A few months ago, the global oil market was looking relatively well supplied. Prices, and the political environment in the US, favoured fossil fuels. Now, policymakers are being painfully reminded that oil and gas are just one straight-of-Hormuz closure away from a supply crisis. This week, I'm asking, will worries about energy security change the dynamics of the global energy market? This is The Economics Show. I'm joined this week by Daniel Juergen, who is speaking to me from New York. Daniel is the vice chairman of S&P Global, the author of Pulitzer Prize winning The Prize, the epic quest for oil, money and power, and also more recently, The New Map, Energy, Climate and the Clash of Nations. Dan, welcome to the show. Glad to join you. Thank you. Okay, so first question. On a scale of 1 to 10, a highly scientific scale, what is your best assessment of how bad this energy shock is right now when put in historical context? This is the biggest energy shock, energy crisis, energy disruption in history. There's nothing but on this scale, even the ones of the 1970s, which are sort of almost biblical in terms of how they're seen, were not as big as this. Although prices don't really reflect the severity of the shock or the shortage or the disruption. Okay, but I need a number on that scale of one to 10. It's very important. You mean comparing it to all other energy shocks? Oh, this is a 10. This is what has been for almost half a century seen as the nightmare scenario, the disruption of flow of oil and gas out of the Strait of Hormuz, out of the Persian Gulf. And it turns out that it affects a lot of other commodities too in ways that people had not recognized or expected. Okay, so a 10, but as you just said, the prices are not reflecting that severity. What's your theory as to why? I think that it's because the impacts are differentiated around the world. It's really hitting Asia. It's only measured at the U.S. in terms of prices at the petrol pump, the gasoline pump. And in Europe, it's about natural gas prices and it's about jet fuel. But so I think it's I think that's one of the reasons that it's not reflected. I think it's because the position of the United States is so different than it was in other crises. Is it the case, though, that elsewhere in the world you are seeing the level of severity of the shop reflected in other price indices that aren't the US gas price at the pump? Absolutely. I mean, I think that it's just that the US plays a bigger role in price formation than it did in the past. In Asia, this is a disaster. I mean, it means restaurants closing in India because they can't get LPG for cooking. It means factories shutting down in Southeast Asia. It means people working from home. So it's a really severe crisis. But there's a kind of division. It's almost like we have two prices going on. We have the price in the financial markets, which reflects the news, what's happening one day or the other. And then the price, the physical price of the commodity, if you want to get it and you can't get it, which is much higher. So these are high prices. I don't think they capture the full severity. And by the way, the longer this goes on, the worse it's going to get because inventories are being run down and the economic impacts will continue to grow. Yeah, I mean, there is this narrative that everyone's so terrified of missing the upswing, say, in equity markets, that there's almost a kind of, you know, a delusion that, you know, people are just grasping for any shred of good news that they can, kind of hoping that this conflict will be over soon. But actually, it's not just that the US is facing different dynamics. They're actually a bit, you know, deluded or wrong about their assessment of the severity of the crisis. What do you make of that? I think that's correct. I don't know if I'd say delusional, but I think the financial markets respond to the news. They respond to the thought that Donald Trump needs to get this over soon because prices will be a problem because an election coming, that there will be settlement that just not believing that this can go on. So it is, actually stunning to me to see, on the one hand, the biggest disruption in the history of energy going on in the most, you know, this very critical part of the world with global impact and the financial markets just saying, it's a great time, let's go higher. Right. So in past energy shocks, have we seen a similar kind of refusal to believe that it could be this bad? Is this unusual in any sense? Well, I mean, really the only yardsticks we really have is the 1970s crises. You know, the two shocks of the 1970s sort of bore out this kind of what was called the Club of Rome thesis that the world was running out of resources. And so there was absolute panic. There was a bruising struggle for barrels. You got both recession and inflation, stagflation. You had a kind of almost paranoid politics as a result of it, and a rebalancing of the global political system. So all of that happened. And by the way, and also the introduction of a series of energy