Future Projections and Recommended Reading

When great design enters your life, the world feels more vibrant. The same happens when you step into a Buick. Feel the confidence of head-turning style. Discover luxuries you don't have to wait for at Buick.com. Buick, exceptional by des ign. If you want to see just how bad this energy crisis can become, just read what President Trump and Iran are saying to each other. On Saturday night, Trump posted a missive to truth social. He wrote: if Iran doesn't fully open, without threat, the Strait of Hormuz, within forty-e hoighturs from this exact point in time, the United States of America will hit and obliterate their various power plants, starting with the biggest one first. It's a brutal threat meant to make Iran back down. It did the opposite. In response, the Speaker of the Iranian parliament said: immediately after the power plants and infrastructure in our country are targeted, the critical infrastructure, the energy infrastructure, and oil facilities through the region will be considered legitimate targets and will be destroyed in an irreversible manner. And the price of oil will remain high for a long time. I'm recording this on the morning of Monday, March 23rd. As I woke up today, oil prices had fallen a bit because Trump had extended his 48-hour deadline by five days, citing positive talks with the Iranians. Iran is denying any such talks have happened. They say Trump is backing down out of fear. They've already hit energy infrastructure in the region, so their threat is credible. But I don't pretend to know the truth here. The news and the price of oil and gas are changing radically by the hour. But here is a key fact that has not changed yet. The Strait of Hormuz remains mostly closed. If it stays closed, and even more so if the war expands, if Iran destroys more energy infrastructure through the region and the US and Israel destroy it inside Iran, we are going to enter the kind of energy crisis we have not seen since the 70s, or maybe even something much, much worse . Jason Bordoff is the founding director of the Center on Global Energy Policy at Columbia University and a co-founding dean of the Columbia Climate School. He served as a special assistant to President Obama and senior director for energy and climate change on the National Security Council. I asked him on the show to walk us through what all this might mean for Iran, for America, for global energy prices and security, and also, I think something not to lose sight of, for America's geopolitical competition with Russia and China. Both seem like they might come out a lot stronger from this. As always, my email as your client show at nightimes dot com. Jason Bordoff, welcome to the show. Extraordinary. The supply outage is the largest ever recorded, far exceeding prior disruptions, not only in absolute terms, but even as a share of global demand. Tell me about that. Yeah. The Strait of Hormuz moves about $20 million barrels of oil a day and a hundred billion barrel a day market, so about twenty percent, about twenty percent of the world's liquefied natural gas supply as well, and it's mostly closed. It's the most critical global maritime choke point for the energy sector and for lots of other things too. We can come to petrochemicals and aluminum and fertilizer, which has implications on food production and food prices. But for oil and gas, it's the most important choke point. And the Gulf, we all know, since the 1970s, the Middle East is a huge energy producer. Iraq, uh, Saudi Arabia, the United Arab Emirates, Iran, of course, and all of that oil, most of it flows by tanker through this very narrow strait that juts like a little triangle around a corner and it's right where Iran is. So it doesn't take that much with some drones or explosives in a dinghy boat racing out to a tanker. You have, you know, something like a a hundred day moving through before this conflict. You just have to take one or two out for insurance to be canceled and for ships to just say we're not going to take the risk. There are some workarounds. Saudi Arabia has been able to move some oil by pipeline. Uh Iran, Iranian oil, ironically, is still flowing through. We've tapped strategic reserves, we've eased sanctions on Russia and Iran. We can talk about whether that makes sense. But you're talking about a disruption of about 10 million barrels of oil, maybe a little bit more. So more than 10% of global supply. The Arab oil embargo in 1973, by contrast, you saw about six or seven percent of world supply disrupted. So this is by far the largest energy supply disruption we have ever seen . What has Iran actually done to close the strait ? Mostly as a precaution, or just staying in place. We have seen facilities in the region shut down production as a precaution. We're still not yet at the point where most energy infrastructure in the region has been physically attacked or damaged. We're starting to be at risk of seeing that. Israel attacked a natural gas field in Iran last week. Iran retaliated by hitting a very important energy installation in Qatar. And it was to send a signal. It's tit-for-tat escalation. This is mutually assured destruction. If you come after me, I can hit you hard and you'll hurt me, but I'll hurt you in the process. And so people have mostly been holding back from that. And that's important because if this conflict somehow is resolved and comes to an end and the straight is reopened, it might take a few weeks, maybe even a month or two for some of that to come back online and for the energy to start flowing again. But if we start to see those attacks where we really have physical damage, the Qataris are saying already it'll take three to five years to repair the damage that was done to their facility last week. If you do that to many other facilities in the region, the consequences of this crisis are gonna last much, much longer. I want to hold on that attack on the Qatari liquefied natural gas plant. Because I think at the beginning of this fight, when people would think about Iran and Israel and the United States, they would think about Iran maybe firing missiles at Israel. That would be how they would fight back. But they have turned this conflict very asymmetric and they seem to understand the vulnerability of Israel and particularly the United States as coming through the vulnerability of energy infrastructure and other kinds of infrastructure in other Gulf states. So, what kinds of attacks have they been launching? And what is both the threat that has already now emerged to energy supplies, but certainly the implied threat that could emerge to energy supplies. Aaron Powell The point about the asymmetric nature of this is really quite striking. Of course, you have very powerful militaries like the United States and and even Israel dropping enormous amounts of munitions on Iran. Iran has its own military, but it's a much weaker power. But again, it doesn't take that much to throw the entire global energy market into chaos. And that's what they're doing. So they're not just hitting neighbors, although the neighbors are being harmed. Iraq, some other countries, if you run out of places to store the daily production of oil that you have and you can't get it into market and put it on a ship to sell it somewhere, you have to shut in production. You just have to stop producing. And we've seen about seven, eight, nine million barrels a day of oil globally just shut in, where people say we're gonna stop producing. So that hurts those countries. But we are in a global oil market. If there's a disruption halfway around the world, you take one, two, ten million barrels