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Chapter 1: What is the main topic discussed in this episode?
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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 48 hours 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's 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 U.S.
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.
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Chapter 2: What is the current state of the Iran oil crisis?
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 yesterday. 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 strait 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 going to last much, much longer.
I want to hold on that attack on the Qatari issue. 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 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?
The point about the asymmetric nature of this is really quite striking. Of course, you have very powerful militaries like the United States 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.
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Chapter 3: How is the United States responding to the energy crisis?
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 traders in this area, their hair is on fire. But this looks not much worse than 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 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 strait. 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 hours, but market prices fell dramatically. 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 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.
So
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Chapter 4: What impact does the Strait of Hormuz have on global oil supply?
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 bus instead of driving. And, you know, businesses will make different choices.
The economist James Hamilton famously documented that basically every major oil shock of the 20th century preceded a recession. Do you think that's likely to happen in this situation?
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 10 million barrels a day of oil demand go down, then yeah, that is the sort of price level that could push the economy into recession.
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 will happen very quickly is that rich countries will begin bidding for scarcer energy supplies, and those supplies won't make it to poor 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 Israel started this war, right? But if it continues, what happens to people in Malaysia or people in Kenya? What is the cost that we are risking imposing on the 2 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 economic activity, 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.
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Chapter 5: What are the consequences of potential military actions in the region?
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, but it also exposed it to 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. Yeah.
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, 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 idea.
trauma that energy, 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 U.S. 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 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 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 China last year restricted rare earth exports. And that really shook up the foreign policy community in ways that sent shockwaves through it.
And in ways that made us back down quite quickly from the trade war that Donald Trump had begun with China. You used a lot of passive voice in that answer. 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.
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Chapter 6: How might the crisis affect developing countries?
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've 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 have 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.
Thank you very much. on being something in between a petro-state and a petro-empire. A petro-state in that Trump has been gutting the wind and solar subsidies and making permitting harder and, as best I can tell, trying to retard the clean energy transition, but going all out on fossil fuels. But in addition to that, he has been trying to expand U.S. influence
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 were 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 U.S. 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 was going to be a bottom-up Iranian revolution, and they'd be so grateful to him that the resulting regime would be friendlier to U.S. 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.
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Chapter 7: What lessons can the U.S. learn from past energy crises?
And China... has been, as you say, electrifying at a really torrid pace, but developing functionally dominance over the clean energy supply chain. 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 electric state. So first, I want to see how much in that rendering of the two major energy strategies you disagree with.
And then second, given 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 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 U.S. and Europe, come to perceive the supply chain risk of dependence on China. Because 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 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 is 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 at least the Trump administration, as you said, has been to double down on demand. 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, 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.
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