security measures that had not been there in the past. So kind of an international structure of collaboration that was put in place partly to prevent what was a very rough battle among countries driving up the price of oil as one country bid up the price against the other, as one company bid up the price against the other. I suppose my question was, In those earlier crises in the 70s, did everyone realize how bad it was immediately or was there a delay? I think it was pretty immediate. It was a total shock. People didn't realize how the nature of the global economy had changed, how important the Gulf countries, the Arab countries had become as suppliers. That was at 73, 74. And then when the oil field workers went out to strike in Iran in 1978, really the beginning of the Iranian revolution and the disruption that followed from that, that seemed to be confirmation that we were going to be in an era of permanent shortage, that we were not going to have enough oil. Of course, let's fast forward to where we are today. World oil production and consumption is really twice what it was in those decades. Mm-hmm. Can I ask now about the more permanent effects of this shock? And so you just alluded to some of those. So a few weeks ago, I wrote a column about how to deal with an energy shock. And I got more than one cross email afterwards from people who were upset that I didn't mention solar power as the solution to the Strait of Hormuz. To what extent do you think that renewables could be the thing in the short term to get us out of this energy crunch that we're now experiencing? Well, in the short term, probably not because you're talking about liquid fuels and solar and wind generate electricity. I think we will see more than an uptick in EV sales This is good news for China which wants to flood the world with inexpensive EVs And you see a shift in the markets as a result of that But I think wind and solar will be recast, not as the answer to climate, not as the answer necessarily to sustainability, but as energy security, as sovereignty, sort of independence. So I already see it as that their role is being increased. And by the way, it's not that anybody had forgotten about them, over 90% of the new electric generated capacity that was put in the world last year was wind and solar. Okay. Another framing of this shop is, you know, thinking of export controls. But one of the things that you hear about export controls is that they're essentially one-shot weapons, right? Because once you weaponize your supplies of something, you're making it very urgent for the rest of the world to protect themselves against you weaponizing your supplies again, right? Now, clearly we had the oil shocks in the 1970s. So history tells us it's not a one shot weapon, right? Oil has been weaponized in the past and it has been today. But do you think there is a future world in which the weapon is defanged? Is that the right word? Is it even possible to diversify away and be less dependent on oil and gas flowing through the Persian Gulf? The answer is yes. So what happened in the 1970s? The North Sea came on. Alaska came on. You may be shocked to know that the Western Hemisphere produces more oil than the Middle East was producing before this crisis. Guiana was seven years ago didn't produce any oil. Now it's a major source. Brazil produces about four times as much oil as Venezuela. So you have diversification and we're going to see we're going to see more activity. And that kind of comes on an overlay because there was already a sense that this amazing growth of the U.S. shale from the U.S. being the world's largest importer to the largest producer in the next year or so was going to level out. And so companies were already looking, putting more emphasis on exploration. And this will this will accelerate that for diversity of sources of oil and gas, as well as diversity of overall in terms of the energy mix. What do you think of stories that there could be more infrastructure getting the energy out of that region, just not through the Strait of Hormuz? Do you think there's much promise there? Clearly, you're already hearing about more pipelines so that there is less dependence on the Strait of Hormuz. There's no perfect answer because there's never a perfect answer. But we'll see more efforts on diversifying and moving the supply in different directions. Easier to do for oil or LNG, it's a bigger problem. It would be a very expensive thing to liquefy natural gas, move it through pipelines and then move on to ships. But I think, you know, some of those countries have tremendous economic resources and they're going to look for ways to be less dependent on that strait that at its most narrow is 21 miles. Okay, so I'm struck that you're talking about diversification, but to sort of other oil sources, right, other fossil fuels, rather than saying, okay, well, maybe renewables can help us be the thing that means that we're not dependent on the strait of hormones anymore. So, you know, long term, why not? Well, you know, Sumeya, I don't think I've said