off the global price of oil goes up. And as we are seeing in the United States, for everyone listening who goes to fill up at the pump, the price of the pump is set by the global price of oil, even though the United States is now a huge net exporter and the largest producer in the world. So the pain Iran is inflicting is global in scope because they can affect the global energy market. And that's true for natural gas as well, which particularly hurts Europe and Asia, because that's where those supplies go. So it is not a new question for the United States military to think about what would happen if we ended up in a war with Iran. And in every war gaming of that question, I am aware of, and there have been many more that I'm not aware of, the closing of the Strait of Hormuz is an immediate possibility . We seem to have been caught flat footed by it. Why? Well, I can't speak to what kind of planning went on, obviously, in the Trump administration before this started. It you do have a sense that they thought this would be over much more quickly. Other recent conflicts have been. We woke up on a Saturday morning and found out we removed the leader of Venezuela, and that seemed to be over a few days later. There was conflict in the Middle East last year, the 12-day war between Israel and Iran, and you know, it was only 12 days. So there may have been excessive optimism that things would change in Iran quite quickly, whatever the objective of this action is, regime change or something else. And the other thing that I think you want to do in the situation like you're describing, because you're right, closing the Strait of Hormuz is the mother of all nightmare scenarios for global energy markets, not to mention for other military and defense considerations, you want to pursue an effort that might result in that with allies and in cooperation with other countries. And uh obviously other countries did not know this was coming to the extent where the president of the United States is now taking to social media to ask both adversaries and allies alike, send your warships to the region and help reopen the strait because you need that oil just as much as we do. And most countries are saying no thanks. Uh this is not uh our are a problem of our making. What makes it hard for the US to reopen the strait by itself? Well, again, those are probably questions for military experts even more. But like I said a moment ago, it it doesn't take a lot to create a risk perception. You just have to hit one every couple of days or every week or two to create a fear about going through the strait. And there are so many tankers. And it's not that hard with drone technology with small little boats that can race out to a tanker. You could probably protect a couple of warships or a couple of vessels that need to transit. But if you're talking about dozens or even a hundred or so tankers a day, it's just hard to protect all of them from any risk. And so insurance has been canceled for a lot of these tankers. So they're not going to go through unless they're insured. And they're not willing to put these huge cargoes at risk. Tell me about how the deprivation of this oil and natural gas compounds as it goes on. I mean something I am seeing a lot of discussion of from energy analysts is like if it's another week, well maybe that's higher prices, but not a huge deal. But there seems to be a sense that as it compounds, that the effects on the global economy are nonlinear, that the economy is sort of working through reserves it currently has, but things can spiral into a very different kind of situation. You understand the way energy flows through the economy in a way I don't. So talk me through that compounding and how this might change, you know, if it goes on another two weeks, another month, another two months. Yeah, it's a good question because I think both the impact of higher prices on the economy are nonlinear, but the impact of conflict and supply disruption on oil prices are nonlinear. As I said a moment ago, this is the mother of all nightmare scenarios, closing the strait. If someone had said we're going to close a strait with 20 million barrels a day to most of its supply, you'd be talking about $150, $200 a barrel. It's striking that oil prices are just a bit over 100, which is historically not an excessively high price. It's high, but it's not crazy high. And so I think there are a couple of reasons for that. One is a general market perception that this was gonna result in Trump pulling back, declaring mission accomplished, uh, as we saw with Greenland or with Liberation Day tariffs. We did not have the staying power, so we'd figure out how to get out of this pretty soon. I think if this goes on, we haven't seen anything yet in terms of how high energy prices are going to go. Right now, the price of oil that you're reading about in the newspaper is sort of one that's set by traders every day based on market expectations. At a certain point, physical reality has to catch up and, prices need to rise high enough to destroy 10 million barrels a day of global demand. We don't know exactly what that price is, but it's really high, a lot higher than the price is today. And you're starting to see little signs of that where the price of jet fuel, the price of heating oil are much higher than would be suggested by, you know, a benchmark price of a hundred dollars a bar rel. So people might have heard President Trump say the US is a winner when oil prices go higher because we're the world's biggest oil producer now. Is that true? Is this good for us? It's true and it's not. I mean, it is the case that the US is the largest oil producer in the world, and it is noticeable that when oil prices spike, Putin celebrates, but the United States does not, even though we produce more oil than Russia does. And the reason, of course, is because we're a super large consumer as well. So I've often heard the Secretary of Energy say high oil prices might be good for oil producers, but they're not good for consumers, and this administration cares about the ninety nine percent who consume oil and gas, not the one percent who produce it. An oil price spike of this magnitude means a lot more money for producers, but you know, consumers pay more at the pump. And what's different about the impact on the U.S. today is that an oil price shock is more of a distributional issue, meaning it's affecting people who consume, it probably has a smaller impact on the macroeconomy on GDP than it did before, because that increased consumer spending is flowing to domestic producers and their shareholders, and they're spending some of that money in our economy too. It's not flowing overseas the way that it used to. Aaron Powell Which means that the issue is that if you're working class in the US and you're filling up your car at the gas station, you're paying a lot of money. Whereas there are people who either own or are invested in US energy companies who are making a lot of money. Well, US producers are making a lot of money, and we should remember some of those are global too and they own assets. But yes, U.S comp.anies, their shareholders, their workers, oil-producing states, of course, they all benefit from high prices . I want to hold for a minute on the price here because there is a disconnect between the price and the conversation I'm seeing among energy and military analysts that I don't entirely understand. As you mentioned, the price of uh barrel of oil, or at least in the measure we tend to use, is a bit over a hundred uh at the moment we're speaking. But if you just looked at the chart and you had no narrative, you would not predict