Energy security debates often focus on supply: who produces energy, who transports it, and who depends on whom. This framing has centered on the nexus between physical assets and trade flows—pipelines, terminals, generation capacity, and shipping routes. Increasingly, however, strategic vulnerability is shaped less by the location of infrastructure than by who controls it and under what regulatory conditions it operates.
As geopolitical risk has become embedded in energy markets, institutions such as the Agency for the Cooperation of Energy Regulators (ACER) and the Ontario Energy Board, designed for economic governance rather than strategic coordination, now shape outcomes with foreign and defence policy implications. This shift has not followed institutional redesign or explicit political mandate. Instead, it has emerged through the routine application of regulatory tools built for price stability, reliability, and consumer protection.
At its core, energy regulation governs access. It determines who may participate in markets, under what conditions, and at what cost. Licensing approvals, certification requirements, market access rules, tariff structures, and cost-recovery determinations are formally justified in neutral economic terms. Yet in a world shaped by sanctions, strategic rivalry, and weaponized interdependence, these same tools now produce geopolitical effects.
The result is a structural change in how strategic outcomes are generated. Foreign and defence policy institutions have traditionally been understood as the sites of strategic decision-making, while regulators were treated as technocratic actors in the background. In interconnected energy systems exposed to geopolitical shock however, incremental and cumulative regulatory decisions in capital-intensive markets shape which suppliers remain viable, which investments proceed, and which infrastructures are integrated into long-term planning. As such, strategic consequences increasingly arise not through declaratory foreign policy, but through the ordinary operation of regulatory law.
Europe: Regulation as the Operational Layer of Strategic Reorientation
The EU’s response to Russia’s invasion of Ukraine illustrates how regulatory governance has become the operational layer through which strategic intent is implemented. While sanctions were adopted through foreign policy instruments, their effects on energy systems were mediated through regulatory law and market governance.
Germany’s suspension of Nord Stream 2 certification in February 2022 was formally grounded in EU gas market certification rules. In legal terms, it was a regulatory determination about whether the pipeline’s ownership and control complied with EU requirements designed to prevent suppliers from controlling transmission infrastructure. In strategic terms, it contributed to excluding Russian gas from Europe’s future supply mix, reinforcing broader political decisions and reshaping investment expectations across the continent.
More broadly, EU measures restricting Russian access to gas storage and transmission infrastructure, implemented through amendments to gas security-of-supply regulations, shifted operational control over critical assets without formal expropriation. Compliance and enforcement were delegated to national regulators and system operators, embedding geopolitical realignment within ordinary market oversight.
Electricity market regulation, including price limits on the revenue of generators and demand reduction obligations, became a vehicle for strategic adjustment. Following the collapse of Russian gas imports, Germany shifted from being a net exporter of electricity to a net importer during periods of high demand. Emergency price interventions and compensation mechanisms altered wholesale price formation, affecting dispatch patterns (i.e. the operational process of determining which power plants should generate electricity, and at what output level, to meet the continuously changing demand for power at the lowest cost) across the EU’s electricity markets.
These interventions had clear cross-border effects. By holding domestic prices down, countries such as Germany reduced exports during periods of tight supply, while higher prices elsewhere, including France, pulled in imports and strained cross-border connections. The costs and benefits of these price differences fell unevenly across neighbouring systems. Measures adopted as domestic consumer protection thus reshaped how regional electricity markets functioned.
These effects were amplified by unequal fiscal capacity. Germany mobilized €200 billion to stabilize domestic prices. States with more limited fiscal capacity, such as Italy, relied on narrower subsidies and allowed wholesale price shocks to be transmitted more directly to consumers and industry. Energy regulators observed that uneven national interventions led prices to diverge across the internal market, even though the physical grid remained connected.
Canada: Fragmented Authority, Continental Spillovers
Canada’s regulatory architecture highlights the same structural dynamic from a North American perspective. Energy governance is divided between federal and provincial authorities operating under distinct statutory mandates due to Canada’s constitutional division of powers. Federal bodies regulate international and interprovincial transmission and pipelines, while provinces regulate generation, distribution, and retail electricity markets.
