Schrödinger's Strait and the New Energy Order | Daniel Yergin

In Episode 486 https://hiddenforces.io/podcasts/schrodingers-strait-and-the-new-energy-order-daniel-yergin of Hidden Forces, Demetri Kofinas speaks with Pulitzer Prize-winning author and leading authority on energy and geopolitics Daniel Yergin about the surprising resiliency of the global economy in the face of major supply disruptions and the consequences of the US war with Iran and the closure of the Strait of Hormuz for global energy markets, energy security, electrification (including alternative energy generation and storage), and the balance of power in the Gulf. The conversation begins with a simple question: Why have energy market disruptions from both the Iran conflict and the Ukraine War proved far more manageable than many analysts and decades of scenario planning predicted? Demetri and Dan examine what that resilience tells us about the transformation of global supply chains, energy diversification, inventory management, and the roles of the United States and China as the world's largest swing producers and consumers of energy. From there, they turn to the broader geopolitical consequences of the crisis—the lessons China continues to draw from America's entanglements in the Middle East, Iran's bid to convert the Strait of Hormuz into a strategic chokepoint and long-term revenue source, the recalibration of Gulf security as American commitments to the region grows less certain, and the shifting alignments among the Gulf states, Iran, China, and the United States that will define the regional balance of power in the years ahead. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Join our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 06/29/2026

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Grafinus and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Daniel Yergin, a Pulitzer Prize winning author and leading authority on energy, geopolitics, and the global economy, who also serves as vice chairman of S&P Global and has previously taught at Harvard Business School and the Kennedy School of Government. Dan and I recorded this conversation on Monday, June 29th amidst ongoing talks between the United States and Iran to reopen the Strait of Hormuz and restore commercial shipping

• 0:44Demetri Kofinas?

  through the world's most important energy choke point. Despite those disruptions, the strait's closure has proven far less catastrophic than many oil analysts and decades of nightmarish scenario planning had predicted. The question then is why? Why in the case of both the ongoing war with Iran and the Ukraine war have disruptions to energy markets proved far more manageable than many expected? And what does their resilience and that of the global economy tell us about the changing nature of global supply chains, energy diversification, inventory management, and the roles of the United States and China as the world's largest swing producers and consumers of energy? From there, we examine how this crisis has served as a catalyst for a series of ongoing

• 1:28Demetri Kofinas?

  transformations to the global order and regional geopolitics, beginning with China and the lessons it continues to draw from this conflict and from America's entanglements in the Middle East. Iran's bid to turn the Strait of Hormuz into its own private waterway, the recalibration of Gulf security as American commitments to and interests in the region grow less certain, and the shifting alignments among the Gulf states, Iran, China, and the United States that will define the regional balance of power in the years ahead. If you want access to the transcripts and intelligence reports for this and other episodes, which includes summary sections with key takeaways, you can access those by subscribing to our super nerd tier at hiddenforces.io/subscribe. If you want to

• 2:13Demetri Kofinas?

  join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q and A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to [email protected] and I, someone from our team, will get right back to you. And with that, please enjoy this incredibly timely and informative conversation with my guest, Daniel Yergin. Daniel Yergin, welcome to Hidden Forces.

• 2:54Speaker 01

  Glad to be with you today. Thanks.

• 2:56Demetri Kofinas?

  It's my pleasure having you on. I must have reached out to you years ago. I'm sure I did. I've wanted to have you on the podcast for a long time, and fortunate circumstances have made that possible today. And it's actually a timely opportunity because we're going through another war with another series of energy disruptions that also feel like they haven't shown up. It hasn't been as severe. The impact to the global energy system doesn't appear, at least on the surface, to be as severe as some of the more dire forecasts had anticipated. And in that sense, it reminds me of the Ukraine war. There were a lot of dire predictions, and the global economy was more resilient, and supply chains adjusted faster than I think people anticipated. I want to ask you about that, and I have another

• 3:41Demetri Kofinas?

  series of questions to ask as well. But before we do, just for those who aren't familiar with you, you know, you're famous for having written The Prize, you've written The Quest, you've written The New Map. You're one of the most recognized commentators and writers on Oil and energy markets, but just give us a little bit of a background on who you are.

• 3:57Speaker 01

  Well, as you say, it starts with the books and I've certainly didn't set out to do this, but I've ended up being a chronicler of world energy and how it changes and the interaction between energy and geopolitics, the two seem inseparable. I started off as an academic. I did a PhD at Cambridge University. I taught for a little while at the Harvard Business School and the Harvard Kennedy School and then started a company with, really with one other person. And that company is now merged and merged and merged and merged. And now I'm vice chairman of S and P Global, which is, people know it as the S and P because they follow that every day. But it's a 42,000 person company that covers a range, including a

• 4:40Speaker 01

  big part of what it does focuses on the energy sector. So I've been able to combine this kind of writing books that are accessible, but really bring the picture together at the same time while being also active continually around the world in the energy sector.