the conversation we are currently having, which is a once-in-a-generation geopolitical crisis that has created the nightmare scenario for global energy supply, which is the closing of the most important choke point for global energy supply. I have people like you saying the scale of the current shock is extraordinary. Something seems off here. Either it seems the market is not correctly pricing in the risk that is being described by plenty of people in the market. When I listen to people who lead energy companies and are or traders in this area, their hair is on fire. But this looks not much worse in 2022 in the oil pricing. So is someone wrong? Am I misunderstanding what markets are supposed to do in terms of pricing and risk? How do you explain this? Well there are the, you know, so-called physical markets and then paper markets, meaning like there's the price we see as a result of trading activity. And that is based a lot on expectations, not just the physical reality at any given moment. And so the price you're seeing includes what's happening, but also expectations about what is going to happen. And as I said a moment ago, if Trump tomorrow declares mission accomplished, we've done what we need to do, it's time to pull back, reopen the straight. It would take a couple of weeks, but eventually, you know, supplies come back reasonably quickly. And I went to bed, made a few notes last night before coming on your show about how high the oil price was, and woke up to find oil prices had fallen dramatically, because President Trump made some comments about how he had had very productive discussions with the Iranians and we were close to a resolution. The fundamental reality hasn't changed in the last 24 hour, but market prices fell enormously because people had an expectation that things would come to an end reasonably quickly. So I think that helps to explain the disconnect. It also takes time for the physical disruption to show up in the market. You know, you load a tanker with a bunch of crude from Iraq or Saudi Arabia and it can take two weeks to get to its destination. So we still have some cargoes that were loaded before this all happened that haven't even reached their destination yet. You kind of work through some inventories, work through some oil that is in transit, and a couple of weeks into this crisis, then you start to see the physical reality bite a lot harder . This break is brought to you by Adobe Creative Cloud, the ultimate creative toolkit. With over 20 apps at your fingertips, there are always new ways to explore your creativity. Transform images with Photoshop. Design graphics with Illustrator. Edit videos with Premiere Pro. Or animate just about anything. No matter what you want to create, Adobe has the tools you need to bring your ideas to life. It's all in Creative Clo ud. 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Can you talk me through both what those are and why that is Yeah, when you refine a barrel of oil, you get a bunch of different products from it. Gasoline is the one most people think of, but there's diesel, which is sort of the w war horse, the lifeblood of the of the industrial economy, because everything we buy in the store gets there by truck and those all run on diesel. So you start to see it show up in prices elsewhere. Heating oil, jet fuel, and lots of other kind of things use in asphalt and things that we don't think about normally. And the market for those, we've seen prices go up much, much faster because I think those are less liquid, less traded. And so the physical tightness in those markets starts to hit refiners much more quickly. So people who need to buy those products from refiners, they're seeing people charge a lot more for it already. If this keeps going for two weeks, three weeks, four weeks, five weeks . What do you think happens to the to the US economy? What do you think happens to the global economy? What happens if this begins to cascade ? I think we haven't seen anything yet in terms of where I expect oil prices would go if this goes on for weeks longer, because as I said, you really do need prices eventually to the physical reality catches up. You need prices to rise high enough to actually destroy demand. And that's hard to do. What does destroy demand mean? It means everyone figures out how to do something other than buy gasoline. So you're going to drive your car less. We saw the CEO of United Airlines the other day say they were going to start to idle some of their flights, the flights that maybe get a little less revenue, like Tuesday, Wednesday, Thursday rather than on the weekend, the flights that aren't as profitable, they're going to stop flying as many airplanes. And some industrial factory is gonna shut down. We're already seeing l countries that struggle to afford high prices in Southeast Asia, Thailand, uh Indonesia, Malaysia, countries like that have announced uh work from home one day a week. They are having school closures putting in place emergency measures to cut fuel. So the question is how high a price do you need for the global economy to use something like 10 million barrels a day less of oil. And that's a pretty high price. And there's, you know, in the nineteen seventies there was a little actually lower hanging fruit. There were some opportunities to reduce oil use that were a bit easier. We've kind of gotten the low hanging fruit out of the system. And so today, you know, the things we use oil for, there's not a huge number of substitutes in the near term. In the long term, obviously you can buy an electric car instead of an internal combustion engine, that sort of thing. But in the near term, there's not that much you can do except shut down economic activity and maybe take the subway or or bus instead of driving, and you know, in businesses will make different choices. The economist James Hamilton famously documented that basically every major oil shock of Well it depends how high oil prices go, of course, but if you're talking about the kind of levels that would be needed to make Aaron Powell I think we think about this from the American perspective where it would cause economic hardship and pain. It is hard to pay more at the pump. It is hard to pay more for a flight. But what'll happen very quickly is that rich countries will begin bidding for scarcer energy supplies. And those supplies won't make it to poorer countries who cannot pay the cost. So if this continues, I think there's been a lot of talk about, say, recessionary risk in America, but we and and Israel started this war . But if it continues, what happens to people in Malaysia or you know, people in Kenya? Like what what what is the cost that we are risking imposing on the two billion poorest people in the world who had no say in this? I mean, I think it has the potential to be really quite devastating. We saw that in the 2022 energy crisis, which was largely limited to natural gas. It didn't affect oil markets as much. So when Europe lost access to natural gas from Russia, what did Europe do? It went into the global market for liquefied natural gas. That's gas that can be traded more easily. And prices went through the roof. And like markets are supposed to do, the market allocated the supply to the people who could pay for it. So those flows went to Europe and Europe paid a premium for it. And that meant that coal prices went up because coal was the substitute for the gas that would have otherwise gone to Asia. And so a country like China used more coal instead. But if you were a lower to middle income country like Pakistan, Bangladesh, you struggle to afford any energy at all. And they really did