the fiscal role of national oil companies. This places macroeconomic stability at the centre of the transition.

Many oil-dependent economies face a “double exposure”: exposed to physical climate risk as well as transition risk. African producers such as Chad and the Republic of Congo are vulnerable in this regard.

Mid-tier producers with high fiscal dependence and weaker diversification options deserve particular attention. Nigeria, Angola and Algeria, for example, are systemically dependent on exports, and have relatively limited fiscal buffers.

The transition is a political contest over shrinking and less predictable revenues.

Producer countries still see continued upstream investment as a better option than diversification. Oil offers relatively large and immediate revenues, while the gains from diversification are longer-term, uncertain and politically hard to claim credit for. For recent market entrants, such as Guyana and Senegal, plateauing demand spells stranded expectations as much as stranded assets.

As demand declines, producers may seek with greater urgency to protect revenues. Strategies available include pricing strategies and subsidy reform, cleaner production, and more aggressive competition for shrinking market share. Gulf producers, for example, are increasingly investing in Asian refining and petrochemical capacity to lock in demand, while also diversifying into green investments.

Demand uncertainty is a more powerful driver toward monetisation even than shrinking demand. In the Oil Endgame simulations, demand uncertainty pushed producers to maximise output and make transactional deals – this being a safer political choice than launching costly reforms.

More cooperative behaviour only emerged in the simulations when more credible economic alternatives were on the table. Finance and market access were key, as were clear demand signals to reduce uncertainty.

In a contracting market, major importers increasingly shape the conditions under which oil remains marketable, financeable, insurable and politically acceptable.

Demand power will be distributed, with the major demand centres exercising different kinds of leverage.

• China will be key not just because of the scale of its demand. It exercises influence through its refining and petrochemical strategy, and its ability to anchor producer relationships through investment and long-term commercial ties.
• India is the largest potential future growth market. Its trajectory is uncertain, however, as electrification, efficiency and clean power deployment are speeding up.
• The EU is one of the largest importers today, though its projected demand is rapidly shrinking. It remains influential, however, through regulatory frameworks, standards, finance-linked market access and its role as a high-value import market.
• The US continues to shape the system through sanctions, financial governance, security guarantees and its dual role as a major producer and consumer.

Producers face not just a shrinking market, but a more selective and political one. Market access becomes a growing source of geopolitical leverage. This influence can be more stabilising if demand signals, standards and financial rules are aligned. By contrast, fragmented sanctions, regulatory approaches or security postures can deepen market segmentation and disorder.

Declining demand does not make oil security less important, but it does change its core function. Security architecture will increasingly determine which producers can access shrinking markets and how producer fragility is contained.

This shift is already visible:

• The US – still the principal hard-security actor – is becoming more engaged in enforcing sanctions, deterrence and strategic competition.
• China is becoming a more important commercial, financial and diplomatic actor, though not yet replacing the US security umbrella.
• Russia’s ability to keep sanctioned barrels moving is demonstrating how oil trade can fragment into parallel systems when insurance and shipping governance are contested.

The result is a more layered and fragile oil-security order. “Paper chokepoints” – insurance, shipping services, port entry and the like – become as important as physical chokepoints.

Where coordination holds, these tools can strengthen market governance. However, they can also push trade into more opaque channels, weaking enforcement as well as increasing the risk of accidents and environmental harm.

In a volatile oil endgame, these dynamics could add further disorder. Fragile and emerging producers may become more exposed to transactional security bargains.

Importer coordination therefore becomes a preventative security tool, not only a crisis-response mechanism.

Governments should deploy coordinated macro-financial support, trade and investment partnerships, regulatory tools and security cooperation to help producer economies manage declining revenues and promote regional and global stability.

Declining fossil fuel demand will reshape geopolitical stability, not just energy markets. Governments should treat the transition as a core foreign, development and security strategy, especially in regions heavily dependent on hydrocarbon revenues.

Wealthy, low-cost producers with significant financial buffers face different incentives and opportunities than middle-income or vulnerable producers with high fiscal dependence on fossil fuels. Mid-tier, fiscally exposed producers are a critical group: they retain significant export capacity and regional importance, but lack sovereign wealth, institutional resilience and diversification options. Targeted partnerships with these countries will be essential to reducing systemic instability.

Governments and international financial institutions should deploy existing resource-governance and macro-financial toolkits earlier and more systematically to transition risk – rather than inventing new instruments – before shocks crystallise as full-blown fiscal or debt crises. Supporting producer adjustment is not development assistance alone; it is preventative security policy.

This includes fiscal stabilisation frameworks, stronger non-oil revenue mobilisation, national oil company governance, subsidy reform, debt sustainability analysis, contingent credit lines, transition-linked finance instruments and support for economic diversification.

The overall priority should be credible economic partnerships that change underlying incentives, not diplomatic signalling alone. A near-term priority can be incorporating oil-price and revenue-volatility scenarios into IMF surveillance, debt sustainability analysis and fiscal-risk assessments, rather than testing only smooth long-term decline or low-price pathways.

Clear and credible signals about future demand, combined with coordinated crisis responses, can reduce uncertainty and limit destabilising behaviour. International processes such as the Transition Away from Fossil Fuels (TAFF) roadmap agenda provide an opportunity to institutionalise such coordination and align expectations between producers and consumers.

Bring together both early movers, including through initiatives such as the Beyond Oil and Gas Alliance (BOGA) and the TAFF process, and countries facing structural challenges to support peer learning, share resources and enable cooperation across different transition timelines. These coalitions will be most effective if they recognise the diversity of national circumstances while maintaining a shared commitment to a managed and equitable transition.

Negotiations over phase-down timelines and transition finance will continue to be arenas of strategic bargaining, not purely normative agreement. Recognising producer agency clarifies that transition outcomes are contingent on political choices. The pace and stability of demand decline will depend on whether governments, both producers and importers, treat the transition as a cooperative endeavour or a zero-sum competition for remaining rents.