• 4:58Demetri Kofinas?

  And you started your most recent business at the same time that you published the prize, if I'm not mistaken, correct?

• 5:03Speaker 01

  Well, no, it was even more loony than that. I started the business same year. I signed a contract to do the prize. So I was really working kind of all the time. The way I would relax at night would be by working on the book or weekends. And of course, I signed a contract to do the book in two years, but I was a little late. It took seven years.

• 5:25Demetri Kofinas?

  Did you find that that helped you, that doing those two things together was a net benefit?

• 5:30Speaker 01

  Yes, I think it did because it helped me understand that not to make the mistake of looking at events and thinking that you know, the outcome, and so therefore it's logical what happened and not recognizing the contingency. And of course, business decision makers never have enough time and government decision makers, they don't have all the information and they don't know how things will come out. And I think I captured, one of the things that I think has made the prize so enduring, I captured that sense of that it's not foretained what happens. And there's a lot of contingency in the world and surprises come again and again. So I think I did gain from it. It made it a harder task doing two things at the same

• 6:15Speaker 01

  time. But I think the book, the prize and the subsequent books are richer because I understand what it's like to be inside and watching where things are happening.

• 6:26Demetri Kofinas?

  I love that point. You know, I just recorded an episode with Yale political scientist Ian Shapiro to discuss his book After the Fall. And that was one of his points that although we, well, he didn't say this, but I'll go ahead and say it. We have a tendency, this is certainly true with the fall of the Soviet Union, to come up with all sorts of explanations post facto for why XYZ was inevitable. And yet, at the time, things were often a great surprise. And individual human beings who had agency in those moments played a bigger role than I think we really are prepared to admit or acknowledge, I think.

• 7:01Speaker 01

  I think that's right. I mean, it's a, there are the larger forces. But I was thinking about it, you know, we're now at the sort of the age of what I call easy globalization is over. And you have like somebody who's probably the next Prime Minister of Britain talking about nationalizing British steel, to take an example. And of course, the book I did, Commanding Heights, was about how things went in just the opposite direction. The greater confidence that people had in markets and that state owned companies often tend to be very inefficient and a drain on budgets. But I was thinking about that. If there hadn't been the conjunction of Ronald Reagan and Margaret Thatcher, they really

• 7:43Speaker 01

  kind of opened up an era. So there were forces at work, which was economies were becoming more integrated, technology was changing and so forth. But personalities really made a difference and people making decisions and following through on them. Or if I may say that, unexpected things happening and then they have to cope with it.

• 8:01Demetri Kofinas?

  Hmm. I failed to mention The Commanding Heights. I haven't read the book, but I did watch the documentary in 2002. If I'm not mistaken, I think that was the year I watched it, or 2003. Amazing documentary, describing a very different time in the world.

• 8:14Speaker 01

  Yeah, it's still, if you watch it, it's still, you know, I think people said, oh, you can't make a TV series about economics. But we did, and we captured the drama of it. And again, the contingency of it. And I think we see it again today. One of the things at the end of the book said, you know, that this frontier between state and market is never fixed. It's always shifting. And we sure see that happening today.

• 8:37Demetri Kofinas?

  I should mention the date that we're recording this. It is Monday, June 29th, because things were in the midst of a war, even though we keep being told that we're all also on the verge of peace. It's kind of like, I've heard it described as Schrödinger's Strait, the Strait of Hormuz, because you don't know whether it's open until you actually pass through it. So those are some questions I have for you in terms of where are we exactly in this entire affair. But the question I started the interview with was, why haven't things been as bad as people expected?

• 9:08Speaker 01

  Well, so let me compare Ukraine, Russia's brutal invasion of Ukraine. And people thought, well, that was going to be disruptive. But what it really did was, what you said, is really the supply chains were reconfigured. So we had a global oil market on February 23rd, 2022. The US was importing 600,000 barrels a day of oil from Russia. That ended, and we now have a partitioned world oil market and a confusing world oil market. Here, you know, for decades, the nightmare scenario, when people did scenarios about that region, was the closing of the Strait