start to see significant economic impacts to shut down um economic uh activity, to to not be able to get around. We're seeing in Pakistan now a huge cricket tournament and they're telling people to watch on television rather than go in person. India oil spending is about 3% of GDP. Thailand, it's about 5%. Fossil fuels overall in Thailand are 7%. These are very large shares of the economy that are spent on fossil fuels, and uh nearly all of which is imported. And these are countries that don't have the fiscal space to pay more. And we haven't again even talked about the fact that the Strait of Hormuz is a critical choke point for fertilizer. And if fertilizer has trouble getting to the market, you're going to see potential impacts on food and food prices. And that puts enormous economic strain on countries that are already struggling to afford these essential products in the first place. So you've mentioned that a lot of the world's oil, and obviously it's not just oil or even primarily oil coming from Iran goes through the Strait of Hormuz, much of it doesn't. If the world began turning to other geopolitical actors for supply, who has the capacity to increase supply in in in in in a situation where this war kept going and there's much more pressure to adapt, what might those adaptations look like? Well it would take time. So you know, there's not many countries, Saudi Arabia is really the only one, maybe a few others that hold so-called spare capacity. They have invested and spent extra money so that in an emergency, they can quickly bring oil to the market that they otherwise could produce, but they hold it back in case the market needs it. They consider themselves the sort of central bank or federal reserve of the global oil market. But by the way, that Saudi Arabian spare capacity can only get to market if you can put it on a tanker and send it through Strait of Hormuz. So it's not so helpful right now. Other people who have the potential to increase production, and the United States is one of those now with the shale revolution, shale supply is able to be produced a bit more quickly than more conventional oil. But you're talking about six months, 12 monthss. It' not something that happens in a crisis. Aaron Powell You've mentioned the the shale revolution a few times, which I think many people probably don't know what that is. Can you just give me the brief overview of US energy production from you know nineteen ninety to twenty twenty five. What happened and and how different is our position now than it was then? We're still part of an interconnected market, so we still feel higher oil prices, but it is hard to overstate how dramatic the transformation in the U.S. energy position has been in just the last 10 to 15 years. Twenty years ago, the US was producing about five million barrels a day and importing 60% of its oil. We'd been since the Arab oil embargo, year after year. You had presidents, George Bush and his state of the union, warned that America was a dicted to oil and high oil prices were bad for the United States, and we needed to get off of Middle Eastern oil. And within just a couple of years, oil producers figured out new technology, what's known as hydraulic fracturing. You could fracture rock and you could extract oil and gas from the geology in ways we didn't know was possible or economic before. And it started with natural gas and then it extended to oil and it just really has taken off this extraordinary increase in US production. But that's starting to peter out now. The growth is not happening in the same way it used to. And so these big oil companies were already saying, where's the next increase in production going to come from? And they were looking at places like Iraq and Libya and going back to some of these geopolitically risky places. And I suspect people might be rethinking a little bit of those plans now or at least assigning a bigger kind of geopolitical risk premium to those investments. What about Russia? One of the things you mentioned early on in this that I think will sound strange as a sentence is that one of the moves the Trump administration has made is to desanction Russian and Iranian oil and gas . Now, to the extent I know anything about our current foreign policy, it's that we have been trying very hard to sanction Russian and Iranian energy exports. So what is going on there? You know, I think we are showing in this conflict the limits of the willingness of the American people, the American government, um, to bear pain uh in energy markets, pain at the pump to pursue foreign policy objectives. That has always been the case. In twenty twenty two, after Russia invaded Ukraine, we did not use every tool we had in our toolkit to put pressure on Putin. We had some efforts to deprive it of some oil revenue, but we did not impose full sanctions to try to prevent Russia from selling all of its oil to the global market because Russia just exports too much and you would have sent oil prices through the roof for all of us if we had tried to do that. I worked in the Obama White House when the original sanctions were put on Iran. And the big question was: how do you take Iran's oil off the market? That was on one and a half, two million barrels a day, and not send oil prices skyrocketing in the process. How do you impose the pain on them, but not impose it on us? And so we've always been reluctant, and Iran is realizing that now. They know that. That's why they're doing what they're doing in the Strait of Hormuz. Because we're part of an interconnected global oil market, our options are limited to pursue foreign policy objectives targeted at big oil-producing states. If the result of that is you send oil prices through the roof and impose pain on ourselves in the process. So because oil prices are going up so much, the administration is looking to pull every lever it can to find some relief. And one of the sources of relief is Russia has produced a lot of oil that is sitting uh floating on the water, so to speak. It's in tankers looking for a buyer. It was having to discount that oil a lot to find a buyer because people don't necessarily want to touch sanctioned oil. You have to use a sort of shadow economy to do it. And they're saying now please take those barrels as fast as you can, get them into the market to bring prices down. And now they're done the same thing for at least the next 30 days for Iran, which is, as you said, a bit odd to be pursuing a military campaign against Iran. And one of the F tools we have to take to deal with high oil prices is to let Iran sell more oil. Not not just to sell more, but even more importantly to get a better price for the oil that may have otherwise been sold in that sort of shadow economy. Okay, I'm sorry, but that's insane . Like j just as uh like a thirty thousand fo ot that we are bombing the country into rubble that as we speak right now threatening to s destroy their power plants and desanctioning their o il. Like it it it really shows something here was unplanned for or is off. And also that if we're at a place now where we are waiving sanctions on Iranian oil for 30 days so that they can s put that oil in the market as fast as possible, it probably would have been sold eventually anyway. But let's do it faster. And again, they're going to get a better price for it. We may be running out of good options. And we could talk about what some of the other options are to bring oil prices down. And I just think again, this is why oil has always been such a key geopolitical weapon and such a key geopolitical vulnerabil ity. Let's talk about energy as a weapon for a moment. You and Megan O'Sullivan