that. You know, I think that wind and solar, as I've said, are important parts of the energy mix. They don't replace liquids. They don't enable you to make petrochemicals. They don't necessarily enable you to make fertilizer. But they are going to be a growing part of the mix. But you also have to get a balance in terms of the cost of what you do. I mean, Europe and the UK are facing real problems of deindustrialization and weakening economies. They can focus on climate and energy transition, but they also need to focus on competitiveness and they also need to focus. They're going to have to spend more money on defense. So I think you're going to see one factor that will affect the energy mix are the constraints on the budgets of governments. So just on that, there has been this narrative that Europe became less competitive when it plowed ahead with investing in renewables, with a green transition, and that hurt its industrial base because they couldn't compete with, say, Asia. With this energy shock, though, I mean, Asia does seem more vulnerable than the rest of the world. Could that narrative be changed? Or actually, is that differential just not great enough to affect that difference? Well, I think also, I mean, part of Europe's problem is manufacturing regulations that act as straight jackets on business. So competitiveness obviously has to do with cost of input, like energy. It also has to do with a regulatory framework that forces people to look where else can they invest and to de-invest from Europe. Okay. So basically you don't think that that competitiveness issue is going to be fixed by sky high oil and gas prices out of the Strait of Hormuz? No, I don't think so. But I think high gas prices is a big problem for Europe. Overall, could this be good for the green transition? Or is it just that the bottlenecks, the constraints to greenifying the economy are actually so much more than price differentials? Well, I think, you know, everybody's going to struggle with energy security. The issue that energy transition is mineral intensive and it takes, you know, 17 years to bring a new mine on. You need minerals. And then China's domination of those. And also the other factor that's new in here. And it's one of the things that's obviously bolstering the United States during all of this is this tremendous spending on AI, on data centers, which means that, in fact, where the Biden administration wanted to push natural gas out of electric generation, And natural gas in the US is going to play a bigger role in electric generation, along with wind and solar. And, you know, I think the informed view, at least of the hyperscalers, is that you need all of the above. Okay, well, let's go to a break now. But when we come back, I want to ask you more about that and talk about how we're going to be fighting for energy security around the world. We are back from the break. So big picture, fundamentally energy is scarce. It will be for a very, very long time, which means that it is going to feed into the big geoeconomic battles between the biggest players. One line you hear is that in the chips race, the US is ahead on technology but China is ahead on energy Is that your assessment And does that calculus change at all with this oil shock Well the issue for chips is well two things One is electricity Andy Jassy, who's the CEO of Amazon, has said that the major constraint on AI is the ability to manufacture electricity. The US is in a tight situation. It needs to add capacity. It's been 25 years of almost flat demand, suddenly demand growing. We estimate S&P that data centers are now 4% of US electricity, could be 14% within four years by 2030 at the rate things are going if the supply chains allow it. So China has no shortage of electricity. It's overbuilt its capacity. It's going full speed with wind and solar. It's also going full speed with coal. It's also going full speed with nuclear. By the way, nuclear, I think, is going to come back more forcefully as a result of this crisis. And so China is in a strong position in terms of it has no shortage of electric generating capacity. What do you make of this line that the world can wean itself off oil and gas from the Persian Gulf, but they could just be walking in the arms of another kind of dependency, right? You've got China, as you say, an incredibly important supplier of electric vehicles, but also solar panels, batteries. Is there a risk that, we wander into a new form of weaponization and that we're actually just as vulnerable as we were before to coercion? Well, we've learned a lot about choke points in the last several years of one kind or another in world trade and geopolitics. And we already have that. The US has put restrictions on the export of chips to China. China really dominates the global supply chains for minerals, including rare earth, and they have exerted that. And I can tell you that when the Chinese put their ban on rare earth exports after Liberation Day in 2025, panic that ensued, automobile makers were going to say, we have to shut down our factories