Chapter 1: What is the main topic discussed in this episode?
Hey there, All Thoughts listeners. Joe and I are very excited to announce that we will be holding our first ever live show in London.
That's right. We've done shows around the country, around the U.S. a fair amount. Always a lot of fun. We make guests, record live episodes on stage. Fans of the podcast get to meet other fans of the podcast and so forth. But this is our first time doing one of these outside the U.S. in London, as you said.
So if you want to come hear some live recordings of Oddlots episodes, if you want to hang out with me and Joe, if you want to hang out with other Oddlots listeners, then you should definitely head over to Bloomberg.com forward slash Oddlots where you can find all the info there and purchase tickets. It's going to be on the evening of May 7th at Wilton's Music Hall.
Doors open at 6 and the recordings start at 7.
Yep, there's still a few tickets available. So go look on the website. Go look through our Twitters. The ticket link is also in the show notes to this episode. So go buy a ticket before they sell out.
Hope to see you there.
Bloomberg Audio Studios. Podcasts. Radio. News.
Hello and welcome to another episode of the OddLots podcast. I'm Traci Alloway.
And I'm Joe Weisenthal.
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Chapter 2: What is the historical significance of the Hormuz Strait closure?
Because, you know, we'll be able to say in retrospect, it turned out to be a short war. We had buffer stocks, etc. Nonetheless, I think like in the middle of March, there was this feeling that
that something is weird because you have the mother of all supply shocks and what's like, and the aunt of all, what's like the aunt of like, what's like- Oh, you mean, I thought you meant the actual insect and aunt. No, no, it's like the mother of all supply shocks and then the aunt of all like price spikes.
No, you used to say like second cousin removed of all price spikes.
Yeah, the second cousin removed. I mean, it was like- Remember, we had two different prices going at the same time. We had the Brent, the futures price, Which was always saying, well, this is going to end and prices are going to come down. And then there was the dated Brent, the near term, which said, we are having a major dislocation and prices are really going up.
And we'd never seen that dislocation on that scale before. It was like two different visions of the world almost.
So actually, why don't you I've read like 10 explainers on some of these gaps between the front month price and the the dated branch or the quote physical price, etc. But how were you at the time thinking about this gap? Was it as simple as the market simply does not believe that the straight will stay close?
Well, I did think that there was a difference between how the financial markets, which were processing things like statements by the president, statements from Iran and so forth, looking at the future and the way the physical market, the industry market.
And at Sierra Week, I remember one of the CEOs said in one of the dialogues that risk has been underpriced in the market because I think from the industry point of view, they saw the There are major dislocations, and those dislocations are playing out unevenly across the world. Asia hit the hardest, Europe feeling it, and then the U.S.
mainly seeing it in terms of rising prices at the gasoline pump, but no problem getting supplies. But in Asia, a big problem getting supplies.
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Chapter 3: How is the energy market reacting to the war in Iran?
And as you know, in Asia, flights have been canceled. In India, you know, restaurants were closed because they use LPG for cooking and they didn't have enough cooking LPG for that. So For Asia, it was a real shortage situation. And I think that's what, if you have a global perspective, that's what you were coping with.
In the United States, you know, one difference between this and previous energy crises, the famous energy crises of the past I've written about in the prize and the new map and so forth, is the position of the United States so dramatically changed. And that has been a huge buffer for consumers in this country and for the economy.
Had it not been for the war, how much would a zero week in 2026 have been dominated by conversations about powering AI data centers and so forth? How much would that have been the story had it not been for the war in Iran?
Well, it was. Anyway, we had the president of Google, the president of Microsoft there. We had people from NVIDIA, from other chip manufacturers. It was a real change. The focus was the tech industry meets the energy industry, and how do we get along? And kind of this panic about, do we have enough electricity, particularly in the United States?
And I would have said it then that energy security had shifted from oil and gas to electricity. Right. But of course, with this crisis, it was backed up also was about oil and gas. But that was, you know, the big discussion that ran through it and about particularly the role of natural gas. Because on the one hand, the U.S. has built up this big LNG industry, which is massive.
plays a much bigger role in our economy than people recognize. I mean, our latest numbers are 75% of the value of all semiconductor exports is represented by LNG. You know, twice the value of all Hollywood and television and entertainment exports. But now natural gas is coming back into It's already significant, but more significant for electric generation.
And what a change from the Biden administration, which wanted to have hydrocarbons out of electric generation by 2035. So this question of what are the supply chains to assure electricity to support this AI boom, which represents in the United States about half of GDP growth.
So what were people saying on that front? So, you know, we've had episodes of the show where we've talked about maybe overcapacity when it comes to building out energy for data centers. There are still plenty of people out there who think that the energy demands are just going to be so enormous that we're always going to be playing catch up.
There's a debate over who should bear responsibility for building building out that new energy supply? So should it be the tech companies themselves or someone else, given it's a strategic technology? What are you hearing on the ground?
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Chapter 4: What are the implications for global energy security after the Hormuz crisis?
Like, what are the conditions that allowed the closure of the Strait of Hormuz?
Well, I think it was the war. Here's a war in which the United States, the mightiest military, was at war with the country. I heard somebody remark the other day, half the GDP of Belgium, but with a lot of missiles and a lot of drones, and kind of leading to a standoff. And it was a moment for Iran to pounce.