published late last year in Foreign Affairs a big piece called The Return of the Energy Weapon. What's the energy weapon? Well, and there's nothing new about energy being used as a weapon, uh Lord Curzon in World War One famously said the Allies floated to victory upon a wave of oil and the ability to cut off the supply of oil for the military in World War One, World War II, these were key sources. I mean, one of the reasons uh Japan attacked Pearl Harbor was it had lost access to oil supply before that. Didn't Stalin attribute the victory in World War II to cutting off Hitler's access to certain oil fields? Yeah. So trying to go after energy supply has always been central to that. It was why Winston Churchill famously moved the British Navy from coal to oil, which was a much more efficient fuel. The Navy could be faster and but it also exposed it to a new vulnerability because you had a lot of coal in the UK up near Newcastle, but now you needed to depend on places like Persia for your oil. So geopolitics of energy became an issue that in a way it hadn't been before. We wrote that piece because I think that the idea of energy being weaponized, which of course was a national trauma in the 1970s, particularly after the Arab oil embargo lines at the gas station, really uh it did have a long-lasting effect on energy policy in the United States. And the way we think about energy has been framed by that trauma that energy in the particularly in the Middle East could be weaponized. But the world has changed a lot in the half-century since then. The United States is now the largest producer of oil in the world by far. And generally, we've had this multi-decade period of relatively cooperative and copacetic geopolitics, economic cooperation, globalization, bringing other countries into the fold through the World Trade Organization and in other ways. And so I think we generally became a bit complacent with risks to energy security, viewed them as largely a thing of the past. We had this unprecedented increase in US supply that comforted markets a little bit and provided ample supply, kept prices low. Power demand was flat in the United States and Europe for the last 20 years. Of course now it's surging again with data centers and other things. But the most significant shift is the global order we knew is seems to be collapsing beneath our feet. And we're in a new world of conflict and competition and rivalry between great powers. And in a world that is in disorder like that, a world where there is increased risk of conflict and uh competition, there's no reason energy would not be a key weapon and a key source of vulnerability. And we're starting to see that play out. Obviously, what Russia did to cut off the gas supply to Europe after it invaded Ukraine, or even uh China last year restricted rare earth exports, and that really shook up the foreign policy community in ways that sent shockwaves through it. Trevor Burrus And in ways that made us back down quite quickly from the trade war that Donald Trump had begun with China. You talked about risks to energy security, global risks to energy security. You talked about the collapsing of the global and international order. But we chose this, right? This didn't happen to us out of nowhere. The global order isn't collapsing out of nowhere. I mean, we're not the only ones. Russia certainly bears its share of responsibility. China has had its violations. But Donald Trump has been lighting the global international order on fire, deposing and capturing presidents of other countries, launched a war with Iran with no consultation functionally of anyone, except maybe Israel. And the risk to energy security here again was us. We chose to put energy security at risk. We seem to have done so without any real planning for what it would mean. But it reflects something I think which is sort of odd, which is when you think about the conversation that dominated this in the 2000s, we needed to get to a point where America had energy security, where we couldn't be squeezed by OPEC. And we actually did quite a lot in that direction and became a net energy exporter and had this amazing shale gas revolution and began to work on decarbonization. And then in just of the past couple of years, I mean, Trump has destroyed the solar and wind subsidies, is trying as best he can, it seems to me, to set back our work on decarbonization and electrification. And at the same time has executed a series of moves in foreign policy that have created a lot more instability in the global economic and political order. It has been we have chosen volatility that we have not planned for in a way that is very strange . Yeah, it's hard to disagree with what you just said. But as you said, it's been like coming for some time, and there's a number of actors, you know, some of your listeners will recall this speech former National Security Advisor Jake Sullivan gave at Brookings, where he tried to explain why this order was changing, and part of it was China wasn't playing by the rules that a lot of people thought they might two or three decades ago. But clearly, when you threaten trade wars against your allies, threaten to take other pieces of territory by force like Greenland, um, that really did traumatize Europeans also and lead to a level of concern about dependence on the United States. I wrote after uh some of these big international meetings like the Munich Security Conference or Davos that one of the questions I was getting the most was, are we misguided, being Europeans, to swap dependence on Russian energy for American energy? Are you a reliable supplier, or is that going to be weaponized against us in a coercive ways as leverage to get a concession for something else? What did you tell them? I think it's probably not the case, but I understand why they might be concerned about it. I mean, I think U.S. energy exports are probably pretty reliable, but we are seeing an administration that is looking for looking for leverage, looking for ways that it can sometimes use coercive tools to extract concessions from others. And it seems like that's part of what the strategy with the liberation date tariffs was. But I think what that tells us now is there's energy risk all around, right? If you go back five years ago and talk to people about the need to have an energy transition, they would have said, okay, that's that's good, but we don't want to be dependent on China. If you want solar panels and batteries and critical minerals and electric vehicles, now we're dependent on China for all of our supply chains. And I think one consequence of this conflict and everything that came before it, the weaponization of energy, I mean, literally not just sanctions, but a physical military blockade to prevent Venezuela from selling its oil as part of what we did to oust Maduro, Russia cutting off supply. People, obviously, if you're in Europe, you're not looking at Russia the same way again as a reliable supplier. Now you might not be looking at the Gulf the same way. And maybe you have your concerns about the predictability of US energy policy with policy swings back and forth. By the way, it was the Biden administration that put restriction on new permits for export of natural gas. So there's been lots of signals that might make people a little bit concerned. So now you're looking at the whole world and you're saying there's energy risk all around. What do I want to do? I want to insulate myself, right? After the 1970s, one of the main things we did to increase energy security was actually more cooperation and more interconnectedness. We created the International Energy Agency for