in a week and a half, but we can't get supplies. I can tell you in Washington, enormous concern about minerals and dependence on China and that is just so strong. And, you know, I think people don't worry about solar panels because it's a commodity business, but they do worry about minerals. So, but hang on, when you say that solar panels are a commodity business, is the point that if China was ever to weaponize its dominance in solar panels and shut off supplies, then it would be relatively easy for others to just step in? No, I don't see that because they produce about 90% of the capacity. But, you know, it's just harder for me to see why they would want to do that. Okay, then people would generate with gas or coal or, you know, try and speed up nuclear. It's just a sort of commodity. And, you know, I'm not sure what they'd gain. The world wouldn't say, oh, my God, we can't get Chinese solar panels. Life would go on and people would generate electricity. But I think minerals is something that's much more critical. Okay, but hang on, just to probe that a bit more, I suppose other countries might be wanting to buy lots of Chinese solar panels to get energy, which is scarce. And so the Chinese could gain leverage by only selling it to their preferred partners and extracting concessions that way. is the issue that solar is just such a small part of global energy generation that actually it wouldn't have much of an effect? Well, I think it's that people would find other ways to generate electricity. You know, part of what solar is, is meeting growth, but part of it is replacing other capacity. So you would keep other capacity going. I just don't see it as anywhere near sensitive as minerals. Can I ask you now about how all of this is seen from China? So how do they look at energy security differently to those in the West? Self-reliance is a big issue and they import almost 75% of their oil. And they've seen that as a vulnerability. They know history during World War II, U.S. submarines beginning, particularly in 1944, sunk the tankers carrying oil to Japan, and that kind of helped it immobilize Japan at the end of that war. I think their interest in the South China Sea is not the resources under the sea, but it's rather what transports over that sea. So they're very sensitive to that issue. And I think that the reason that they pushed EVs so aggressively. Number one was an energy security issue that they just saw we can't continue to be dependent even more on oil when we only produce about a third of our oil. And secondly, they said, we're not going to be able to compete with established automobile makers in East Asia, in North America, in the United States with internal combustion engines, but we can get ahead on EVs. And so I think those were the two drivers. So I think energy security has been a big driver of China's shift and movement towards electric vehicles. What about stockpiling, right? You've got the IEA, Western countries have this energy coalition, they all built their stockpiles and they all did a big release after the Iran crisis first bubbled up. But the Chinese didn't, right? They've sat on their stockpiles and there are actually reports that they've been increasing their stockpile. And I suppose I worried about a kind of free rider problem, right? Where China was taking advantage of everyone else releasing their stockpiles, but kind of sitting on theirs, not really being a team player. Am I missing something there? That question has been there for a couple of years. Why is China stockpiling so much oil? And by the way, why are they stockpiling everything? I mean, this is a security policy they've done. They don't have the stock. I mean, Japan has over three quarters of a year of stockpiles. China's are not that large, but they do have it. But they've been able to get oil. They've been getting discounted Russian oil, discounted Iranian oil until the US put its blockade in effect. But I think they're very loath to call upon their inventories right now. But I think what they've done in oil seems to be part of a larger policy of stockpiling a lot of different things, metals and other things as well. Do you think that they are an example to follow? Do you think others should be stockpiling more in the way that the Chinese do? Well, I think you can't stockpile now in a time of shortage. What you do is you run down inventories. But I think that is, you know, kind of one of the lessons of the oil crises and why the IA was created, why the stockpile policy was created. the shutting of the Strait of Hormuz, that's the nightmare scenario and it's here now. But, you know, the U.S. Strategic Petroleum Reserve, Biden ran down about half of it. And now with this release, the U.S. will run down half of the half that remains. What has surprised you about this shock if anything I think first you know from a geopolitical point of view you know the decapitation of Iran leadership 200 leaders and yet it continues to function I think that wasn't something that was anticipated because you saw in Venezuela, you just needed