• 9:47Speaker 01

  of Hormuz. It is, to be clear, the most important maritime choke point in the world. Over 20% of world oil, 20% of liquefied natural gas pass through it. And we learned, by the way, that, you know, a lot of other things too, like a third of the world's traded fertilizer, aluminum, helium, which you need for making semiconductors, we need it for chips. So it's a region very integrated in the world economy. And then your question is a very good one. Why was it not a nightmare? Obviously, it was partly where the impact was, because in economic terms, the Strait of Hormuz pointed to Asia, because 80% of the oil, 90% of the gas went there. So

• 10:31Speaker 01

  Asia really did get hit much harder than Europe and much, much harder than the United States, whereas mainly about gasoline prices. The reason is, it turned out, there were pipelines, the Saudis had built pipelines because of a previous war called the Iran-Iraq War and a tanker war. So you could get some of the oil out that way. The second thing, the big change, is the position of the United States, which went from being the world's largest importer to the world's largest producer of oil and gas, and was able to export jet fuel and gasoline to make up for what was not coming from the Gulf. There's a thing called the International Energy Agency, and it coordinated releases from kind of like what are called strategic stocks.

• 11:14Speaker 01

  The US has something called the Strategic Petroleum Reserve. That helped. And then there was, demand went down. You know, in some of the Asian countries, they actually rationed gasoline because they were running out. But I think the big thing that people didn't see coming was China. Because China has built up enormous reserves of oil. And China is world's largest oil importer, largest oil importer. They managed to cut their oil imports very substantially. So we never saw the kind of $200 barrel oil that people thought would happen. But we still have, you know, we're, we're not going to go back to what things were before this crisis.

• 11:52Demetri Kofinas?

  So there's been a prevailing view among strategists that the United States, in the event of a conflict with China, would be able to exercise asymmetric leverage over key strategic choke points. Now, the Strait of Malacca is obviously the most important for China specifically, but the Strait of Hormuz is up there. It's number two or number three, depending on whether you want to count Taiwan. Given the resiliency of the Chinese economy in the face of this most recent crisis, do US strategic planners need to rethink some of their priors about just how much leverage they could exercise through the use of the US Navy? To blockade such choke points?

• 12:34Demetri Kofinas?

  Or is comparing the Strait of Malacca to the Strait of Hormuz really comparing apples to oranges?

• 12:40Speaker 01

  Well, I think China, in the new map, in the paperback, I have an appendix called The Four Ghosts Who Haunt the South China Sea. And I think that's a very important essay, actually, because the Chinese basically have set out to claim the South China Sea not as an international waterway, but as their own territorial waters. And they've built a number of islands and they've fortified the islands because they're very conscious that during World War II, the US, particularly starting in 1944, US submarines sank the tankers that were carrying oil to Japan. And as a Japanese admiral said during the war, we were going to become scarecrows because we're not able to get oil.

• 13:26Speaker 01

  And so I think the Chinese know that. And so that's why they've focused. And they did talk about things, to talk about the Malacca dilemma, about dependence. So they have expanded their military footprint and the US, Australia, the other countries in the region, the British, et cetera, et cetera, the Japanese, none of them recognized the Chinese claim of sovereignty over the South China Sea. But the Chinese have backed it up with their military fortifications. The other thing they've done is they've built up incredible storage of oil, far larger than anybody else has. And, you know, there's been this question, why do they have such large storage of oil? And why do they have such large storage of so many other things?

• 14:07Speaker 01

  And, you know, maybe it does have to do with potential conflicts. So, but I think in terms of warfare, a lot of what's happening now is really rethinking, partly because of the experience first of the Ukraine war and now the Gulf, that it's a different world in terms of technology, in terms of drones and AI. And I think that's what military planners, I think, are struggling with right now.

• 14:33Demetri Kofinas?

  So in the new map, you covered alternative forms of energy, storage and transmission. How important were those in buffering the effects of this crisis, in particular for China, where most of those investments have been made?

• 14:46Speaker 01

  Well, I think the storage was very important. I think that's what enabled them to draw on their inventories, their storage, rather than importing oil. They also told their refineries, which exported, would get Middle East oil, process it and export it as jet fuel and other things, they told them to stop doing that for a time. So I think that's important. Clearly, China's also the leader in terms of deploying renewable energy. I mean, it, you know, what does it produce? It's about 90% of the solar panels in the world. It has a dominant role in batteries and, of course, a dominant role in EVs. And so I think those, particularly on EVs, I think they're a longer-term beneficiary. Already,

• 15:29Speaker 01

  you know, people don't recognize this because in the US, of course, when I last looked at the numbers, about 7% of new car sales in the United States are EVs. But in the world last year, one out of every four new cars sold was an EV, and most of them were Chinese.

• 15:46Demetri Kofinas?

