By Ms Jiacheng Yang – student on BSc International Finance FYE predicted to graduate with a First -degree classification.
Jiacheng holds an offer from University College London to study for a postgraduate degree.
When war, sanctions or blocked shipping routes hit global energy markets, oil and gas companies do not simply face higher costs. They can lose access to entire supply chains overnight. A delayed cargo, a closed route or a sudden production shutdown can quickly become more than an operational problem. It can become a test of whether a multinational energy company is truly prepared for a more unstable world. This is the challenge facing Shell. As one of the world’s largest integrated energy companies, Shell operates across oil, gas, LNG, refining, trading, chemicals, retail energy and lower-carbon solutions. Its global reach gives it scale, but it also creates exposure. The company depends on international supply chains, long-term contracts, large infrastructure projects and transport routes that can be affected by climate regulation, geopolitical conflict and sudden market shocks.
In normal business thinking, the answer to uncertainty is often simple: cut costs, improve efficiency and protect margins. But for Shell, the next stage of competitiveness may require a different logic. In a world where energy shocks are becoming more frequent, the smartest strategy may not be to spend less. It may be to spend more, but in the right places.
This sounds counterintuitive. Economics often teaches us that firms improve profitability by minimising costs. If a company can produce, transport and sell energy more cheaply than its competitors, it should have an advantage. However, energy is not a normal product. It is capital-intensive, politically sensitive and globally connected. A company can be efficient on paper, but still vulnerable if one route is blocked, one supplier fails or one political crisis disrupts its operations.
This is why Shell should “shell out” for resilience. Instead of treating higher costs only as a weakness, Shell can use targeted spending as a form of insurance against disruption. This is what I have been discussing in my assessment for Multinational Corporations.
There are several ways to do this. Shell can diversify its LNG suppliers so that it is not overly dependent on one region. It can use long-term LNG contracts to secure supply in advance. It can maintain inventory and flexible supply options so that disruption in one area does not immediately stop operations elsewhere. It can invest in safer shipping routes, political risk insurance and hedging strategies to reduce the impact of price volatility and geopolitical uncertainty. At first glance, these measures might appear expensive. They may reduce short-term margins and make Shell look less efficient than a competitor that focuses only on cost-cutting. But the real question is not whether resilience is costly – it is whether disruption is even more costly.
A simple way to understand this is to think about the difference between efficiency and resilience. Efficiency means doing things at the lowest possible cost when everything goes according to plan. Resilience means being able to continue operating when the plan has broken down. In a stable world, efficiency may win. In an unstable world, resilience becomes a competitive advantage. We live in an unstable world!
This matters especially for Shell because its strengths are closely connected to global coordination. Shell’s competitiveness does not come only from producing oil and gas, but also from LNG leadership, trading capability, logistics, downstream market access and the ability to move energy across markets. These strengths are valuable precisely because Shell operates globally. However, the same global structure also creates risk. If the system is disrupted, the company needs flexibility, not just efficiency.
Alongside resilience, Shell also needs to prepare for the energy transition. Climate regulation, carbon pricing and stakeholder pressure mean that the company cannot rely indefinitely on traditional hydrocarbons alone. Shell has already invested in lower-carbon areas such as LNG transition, carbon capture and storage, hydrogen, biofuels and electric vehicle charging.
However, Shell’s green transition should be selective and gradual, not reckless. Oil, gas and LNG still provide cash flow, energy security and investment capacity. If Shell moves too aggressively away from its core businesses, it may weaken the very financial base that allows it to invest in future technologies. The better strategy is balance: protect today’s profits while preparing for tomorrow’s energy system.
This is where Shell’s approach becomes more interesting. The company does not need to choose between fossil-fuel profitability and lower-carbon investment as if they are completely separate worlds. Instead, it can use its existing strengths, especially LNG, engineering capability, trading networks and project management, to support a more disciplined transition. LNG can act as a bridge business, while lower-carbon technologies can be developed where there is policy support, industrial demand and a clearer path to returns.
Shell’s challenge is not simply to become greener or cheaper. It is to become harder to break. That means building a portfolio that can absorb shocks, redirect supplies, manage political risk and still generate cash flow during periods of uncertainty.
The next energy crisis will not reward companies that only looked efficient in calm conditions. It will reward companies that can keep moving when routes are blocked, contracts are strained and markets panic. Shell’s smartest strategy may be simple: shell out now, survive later.