to remove one guy to change the game. And I'm surprised that the Strait of Hormuz was not seen as a big risk, given that it is a big risk. I think the other thing that really struck me is that if we went back a little over two months and said, well, you know, the Strait of Hormuz, you'd say, oh, a lot of oil comes out of it. Some people would say, well, a lot of, you know, LNG comes out of it, too, about 20 percent, almost the world supply. But who would have said helium, fertilizer, petrochemicals, sulfur, all those other things? Qatar produced about a third of world helium, very important for production of semiconductors in Taiwan and South Korea. So I think people didn't realize how integrated that region has become in the global economy. Also, it's an exporter of something else, a very important other commodity, money. You have these very large sovereign wealth funds that are big investors and very important investors around the world. So I think that the degree of integration in the world economy was something that was not fully understood at all. And that is something that's playing out. Just to give one other example, the Gulf is an important exporter of jet fuel. One of Europe's main sources of jet fuel is a very large 600,000 barrel a day refinery in Kuwait. It's not operating. So, you know, already air flights around the world are being canceled. I was with the CEO of one of the major airlines last week and talking about, you know, okay, there's enough jet fuel in the US, but you can't carry your own jet fuel to London. You have to pick up jet fuel in London to fly back. And so the longer this goes on, in addition to whatever other dangers are out there, you'll just start to see as supplies are in short supply, as inventories get run down, we're going to see more problems in the economy. unless this ends soon. And no one knows when this ends. Maybe in just a matter of days, a deal will be made. But I think Iran realizes with the Strait of Hormuz, it has a deterrent. It has a nuclear deterrent in terms of world commerce. And I think their strategy, once the war started, was in effect to carry the war to the world economy, which they have successfully done. And as each day goes by, we'll see a bigger impact from that. One last question. One of the lessons of economic shocks and times of conflict that we heard from a guest that we had on a few weeks ago, Mark Harrison, was that actually economies are more resilient than you fear, right? People do manage to substitute, find alternatives. People are much more able to substitute than you think. On the other hand, there's another line, which is that actually energy shocks are actually much worse than you think because it is just so hard to substitute away from energy. Where do you fall between these two camps? Well, I think it depends on the region. I love it. You did the classic on the one hand, on the other hand. I think you have to look at the U.S. economy, it's never had, even in inflation-adjusted terms, the kind of infrastructure build-out that's happening right now. About half of U.S. economic growth now, more or less, is just coming from the data center build-out. And so that's a, you know, I think the financial markets are looking at that and seeing the U.S. economy continuing to grow as this massive, massive spend by the most well-financed, richest companies in the world are in their own AI race to do the build-out. And so I think that has really been a bolstering the US economy. Obviously for Asia, this is much, much more serious right now because basically, economically, the Strait of Hormuz points east. 80% of the oil from that region goes to Asia, 90% of the LNG. So that's feeling it. And I think Europe has already had all of its troubles. I think this is a big problem for emerging market countries. I mean, East Africa, its jet fuel comes from the Gulf. Well, there's no jet fuel coming from the Gulf right now. So as this continues, the overall economic impact becomes more serious, but it is differentiated. And I think in the US, particularly in North America, you have that counterbalance from that massive spending. That's a real economic driver. And that's an offset. And of course, the US is in a very different position than it was when it was the world's largest importer. So I'm not sure which camp I fall into, or maybe into both camps. But the longer this goes on, the bigger the economic impact and the bigger the impact on people's lives and even their access to basic necessities like food. Okay. Well, on that note, I think we should end it here. Dan, thank you so much for joining me. Thank you. That is all for this week. You've been listening to The Economics Show with Samaya Keynes. If you enjoy the show, then I would be eternally grateful if you could rate and review us wherever you listen. This episode was produced by Misha Frankel-Duvall, with original music by Breen Turner and sound design from Sam Jovinko. The senior producer was Michaela Tindera. I'm Samaya Keynes. Thanks for listening. 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