  As far as advertisements go, would you say that this is the best PR that China's electric vehicle manufacturers and more broadly, really, any Chinese company that benefits from alternative energy production, transmission and storage could hope for? And is this going to accelerate, do you think, both electrification and Chinese technological adoption in the global south and Asia?

• 16:11Speaker 01

  Yeah, I hadn't thought about it as an advertisement, but maybe a message. Yeah, I think that this is a boost for that. I think in Southeast Asia, it means they'll look more at renewables. It also means they'll use coal for a longer period of time. But, you know, of course, for, you need electricity and reliable electricity if you're going to have EVs. But I think China has a very aggressive export campaign now. And it's a strategy. They realize they could never overtake internal combustion engines from Japan, Germany, US, South Korea, but they could leapfrog. And I think, to sort of follow from what you said, I think this has really accelerated that leapfrog.

• 16:55Demetri Kofinas?

  So let's double back a second here because I want to discuss the memorandum of understanding that was signed a few weeks ago in Switzerland. What is your understanding of the contours of that agreement? And how much stock should we be putting into it?

• 17:09Speaker 01

  Well, I've read it a few times now. I think lawyers would find it very ambiguous in a number of points, even where the commas are, actually. I think the Iranians think that it solidifies their position as the dominant power in the Gulf. And in particular now, they're saying, you know, we're in charge of the Strait of Hormuz. We'll decide, you know, who goes through. It's not even clear. It says they won't charge tolls or fees for a 60-day period. There's a funny comma in there. But I think they made it clear that they intend to, you know, to some degree, turn the Strait of Hormuz into an Iranian canal. And if they don't call them tolls, they might call them environmental fees, navigation

• 17:54Speaker 01

  fees, insurance. They've set up the Persian Gulf Strait Authority and the Persian Gulf Insurance Company. And they see their control as both political leverage, which absolutely Arab countries in the Gulf completely reject, and they also see it as a money-making deal.

• 18:11Demetri Kofinas?

  Does that ambiguity in the MOU benefit one side more than the other, in your view? And what is it that the Iranians are gaming at? Because it does seem, from all the experts I've spoken with and conversations I've had and things I've read, and understandably, by the way, that there's deep cynicism in Iran around the potential for any kind of peace agreement with the United States. And so it seems that they approached these negotiations with the mindset that we're going to get something upfront right now that's going to compensate us for whatever it is we're going to enter into. And we're not really betting on a long-term resolution to this conflict. So how do you think that the Iranians are seeing it, from the conversations that you've been having?

• 18:54Speaker 01

  Well, I think a couple of things. They've pointed out now that twice when the US was negotiating with them, the US also attacked them. And that came up again a couple, you know, the last few days with this upsurge in violence. I think first, they're expert negotiators. And everybody who's dealt with them say one of the things they never, the negotiation never ends. It's a very important factor to keep in mind. You talk to companies, you talk to governments, they said, nobody negotiates in the way they do. And they have a series of objectives to dominate the region. I saw a comment from one of their mouthpieces saying that security arrangements now will center on Iran.

• 19:39Speaker 01

  So they want to dominate, and remember, they have the population. And they've shown their resilience. You know, from the beginning, this regime, anti-Americanism, death to America, has been central to the whole ideology of the regime. Why would that go away? They're economic actors, but they're also ideological actors. And they're also, we saw, what's the number that often gets cited? That they had no compunctions killing 40,000 people in those protests earlier this year. So I think your term of deep cynicism and strategic objectives are there. There's certainly, you know, so often, I think it's in the prize.

• 20:24Speaker 01

  I have a comment, there was an Iran-Iraq war that went on for about eight years in the 1980s. And there's a quote in there, Iraq started the war and thought it'd be over quickly and the Iranian regime would collapse. And there's a quote in there from an Iraqi official saying, you know, things don't go the way you thought they would. Putin thought the war in Ukraine would be over in five days. People wore, brought their victory uniforms for the triumphant parade. It's now going into its fifth year, longer than World War I. So I don't think, when this began, there was a thought this would be over quickly. But it isn't, and Iran has proved to be more resilient. And probably had also been preparing for this for some time

• 21:08Speaker 01

  in terms of decentralizing decision-making so that they could, you know, withstand a shock. So I think it's, you know, I'll be going over in the region. You know, in a few months, I think very key to see how the Arab countries now see the world and how the international community responds to if Iran really does say it's controlling the Strait, which President Trump says will not be the case, but what this means for other choke points in the world as well. But, you know, I think, I mean, the two sides interpret that memorandum, which may well be overtaken by events. In any event, they interpret it quite differently.