Diplomacy. We had 30 or so countries that agreed to hold strategic stocks together in case there was an emergency and release them together. And we created this well-functioning market we talked about before. So we were all interconnected. If there's a supply shock halfway around the world, market forces can reallocate supply. I think in this world of collapsing geopolitical order and competition and risk, countries will increasingly say we need to take care of ourselves, we need to think a little more in an autarchic sense, focus much more on the domestic production of energy, reduce imports, and reduce interconnection to other parts of the world. And I think that has significant implications geopolitically and for energy prices. It is very expensive if you want to make all your solar panels or do all your mining and refining and processing of critical minerals within your own coun try. In theory I knew that this kind of thing can happen in any family . Anyone's first cousin could be plotting murder. This is UCE4735 and today is Upstanding Citizens are always turning out to be secret criminals. And I wouldn't even call my cousin Alan an upstanding citizen. You know my clients are cartel level guys, they're all badasses. They're they they But it's one thing to know there's a more permanent way to do it. Yeah. More and more definite. Permanent. And another thing to understand. Alan, murder, me? It ended up being so much worse than I thought I knew. The price is eminently reasonable. Okay, so what is what is the What the hell was Alan thinking? Like let's just say that I'm a little bit pissed up. Yeah, yeah, no, I get it. Yeah . From serial productions and the New York Times, I'm M. Gesson, and this is the idi ot. Listen wherever you get your podc ast. Tell me about the role and positioning of China in this moment . I think in the immediate moment, obviously it's painful for China to pay much higher energy prices. China gets about half of its oil through the Strait of Hormuz, about a third of its liquefied natural gas, and they're paying more for it just like everyone else. I do think they're as well or better prepared than many to deal with that. They've built up a huge strategic reserve of oil of about a billion and a half barrels, while the United States has been selling ours off because of the misperception on both sides of the aisle that the shell revolution makes us insulated from all of this stuff. And China for decades has been pursuing a strategy to electrify more of its economy. That's why half the car sold in China are electric. A much higher share of their overall economy is electrified than in most of the rest of the world. That's more about energy security than it is a clean energy transition or climate change. And then they want to produce that electricity from domestic sources. For them, that's coal and renewables mostly, some nuclear. So I think in the long run, the question is whether other countries, say if you're import-dependent in Europe and you say, look, we can't go through this again. We went through it in 2022 with Russia. Now we're facing an energy shock again. We really need to produce our energy at home and we need to electrify more. What does that mean? It means you got to buy a lot of stuff from China, all of the batteries and electric vehicles and all of those critical minerals and solar panels. And I think that China in the long run could end up a bit of a winner here in the sense that they're the ones supplying all of that. And they are have but long been trying to position themselves as a reliable commercial partner while the United States is the source of geopolitical instability. And this conflict doesn't make it harder for them to make their case. I want to talk about the two countries' strategies here for a moment. If you had just been watching China and the US for the past couple of years, and particularly since Trump came back in for a second term, I think what you'd see is the US seems to be making a bet on being something in between, a petrostate and a petro empire. A petrostate in that Trump has been gutting the wind and solar subsidies and making permitting harder and as best I can try to retard the clean energy transition, but going all out on fossil fuels. But in addition to that, he has been trying to expand US influ ence and to some degree control over the fossil fuel reserves of other places. So Venezuela is the most obvious example here where we functionally took over that country and government and said completely explicitly that we are taking over their oil . And I think Trump's view of how Iran was going to go was that either he was going to cut a deal with some deputy level in the regime that would be friendlier to the US in order to not have their head be the next one on a pike or not have their home be the next one hit by a missile. Or there's going to be a bottom up Iranian revolution and they'd be so grateful to him that the resulting regime would be friendlier to US interests and would sort of deal with us on better terms. And in either case, you would now have America with its tremendous energy exporting potential, Trump's incredibly close relationships with different Gulf state countries like Saudi Arabia. And then you'd add in Venezuela and Iranian oil, gas, et cetera. And that would give us a lot of power. And China has been, as you say, electrifying at a really torrid pace, but developing functionally dominance over the clean energy supply chain. Uh, it is very, very hard to beat what they can do on cost. The Biden administration put huge tariffs on Chinese electric vehicles and Chinese solar power components and so on. But practically as America becomes a less viable partner for many countries that want to have a clean energy transition, I think they are rethinking and in some cases have actually changed course. And so China seems to be betting a lot on becoming the supplier of the global electrostate. So first I want to see how much in the in that rendering of the two major energy strategies you disagree with. And then second, given you know where as an energy expert the world looks to be going to you, how you would think about those two strategies? I think it's exactly right. And as I said, this conflict might give a boost to China in the sense that it was a big concern before for countries that were thinking about moving much faster toward an electrified economy, toward clean energy. The constraint was: do I want to be heavily dependent on China? I mean, I've been thinking for the last couple of years, as problematic as I think it was to roll back significant parts of the Inflation Reduction Act, the biggest risk to a faster clean energy transition was how policymakers, particularly in the US and Europe, come to perceive the risk, supply chain risk of dependence on China. Cause it's different to buy a solar panel. We're not buying electricity from China. We're buying products and technologies that are necessary to do that, like a battery or a solar panel. If it is perceived as an unacceptable risk, that's a lot of a large amount of sand, not a small amount of sand in the gears of the clean energy transition, because it takes a really long time and a lot of money to build those supply chains elsewhere. I think people are going to look potentially a bit differently at relative risk when you look around the world right now and you say, well, there's a concern about dependence on China's dominant position in some of these clean energy supply chains. But there is risk all around. And the view of the United States, certainly the well, at least the Trump administration, as you said, has been to double down on petrostate