Even though the very senior leadership was destroyed right at the beginning of the war, clearly they had decentralized. This was a war. When you look at the amount of drones and missiles they had and they continue to have, this is a war that they had prepared for for a long time, the struggle with the United States. And they seized the moment.
And, you know, maybe it was the advent of drones that was able for them to pull off saying that we control the strait and when you send your ship through the strait, you'll follow the route that we tell you. And by the way, it's actually a canal and you're going to pay a toll and the toll is going to go to the IRGC. Maybe it was the capability of drones that enabled that.
Let's say the strait reopens. But as you mentioned, you know, all cheap drones, the Shaheed drone may be enough. And Iran has a lot of them and they'll probably keep producing a lot of them. Maybe that is enough to close the strait even against the mightiest military in the world. Does that permanently change how the world thinks about energy security?
We see that because they were capable of doing this, therefore, we know it could happen again, right? We know it could happen down the future. And does that change energy planning?
Yeah, I was thinking, you know, the beta test for World War II was the Spanish Civil War. And in a sense, the beta test for the new world of warfare is Ukraine. And now we've seen it played out in the Gulf with what Iran does. And I think it introduces a sense of risks that wasn't there before.
I remember I was in Kuwait in January when they were announcing new policy for investment, international investment in their oil and gas industry. And it felt very optimistic time. And you've had that excitement, you know, really the optimism around in Dubai and Abu Dhabi, Vision 2030 in Saudi Arabia. Well, it's not going to be as optimistic now.
And I think there is going to be deeper thought about energy security and diversification. and what kind of security premium. And by the way, also that you need to spend more money, more share of your sovereign wealth fund on defense.
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Chapter 5: How is the AI industry's demand for electricity impacting energy supply?
And at least it will take probably, if peace breaks out, maybe a couple of months before the oil markets are back in position. Because remember, the last tankers had already left and had docked from before the war. Inventories have been run down. And that captains have to be sure and their crews have to be willing to go through that. the Gulf.
And so it's a couple of months before the oil market starts to get back into balance. And then I know one of the CEOs said that if you look at the overall disruption, including petrochemicals and everything and the destruction of refineries, it might be as much as two-thirds of a year before things are really cleared up and back to normal. So there's no light switch here.
And so that will be reflected in prices.
Yeah. So just going back to AI and electrification for a minute, I mentioned in the intro that one of the things that's different to today is the almost complete absence of ESG investing in today's world. So we used to hear so much about it. Pre 2020.
And I got the sense, maybe this was a bit of advertising, but you certainly got the sense there was a lot of money flowing into ESG funds for green energy or socially beneficial programs or whatever. You do not get that sense today.
Is there a possibility, though, that ESG sort of gets rebranded either under an energy security umbrella or under a sort of AI electrification umbrella and we start to see capital flow into it in a meaningful way yet again?
Well, I think that's a very reasonable expectation. And I think we'll see even the tech companies still have their net zero objective. So they may be using gas, but then they'll be looking to invest in renewables as well to show that they're net zero. So one of the things that we've got to get used to in the United States is to have these 180 degree swings from one administration to another.
And I do see that people, one way that people kind of invest in energy but still maybe have ESG in the back of their mind or concerned about it, you're rebranded as infrastructure. And then you're not investing in energy, you're investing in infrastructure. And infrastructure is generally considered a very good thing to invest in as long as you get a return.
You know, we mentioned some of these big mega trends that the war has brought to light, including obviously the resource nationalism is the potential for U.S. LNG exports. Is that tapped out? Like, are we already going as fast as we can to build out that capacity or plausibly could it even is there an even further a higher gear that that could go into it?
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Chapter 6: What role do drones play in modern warfare and energy security?
There was a day when Iran and Saudi Arabia vied with each other to be the biggest producer in OPEC, but its ability to influence what happens in the entire Gulf and to shut down the Gulf shows that it too has a form of mastery which it has exerted with drones and missiles.
Yeah, for sure. I realized I actually have one more question, which is, are you also watching Landman, Dan, alongside Joe?
Well, yeah. Listen, I watched it, and there was that famous episode at the wind turbine where the hero got in an argument with a young lawyer from Houston. Yeah, the woke lawyer. That's right, about how everything, including everything she was wearing, was made an oil product. And I thought that was really interesting. But then I stopped watching it because the subplot got a little sidetracked.
But then I started watching it again. So now I'm not up there with Joe, but I'm going to catch up with it because, you know, I've got to find out how the oil industry really works and what better way to learn that than by watching Landmen.
You need to ask for a cameo, I think. They should.
It's season three. They really should. You know who has a cameo in it? Who? The owner of the Dallas Cowboys. There's a scene where he comes in and he talks about- The really important people in the oil market. Yeah, exactly. He talks about his first oil lease or something.
He actually tells a story about having his daughter go to college and he paid for it by doing an oil lease around where their dorm was or something. I don't know. It's really good. But I think- It would be great. We're putting this out there in the world that Taylor Sheridan.
Would you put a recommendation to me? I'd love to.
We're doing it right now. That Taylor Sheridan needs to have, you know, it needs to happen.
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Chapter 7: How are global power dynamics shifting due to the Hormuz crisis?
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