• 21:51Demetri Kofinas?

  I'm glad you brought up Ukraine. Do you think that's the best analog for thinking about this conflict and where we end up?

• 21:57Speaker 01

  I don't think it'll be a, I mean, going back to our initial discussion contingency, things go in ways you don't think. I don't think, you know, it's a five-year war, but is it going to be some sort of gray zone in which there's just less sense of security? And it's really going to be, you know, critical over the next few months to see what kind of regime is set in place to manage the Strait. Now, things change day to day. We see the Iranians talking to the Omanis. It's a country on the other side of the Strait. And a lot of ships have been, they're trapped in the Gulf. There was like over a thousand

• 22:39Speaker 01

  have been getting out by hugging the Omane coast. But that's when the Iranians, a couple of days ago, fired on a ship to basically say, you know, we're in charge here. And everything the Iranians say is that they are in charge. And I think that's going to be a great unresolved question here.

• 22:57Demetri Kofinas?

  Speaking of unresolved questions, another question that seems unresolved is, no pun intended, American resolve. You know, the Middle East is no longer as vital to American national interests as it once was. And if the US is receding from its imperial commitments to its allies in Europe and Asia, then really, what incentive do the Americans have to continue spending money and risking lives in that part of the world? You know, something you wrote about magnificently in The New Map is that America has gone from being the largest importer of oil and gas in the world to now being its largest exporter.

• 23:39Demetri Kofinas?

  And countries in the Gulf know this, and it gives them cause to question America's commitment to the region and to what lengths they should be prepared to go to reduce their own dependency on American arms sales and military commitments. And so my question is, when you take all of this into account, coupled with the resiliency that the Iranian regime has shown and its geopolitical imperatives, it's there to stay. It doesn't have the luxury to pack up its stuff and leave like the US does. How does that change the calculus of regional actors? And how will it influence the balance of power and the contours of regional alliance structures and negotiated settlements in the years to come?

• 24:24Speaker 01

  That's a very important question. I've been trying to wrap my mind around it to sort of think through, and you only start to do it in terms of scenarios. But I remember when it became, about a decade or so ago, when it became evident that the position of the US was radically changing from the world's largest importer to our largest producer. An energy minister of one of the countries said to me, you know, "Don't leave us, don't forget us." And there's always been that, because it was the oil that was so, you know, and dependence on oil dependence on the global market, you know, is different today. The US still has, you know, this leadership role, and the US has an enormous stake, you

• 25:07Speaker 01

  know, with battles over tariffs, in a well-functioning global economy. And, you know, we have this big naval base in Bahrain, which the Iranians had made a particular point of attacking. We have bases really throughout the region. But I think there's a big rethink coming, and so much will depend upon, but the Soviets used to use this phrase, correlation of forces, how these balance out. And, you know, I think that some of the thinking... Has been that Iran is mainly, the regime is mainly economic and interested in economic development, but it's clearly first and foremost an ideological movement.

• 25:48Demetri Kofinas?

  Do you think this will lead to more regional stability as countries seek out negotiated settlements to longstanding differences, whether that be Saudi Arabia and the UAE, or Israel and Iran, or will the absence of an external mediator like that of the United States lead to more instability and violence over the long term?

• 26:13Speaker 01

  You know, it's still early days to do that, but I think the Arab Gulf countries are going to take a deeper interest in their own security and own security arrangements. It's striking to see President Zelensky of Ukraine in the Gulf countries basically helping them develop their own drone capabilities. So I think those countries are going to go through a period of, you know, they've been attacked, like almost 3,000 missiles and drones on the UAE. The sense that they had before of security isn't going to be there. They don't know how it's going to unfold. So I think really, over the next six months, we'll

• 26:57Speaker 01

  see how their forces change, but I think they're all going to put much greater emphasis on developing their own capabilities to have more, I mean, they may want to strengthen their weapons relations with the US, but they're not going to just feel that they can just rely on the US.

• 27:16Demetri Kofinas?

  Right, for sure. And so the question is, what is their alternative?

• 27:19Speaker 01

  Well, how do they live with Iran? How dominant is Iran going to be over the region? You know, but we're still in the middle. This is far from over. So I think that the question is, do they find a way to live with Iran, or is there a sense of threat? And, you know, what degree will Iran overplay its hand?

• 27:39Demetri Kofinas?

  So I'd heard you say that if the strait remained closed, we would begin to see the effects of that closure really start to bite in July.

• 27:50Demetri Kofinas?

  How did the process

• 27:51Speaker 01

  Late July.

• 27:52Demetri Kofinas?