dominance. If you're the largest oil and gas producer in the world, why are we buying all this cheap clean energy from China? Energy security comes from being self-sufficient, producing more oil and gas than we need. And I think today's conflict is a reminder that in an interconnected global market, there's a limit to that. So like who would you want to be right now? I think being a BYD dealer, uh, the Chinese EV maker in Brazil is like a pretty good place to be because people are going to be a bit concerned about what might come and view oil security in a way we haven't seen before. That is, in fact, the, as I said before, the national trauma of the 1970s, where we'd really moved as a policy issue to increase domestic production, but also find alternatives to oil and use less of it. We were getting twenty percent of our electricity from oil in the nineteen seventies. And within a small number of years, you know, we brought that close to zero. So we looked for really opportunities to use less of that. And I think depending on how long this goes on and how large the economic shock is, as we talked about earlier, it has the potential to be something that causes that sort of long-lasting effect. I'm interested in what you think that could mean for the long term. So you go back to the oil shock of the 1970s, and you have a major effort to find efficiency because there's not a straightforward and viable altern ative for what energy you would use to run the global economy. And so you have, you know, Jimmy Carter telling the country to turn down the thermostat and put on a sweater. Right now, you you have been in this period where we've seen a tremendous transition to solar, to wind, to geothermal, to batteries, to other kinds of things. And you know, it's 2026. In the last five years, you've seen two tremendous geopolitical shoc ks to global energy flows. So, as somebody who studies clean energy transition, which mostly we've talked about in terms of climate change, do you think this is in the long run an accelerant of global clean energy transition simply because it creates less dependencies on some of these traditional players? Or does it just create new dependencies like on China or on whomever you get your electricity piped in from, such that that does not offer itself as an ans wer. I think again and we don't know yet how long this conflict's gonna go on, how severe it will be, but as we were talking about earlier, the potential that we haven't seen anything yet with oil prices and if this goes on for weeks longer, or if there's real damage that causes the infrastructure in the region to take years to repair, this has the potential to be a kind of shock more like we saw in the 1970s than anything I've seen in the twenty-five or so years that I've been working in energy policy, geopolitics, national security issues. And I think that would be a significant accelerant and frankly, a more powerful one. I mean, although I would like climate change to be even a stronger concern for policymakers than it is. If something is a national security issue and it's top of the agenda in the situation room, it's going to move policymakers in a way that the urgency of climate just doesn't today. So you have the potential now for an even more powerful motivator to move toward electrified economy. And you get a lot of that electricity from domestic sources for places like Europe, that'll be renewables and nuclear in particular, which can move you in a lower carbon direction. It is more complicated than that. And I wanna say coal. For a lot of the world, a domestic source of pretty cheap, reliable energy, if you're gonna try to say we want to be less dependent on imports can also be coal. And if you're in Indonesia or parts of Southeast Asia or other places, you know, you're seeing a lot of that. So it doesn't always cut, you know, necessarily in one direction. And the the impact here is not just we want less fossil fuels, hence the comment about coal, it's we want less interconnectedness. We don't want to be volatile exposed to these volatile global markets that are exposed to geopolitical risk. And we want to reduce imports. That I think is what the energy security conversation in much of the world will be coming out of this. And the way you respond to that is going to look different in different places. A country like Europe, I do think it accelerates a move toward a clean energy and electrified economy. It might look different in other places. Aaron Powell And how about Iran itself? Right now, as we're speaking, it does not look likely to me that Trump and Netanyahu are going to succeed in their initial goal of regime change. And if you are the Iranian regime that survives this, under whatever conditions that might be true. It's not going to be a disarmed regime. We're not going to have the boots on the ground that would be necessary to make that possible. You you think about the weaponry that Hamas was able to smuggle into Gaza when it was encircled by Israel and there's gonna be no level of control over Iran that is anything like that. If you're that Iranian regime, it seems to me what you have lear ned is that your best defen se, aside from eventually getting a nuclear weap on, is your ability to close down the Strait of Hormu z. That you want to be putt ing a huge amount of your effort and national defense strateg y in figuring out how to threaten the regional energy supply through, you know, attacking the energy systems of of other Gulf states, and through closing down the the strait. And so in sort of forcing Iran into this position , you might have really forced it into a position where it is going to figure out how to make sure they can wield the energy weapon even more effectively in the fut ure, thus creating better deterrence against its enemies. I'm I'm curious how you think about that from an energy weapon perspective. I think that's right. I think it's true for Iran. It's true for others as well. Iran has, at least for a 30-day period, it's temporary, secured greater sanctions relief from the United States by cratering the global oil market than it did through years of negotiation about how it might adjust its posture toward its nuclear program. And we've learned how asymmetric that weapon can be. It just doesn't take a lot to not even physically close it, but create the risk perception that you could close the Strait of Hormuz. And so the thing about the energy weapon is it is quite asymmetric. You don't need a massive military and battleships to wield it. You can do it in a much more targeted, lower cost way. And I think that's is a lesson that uh Iran is learning from this. And I I fear other countries might learn uh as well. Aaron Powell Are there lessons the United States should be or is learning from this? I think there are lessons we should be learning. And the first is kind of the myth of energy independence. There are no doubt economic and geopolitical benefits that have come from moving from importing 60% of our oil two decades ago to being the largest producer of oil in the world and a huge net exporter. But that doesn't mean we are independent. It doesn't mean we are isolated and insulated from what happens halfway around the world. And the best way to protect ourselves would be to use less oil in the first place. So we were less exposed to these geopolitical shocks, not just to produce more of it. I should note it is different for natural gas. I mean, the price of natural gas in Europe and in Asia has soared to fifteen or twenty dollars per million BTU. In the US, it's three. And so the price of natural gas here is disconnected. We do not have a natural