This division has direct cross-border consequences. For instance, Hydro-Québec’s electricity exports to the northeastern United States are governed by Canadian regulatory processes, while corresponding imports fall under U.S. federal and state jurisdiction. Changes in Canadian regulatory treatment of export capacity directly affect reliability and price outcomes in New England and New York. Ontario’s electricity market is similarly interconnected with Michigan, New York, and Minnesota. Decisions by the Independent Electricity System Operator and the Ontario Energy Board regarding capacity mechanisms and transmission planning are taken for provincial reasons yet shape cross-border flows and reserve electricity supply in neighbouring U.S. systems.
Where market rules fragment authority, reliability standards provide a partial counterweight. In North America, the North American Electric Reliability Corporation (NERC) enforces mandatory reliability standards across the United States and much of Canada under delegated authority from the U.S. Federal Energy Regulatory Commission. Formally, these are technical tools aimed at preventing blackouts and maintaining system reliability. In practice, they operate as a form of security governance embedded within ordinary regulatory law.
The Critical Infrastructure Protection (CIP) standards are particularly illustrative. They impose binding requirements to identify critical assets, restrict access, monitor cyber activity, and mitigate vulnerabilities. CIP-014, in particular, requires entities to protect transmission facilities whose loss could result in widespread instability – a mandate that closely resembles national security risk assessments. These requirements increasingly reflect scenarios associated with climate stress, cyber intrusion, and physical sabotage, shaping investment and operational decisions across the bulk power system.
Yet, NERC is not a defence institution, nor are its standards coordinated through foreign or defence policy channels. Developed through technical, stakeholder-led processes focused on risk management, it derives its authority from statutory delegation, not strategic mandate, thus demonstrating that regulatory institutions can govern security-relevant behaviour across borders, but only within a narrow technical envelope. As a result, NERC standards can secure systems against defined technical risks, but they do not determine how scarcity is shared, how costs are distributed, or how competing priorities are resolved in a geopolitical crisis.
The cross-border scope of NERC’s authority also underscores both the strengths and limitations of this model. Shared standards enhance interoperability and baseline resilience. At the same time, reliability rules do not address how scarcity should be allocated, how costs should be distributed, or how competing priorities should be balanced in a geopolitical crisis. They secure systems against known risks, not strategic surprise.
Implications for NATO: Regulation as an Unacknowledged Strategic Variable
NATO increasingly recognizes that civilian infrastructure underpins military readiness, industrial capacity, and societal resilience. Yet NATO’s approach to resilience rests on an implicit assumption that civilian energy systems across allied states will behave in predictable and compatible ways under stress. That assumption is fragile. The European energy crisis demonstrates that energy system behaviour is shaped less by shared threat perception than by domestic regulatory mandates, fiscal capacity, and legal authority. Interconnected systems do not respond as a unit when the rules governing price formation, intervention, and risk allocation diverge.
From an alliance perspective, resilience is therefore contingent on regulatory capacity. Yet under stress, systems may pull inward or suppress exports based on domestic priorities rather than alliance needs, without any political intent to undermine solidarity. North America’s reliability framework reinforces this lesson. Even where cross-border regulatory institutions exist, their remit is limited to baseline reliability rather than strategic coordination.
Energy security debates that focus solely on supply, ownership, or infrastructure overlook this institutional layer. Rules matter as much as assets. Market design matters as much as capacity. The strategic challenge is therefore not whether regulation should serve security ends, but how regulatory systems built for economic governance can absorb geopolitical risk without fragmenting allied energy systems. For NATO, this can mean working towards modest but practical adjustments, such as shared stress-testing of energy systems under geopolitical scenarios, clearer alliance-level expectations on export restrictions during crises, and closer coordination between civilian regulators and defence planners. Together, these proposals point to a broader reality: in today’s energy systems, regulation has become a decisive test of allied resilience under geopolitical stress.