  Do you still feel that way in the context of these agreements? Because those comments were made before the MOU was signed.

• 27:57Speaker 01

  No. Well, I think President Trump himself said that. You know, you have to go back and look at his press conference at the NATO meeting. He said that if they didn't do a deal, there was going to be a very difficult economic energy situation by the end of July because we would have drained our inventories. Basically, that was what was happening. And remember, he used the word, he said there would be bedlam. It might be a depression he invoked. He said, I didn't, I never wanted to be Herbert Hoover. So I think it was pretty widespread sense that, boy, we're getting to the bottom of the tank. We better do, you know, needed to do something to stabilize the situation. But I think we're not in that situation now. It will still take time for refineries to run product. We still see stresses.

• 28:42Speaker 01

  It depends how much the flow, really the resources come out. And to what degree do people feel confident sending their tankers back into the Gulf? Because they don't want to say, oh, flared up again and our tankers are stranded there for another two months. But it certainly, it looks like the, you know, what would have been quite a dire situation by the end of July, which is what President Trump said motivated him to make the deal, has been averted by this kind of, I guess I call it a, it's neither war nor peace, this kind of gray zone of getting product out. But I still think when we look at our inventory numbers, you know, they still are very low in historic terms.

• 29:26Demetri Kofinas?

  So let's, I have a question about OPEC to go back to the regional geopolitics. It has lost three members in the last seven years, the latest of which is the UAE. And there's talk now of Iraq threatening to leave if it doesn't get a significant increase in its oil production quota. How important is OPEC today, anyway? And what would further defections mean for global oil markets and the region's geopolitics?

• 29:53Speaker 01

  Well, OPEC, which then became OPEC plus because it brought in the non-OPEC players, was basically a stabilizer for oil prices. Because if you just had the oil flood out in very large volumes, the price would have really dropped. And US production, which is very sensitive to price, would have really gone down quickly. Because US, you need with shale, you need to continue to drill to maintain or increase production. It's just the nature of the resource. So kind of what it means is maybe you won't have that stabilizer there. The UAE basically said, you know, we're going to pursue our own interests.

• 30:35Speaker 01

  And, you know, because there was always a constant negotiation, who's going to cut back more and who wants to increase production. So if you don't have, I mean, the history of the world, you know, the oil market going back to the 19th century is that supply and demand are often in imbalance. And when you do that, you have more price volatility and that affects what happens to investment. So it will be a different global market because not only will you have UAE going its own way, other countries going their own way, but Iran back to, under these agreements, being able to export as much as it can. So that means, you know, some people are now saying, we will go from tightness now

• 31:18Speaker 01

  in the global market to oversupply. And by the way, at the beginning of the year, for three weeks before the military buildup started, you know, the main discussion was, oh, we're going to be so oversupplied in the market, what's going to happen to price? And price was down to like low 60s for a barrel of oil. So we could be back, you know, that's a possibility. But I think it depends upon the key countries, particularly what Saudi Arabia wants to do. But Saudi Arabia has made clear that it's not going to curtail its production so that other people can increase their production. And of course, you know, Iran is a member of OPEC too. So I think OPEC will continue to be a factor and a force, let's put it that way, you know, a player.

• 32:03Speaker 01

  As a sort of representing a number of the producers, so it's not going away. But, you know, it was the decision of the UAE to exit during the middle of the crisis was, I guess we could put it this way, noteworthy.

• 32:17Demetri Kofinas?

  Does that speak to future geopolitical alignments within the region? For example, the UAE, Israel, the United States as sort of one axis in Turkey, Saudi Arabia?

• 32:29Speaker 01

  Yeah, well, you know, there was the momentum of the Abraham Accords. And it does seem that one reason for the timing of the devastating attack by Hamas in Israel on October 7th was to undermine Saudi Arabia's moving forward to joining some version of the Abraham Accords. So a lot of those things are on hold. I think there is that relationship that wasn't there before between the UAE, Israel, the United States. And I think the significance of the Abraham Accord has sometimes been underestimated.

• 33:06Demetri Kofinas?

  So we talked about China in the beginning of the conversation and how they have become a swing consumer of oil and natural gas from the Middle East. And lessons learned from why they have become so resilient. And one of them was, as you mentioned, inventories. Is one of the sort of easiest things to predict coming out of this crisis? That countries around the world will invest more in building up their inventories?

• 33:32Speaker 01

  Can I answer that in one word? Yes, yes. And also, I think that the Gulf producers are going to put new efforts into building up their own inventories outside the Gulf. And also, there'll be more emphasis on pipelines.

• 33:48Demetri Kofinas?