gas crisis right now in the same way that Asia and Europe do or did in 2022. Yeah, it's gonna make our allies quite thrilled with us. Well, they're turning to us for our energy. I mean, that's what Europe did after 2022. They did more renewables, they did more efficiency, but they moved incredibly quickly for all the difficulty building energy infrastructure and discussion of permitting reform that you've written about as eloquently as anyone. Somehow Germany was able in months to build four import terminals to get more natural gas from the United States because when you really have an energy security crisis, policymakers jump through hoops to figure out how to do something about it. So it seems to me that there are now two pathways for Donald Trump in this war. One is in the quite near term, in the next days or week or two , to simply say, my goal here was to reduce much of the regime's offensive capability to rubble, to destroy their navy. We've done it. We're done. But that will leave in place the Iranian regime. They will declare victory as well. They will build back up their military, their capabilities, now having done so with the knowledge of what the vulnerabilities of America and its allies actually are. And so it would be a sort of declaration of victory that I think markets would be very happy with and actually the American people would be relieved by , but also be seen as a kind of fail ure. And remember, we had a bombing campaign against them not that long ago, said their nuclear capabilities were obliterated, and then a year later started this campaign because now we say they were only, you know, weeks or days away from a nuclear weapon. So apparently our ability to bomb them into sustained powerlessness is not what one might have hoped. The other pathway forward is this war goes on for quite a bit longer? And uh possibly including ground troops to take the strait, to have actual operational control of the strait and more control over what happens in Iran. And if that happens, then we're gonna have an extend ed crisis in energy supplies. If we end up in that world, what are Trump's options for trying to maintain some semblance of stability in American energy prices such that he and his party don't get annihilated in the midterms. What what might he try in a world where this war has a month, two months, three months, maybe even more than that left in it. There is not a policy tool in the policy toolkit large enough to deal with the loss of something like ten to fifteen million barrels a day of global oil supply. So there is no way to prevent oil prices from going through the roof if the Strait of Hormuz remains closed. We've already seen policymakers pull some of the strongest levers they have, the largest ever release of strategic stockpiles through the International Energy Agency, 400 million barrels. And the day that was announced, oil prices went up, not down, because it was perceived as there wasn't a lot of detail around it, but it's just not enough. And what matters is not the total number. What matters is in a 10 to 15 million barrel a day per day disruption, how much you can get into the market every day. And that's maybe two or three. And then you're going to see some other ideas thrown around, like waiingv the this law that uh makes it hard to move fuel between two US ports, waiving some environmental standards that all of these are a few cents at the pump at most. There is really not much that can be done. So I think you're going to have a real energy crisis and we're going to have to, I think that's going to be a major constraint on the administration that might cause people to need to pull back much more quickly. That's what the market's betting on. That's where we started in the beginning, and why oil prices are not much higher than they are today. And we should remember that most of the energy infrastructure in the region has not yet been damaged. So it can start to operate again relatively soon if you really start to see tit for tat escalation where you go after Iran and they've signaled they can come right back at us and other Gulf states, then you're talking about months or years, not weeks to months, to try to get things back to nor mal. Walk me through I don't know if it I want to say the nightmare scenario, but one of the more concerning scenarios there. So let's imagine a situation where Trump doesn't decide to attack Iranian power plants, say . And the regime responds by unleashing drones and missiles on regional energy infrastructure. I mean, you've mentioned with the strait that what's going on with the strait is that you've closed a waterway. So if you reopen it, things can just start moving through it again. But if you damage a bunch of multi-billion dollar energy installations, you can't rebuild those in a morning and in a week. So what does that create as a possible long tale? I think people in their heads have the idea that the energy price disruption ends the moment roughly the war ends. What would a war look like where that would not be tru e? I think the main thing would be either that the risk perception is still there, which makes it harder for people to move through. The US tomorrow could say we've done what we need to do and we're leaving now. Thank you very much. You're not going to see tanker traffic restart unless Iran says, you know, Iran and Israel have a vote in this also, not just the United States. And so if Netanyahu says we're not done yet, or Iran says uh we don't feel the same way, then you're not going to see tanker traffic go through. So you need to get to a place where people have confidence that it is safe to move through the strait. And then you have major pieces. Uh, President Trump a few days ago threatened to attack Carg Island, which is this major piece of energy infrastructure that is responsible for most of Iran's oil exports. If that were attacked, we know what Iran would do in response. They would attack an important piece of energy infrastructure somewhere else. In nine two thousand nineteen, the Houtis attacked Abke, this critical oil installation in Saudi Arabia. And it was remarkable how quickly the Saudis could get that back up and running, but the damage could have been much worse. And so if you do something like that, you could see millions of barrels a day of disruption that we haven't seen yet. By the way, Saudi was exporting about seven million barrels a day before this, and now they're getting to four or five through a pipeline to bypass the Strait of Hormuz and send it to the Red Sea, there's a port called Yanbu in the Red Sea. That's vulnerable. And we saw what the Houtis could do to tankers in the Red Sea not too long ago. We haven't seen attacks there yet. So if that sort of energy infrastructure is damaged again, coming back to the attack on Qatar a week ago, the Qataris have said for the roughly 20% of their project that was damaged, it's gonna take three to five years to repair. Maybe they can do it in two to three, but that's not weeks or month s. Then always our final question. What are three books you recommend to the audience ? So given how much this conversation has been about the physical constraints and choke points like the Strait of Hormuz, I would recommend that people read an excellent book called Ed Conway's Material World, which is a really great reminder of how important things we never think about, like copper and sand, are to the global economy. We don't think about it until something breaks. And with that book makes clear, and what this moment is illustrating, I think, in real time, is just how dependent we are on all of those materials that we take for granted.