  So in terms of investment into the region, a lot of these countries, UAE, Saudi Arabia, were also a destination for capital as they were looking to modernize and diversify their own economies. And they were also destinations for a lot of wealthy people seeking refuge in other parts of the world for tax reasons and other reasons, not just tax reasons. How has this war disrupted that?

• 34:15Speaker 01

  Well, I think that the strategies of these countries, if you sort of go up to 40,000 feet, was use oil revenues to diversify your economy away from oil. So the UAE, I think well over half of its GDP, I forgot what the number is, is non-oil based. That's what Vision 2030 is about in Saudi Arabia, to diversify. And that goes back to what we talked about at the beginning. Who knew that the world depended, you know, on fertilizer, or sulfur, or helium on that region, how integrated? And you touched on another point. Not only was their investment coming in, but they have become enormous sources of capital

• 34:58Speaker 01

  that they're exporting to the rest of the world, and that's part of their diversification, too. You have these sovereign wealth funds that are well over trillion dollars, in some cases, you put them together, several trillion dollars, which are invested in real estate and manufacturing in the US, in Europe, in Asia, in China. So they've become, their export of capital has been something that's been very important to US financial institutions.

• 35:25Demetri Kofinas?

  What lessons does Beijing take away from all of this? Does it further highlight the need for investment in a blue water navy? Or do they actually come to the opposite conclusion, which is that we really want nothing to do with the Middle East, because it truly is the graveyard of empires? And look what's happening to America right now. We're going to stay as far away as possible.

• 35:43Speaker 01

  I think that the Chinese, when I looked at it, about half of their oil imports were coming from the Middle East, and much more from the Arab countries than from Iran, but they were getting cheap oil from Iran. I think they, at one point, when there seemed to be a détente of some kind between Saudi Arabia and Iran, the Chinese took credit for brokering it, although some Saudis said to me, don't believe that, I mean, that they're overstating it. So China looks to the region very much in commercial terms, I think, not in strategic terms. So it's important to China, but the Chinese also have been very careful to diversify where they get their energy from.

• 36:25Speaker 01

  You know, they don't want to become too dependent on any one party. So, you know, Russia has basically become an economic vassal of China. So it exports oil and natural gas to China. But the Chinese are also careful about not being over dependent. I remember when I was in Beijing, a Chinese official saying to me, you know, we've learned the lesson of Europe. We don't want to be over dependent on Russian natural gas. So I think they have very much pursued a strategy of diversifying where their dependence. The other thing is really interesting. If you look at what's happened since kind of the shock of the Trump tariffs first term on China, you know, their level of exports to

• 37:07Speaker 01

  the US and Europe remained roughly constant. What's really grown is their exports to the rest of the world, to the global south. And that's where they've redoubled their efforts to play a much bigger role. And I think, going back to an earlier point, that one reason some hypothesize that they use their inventories to keep oil prices from shooting up too high is because they depend upon the global market to export to, and they didn't want to see a global recession. And, you know, one of the things, going back to writing history, sometimes you can think that there are people have grander, well-thought-out visions of what they're doing, and that things are really connected, particularly

• 37:49Speaker 01

  when you're talking about the other side, but it turns out that they're not. But there is a thought that the Chinese are very focused. They need a healthy global economy because they desperately need to continue to increase their exports for their own economic well-being.

• 38:05Demetri Kofinas?

  And by the way, that's a form of soft power and global leadership, which is what the United States did after World War II.

• 38:11Speaker 01

  Yeah, I think you're absolutely right, that with the Marshall Plan and everything, was in the US interest to have Europe recover.

• 38:17Demetri Kofinas?

  So how competitive, speaking of the global south, how competitive are solar and battery storage technologies today?

• 38:25Demetri Kofinas?

  And where do you see them in 10 years? And I say, speaking of the global south, because China is obviously dominates both of these technologies.

• 38:31Speaker 01

  Well, costs of solar have come down enormously. And mechanically of everything, it's the simplest one to do. I was talking to an American entrepreneur who builds wind, he builds solar, he builds natural gas, he's done coal, he's done nuclear in the past. But he says the great virtue of solar is it's simple, relatively speaking. On the other hand, it is intermittent and batteries are very important. And so I think we've certainly seen the growth of batteries and the cost of batteries coming down. And there are, boy, the Chinese sure do have the lead.

• 39:06Demetri Kofinas?

  Do we underestimate the importance of the electric grid, modernizing it, smart grid, et cetera?

• 39:13Speaker 01

  I think we did maybe two years ago. But although there were already warnings that particularly in the US, the system is very taut and it needs investment. But it's very hard to get things done because of permitting. But I think that is very much the case. And now because of AI and data centers, in the sense that we're going to go from virtually no annual growth electricity to substantial growth electricity. And I'll just give you one example. Our system is not up to it. It really needs investment. It needs to happen faster. I was talking to the CEO of a major utility in the southeast United States where demand had been growing at like one half of 1%. So I asked him, how much is your

• 39:56Speaker 01

  demand going to grow this year? He said 8%. Well, when your demand is growing like that, you have to hustle.

• 40:03Demetri Kofinas?

  Do you think the US is making a strategic mistake by doubling down on oil and gas without at the very least reinvesting some of those proceeds into modernizing their grid and adding alternative sources?

• 40:13Speaker 01

  Well, I don't think the two are inconsistent. I mean, it's not the US that's doubling down. It's companies, entrepreneurs who are making that decision. But I don't think one includes the other. I think it's incredibly high priority to. Modernize our electric power system. And we've talked about energy security in terms of oil and gas. And in electric power, you don't normally talk about it. You talk about reliability of the system. But I think reliability is really a subset of energy security. And I think the energy security question extends to our grid. And then, of course, there's that whole other dimension where one worries about the cybersecurity risk to our grid. And that gets you back to what we talked before about the US-Chinese competition.

• 40:58Demetri Kofinas?

  So Dan, one more question before we end today's conversation. What are the important questions that people should be asking themselves? Given, and I'm talking specifically now about this ongoing conflict, but feel free to widen the context. And this isn't just with Iran. In general, it's difficult with this administration in particular, and because of how powerful and important the United States is, to really gauge from public commentary what it wants to accomplish. And so we seem to be caught in this just prolonged state of uncertainty with this war. Yeah, we signed an MOU, but it's not clear whether that's actually going to lead to anything. How do you approach that uncertainty? And what are the questions you ask to try and resolve it in anticipation of future events?

• 41:43Speaker 01

  Well, I think a starting point is that, you know, events are not predetermined as to what will happen. And so we can be talking about it today, and something can come from a field that changes the situation a month from now. But I think that, I mean, the big question for me is, what you've been talking about is, how does this rebalancing work out? Oil and gas, you know, we have an energy transition, but it's not going in the way that people just kind of optimistically assumed it would be. Oil and gas will continue to be important for a long period of time. But I think it means, what do you have to do to address energy security? And I think also that this crisis in the Gulf

• 42:28Speaker 01

  has also accentuated the crisis in NATO, the relationship between the United States and its Western European allies, or its European allies. And so if you think about there are two big sources of instability in Europe, much more here, you know, responsible people really do worry that conflict between Russia and Ukraine, Russia may choose to expand either through, it's already doing it through hybrid warfare or by an accident. You know, accidents set off a lot of things, unexpected events. So I think the question is, how do you build resilience? How do you address energy security? How do you assure that you have economic growth? How do you assure that

• 43:12Speaker 01

  markets do function well? I mean, you watch the Commanding Heights. For me, I learned so much from writing Commanding Heights and then doing that TV show that markets, if properly managed, you know, really are the engines of growth. I think something that we're not thinking much about and we haven't been talking about, I think Europe is in really serious trouble because of its loss of competitiveness and it's kind of deindustrialization that's going on. And that also resonates on us. But I guess I do come back, if I look at the lessons of all these books that I've written and the work I've done, you know,

• 43:52Speaker 01

  thinking in a very strategic way about energy security and managing for what's going to be the next crisis. I'll just give you an example. I was talking to somebody who runs a major international company and he said, we now run the company figuring every three or four years is going to be some major crisis in the world. What do we do to build more resilience into our company financially and organizationally? And how do we do that in a world that is becoming in which globalization is kind of fragmenting? So, you know, I think it's preparing for the unexpected is actually part of the way to approach the world in which we live now.

• 44:29Demetri Kofinas?

  I love that. Thank you so much for coming on the show, Dan. It was great to finally get you on.

• 44:33Speaker 01

  Well, it's great to have this conversation and thank you for the avenues that we've gone down.

• 44:38Demetri Kofinas?

  My pleasure.

• 44:40Demetri Kofinas?

  If you enjoyed listening to today's episode and want to join in on the conversation by becoming a member of the Hidden Forces Genius Community, which includes Q&A calls with guests, access to special research and analysis, in-person events, and dinners, you can do that at hiddenforces.io/subscribe. And if you still have questions, feel free to send an email to [email protected] and I or someone from our team will get right back to you. Today's episode was produced by me and edited by Stilianos Nikolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter @Kofinas

• 45:22Demetri Kofinas?

  and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.