Why Oil Still Runs the World — ft. Daniel Yergin

Daniel Yergin joins Ed Elson to discuss how the war in Iran has gripped global oil markets over the last couple months. They cover why the Strait of Hormuz has become more consequential in recent years, what’s next for energy prices and production, and who comes out of this conflict on top. Daniel Yergin is the Vice Chairman of S&P Global and Pulitzer Prize–winning author of The Prize: The Epic Quest for Oil, Money, and Power and The New Map: Energy, Climate, and the Clash of Nations. Get your tickets to the Prof G Markets tour Subscribe to the Prof G Markets Youtube Channel Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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

• 0:01Speaker 00

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends. Like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra. Because it's not just a superior light beer. It's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

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• 1:00Speaker 03

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• 1:32Speaker 04

  Listen to me. Markets are bigger than us. What you have here is a structural change in the world distribution. Cash is trash. Stocks look pretty attractive. Something's going to break. Forget about it.

• 1:42Ed Elson?

  Welcome to Prof G Markets. Scott is off today, but we have a big episode for you nonetheless. We will be talking in this episode about oil, specifically the oil markets, which have now endured more than two months of disruption from the Iran war. Given all of this news, we wanted to take a step back and help make sense of oil's role in the world and what this extended disruption means for our global economy also. For global energy and where everything is going next. So we decided to bring in someone who has spent decades studying all of these topics, the intersection of energy, geopolitics, global markets. And we spoke with him earlier this week while I was in Florence.

• 2:25Ed Elson?

  He is essentially the man who wrote the Bible on the history of oil. At least that is what a lot of people have said. He is regarded as one of the world's leading experts on oil. His Pulitzer Prize winning book, the prize is considered the definitive work on how energy shapes global power. So without further ado, here is our conversation with Daniel Yergin, Vice Chairman of S and P Global and author of the new map, Energy, Climate and the Clash of Nations.

• 2:55Ed Elson?

  I would love to start with just a brief history from you on Iran and Iran's place in the world of oil. And then we'll get into what's happened over the past few months. But for those who aren't aware, give us sort of the Iran and oil 101. What is their role in the world of energy?

• 3:17Speaker 06

  That's a very good question because I've been thinking about the fact that the blockade against the export of Iranian oil demonstrates the degree to which Iran as a country for well over a century has been a country that has been made possible by oil. Iran, like in the 1960s, was competing with Saudi Arabia to be the largest Middle East oil producer. It's much more oil than it's producing today. And that oil wealth was channeled by the Shah of Iran into trying to turn Iran into an industrial power. He overplayed his hand, was overthrown and the Islamic Republic came in.

• 3:58Speaker 06

  And Iran has continued to produce oil, but often under sanctions, which have limited the amount of oil that it can export. And in the last few years, it's been really exporting oil at a discount to countries like China. So it's not, it's not a big player in the way that it historically had been.

• 4:20Speaker 06

  I still think back to when, you know, Iran and Saudi Arabia were almost in a battle to see who could produce more oil. But those days are long past. What Iran recognizes by shutting the Strait of Hormuz gives it enormous leverage on the world economy and really shutting off a significant supply of oil in which the world depends.

• 4:42Ed Elson?

  So would you say then that Iran's real power isn't necessarily the actual oil, but the fact that they are situated in a place where a lot of oil goes through? In other words, they're sort of the gatekeeper to global oil?

• 4:55Speaker 06

  Well, they're certainly the gatekeeper. Twenty percent of world oil would go, normally would go through the Strait of Hormuz. We've also learned, you know, if we had been talking on February twenty seventh and I'd said to you, oh, the Strait of Hormuz is going to be closed, you would have said, well, that's probably going to affect oil. You might have said it's going to affect natural gas, but you wouldn't have said it's going to affect petrochemicals, helium, fertilizer, metal exports, because really those Gulf Arab countries have become so integrated into the world economy on a much bigger scale than was anticipated. But right now, what Iran is doing is by shutting, trying to change the Strait of Hormuz into an Iranian canal

• 5:39Speaker 06

  for which you pay tolls, what they are trying to do, what they're doing is, if this continues for another month, will create shortages that will be felt all across the world, will affect air travel, will affect agriculture, will affect the production of semiconductors. So they have a lot of leverage as long as they control the strait.

• 6:00Ed Elson?

  Is it the case then that the Strait of Hormuz has become more powerful or more important in recent years? I mean, clearly it has been a significant passageway for oil, but you mentioned that if we had discussed this a few months ago before the invasion, if we were talking about petrochemical, or we would not have talked about petrochemicals, we would not have talked about helium.

• 6:21Speaker 06

  And we would not have talked about fertilizer, which is really a big impact around the world, as we felt in the United States.

• 6:28Ed Elson?

  Does that suggest then that? This is a new development that the Strait of Hormuz has become increasingly more central to global trade, not just in terms of oil, but in terms of many other materials.

• 6:41Speaker 06

  Absolutely, because those those Arab countries have established themselves as players in many different ways in the world economy, providing essential sources. Right now, there is an LNG project in the United States that is worried as to whether it can go forward because it depends upon steel from Abu Dhabi. Who would have thought that?

• 7:05Ed Elson?

  So I guess the question then becomes, did we know this when we invaded? Or more importantly, did Trump and did the administration know this when they decided to invade? Did they understand that by doing this, you would disrupt not only the global supplies of oil, but also the global supplies of everything else? You mentioned fertilizer, which was, of course, necessary to grow crops, which is, of course, necessary to put food on shelves and then feed people. I mean, to what extent were we actually aware of how important the Strait of Hormuz actually was?

• 7:41Speaker 06

  I think in general, it was not there was not that awareness on a global basis about how the world economy had changed. And also, by the way, those countries export one other thing that's very important, and that's money. They have among the largest sovereign wealth funds in the world, so they play a very important role in that regard as well. So I don't think it was on the agenda, and I don't think it was necessarily envisioned that we'd be in the position that we're in today.

• 8:10Ed Elson?

  When you saw the invasion, when you saw that we when you read the headlines that the US had struck Iran, what did you think and what did you predict would be coming next?

• 8:19Speaker 06

  I thought Iran is not Venezuela. Venezuela was remarkably successful. You got one guy out and his wife, and it's a whole different game there now. But Iran, you have an IRGC, which is not only a military force, but an ideological movement as well. And that the whole basis of that administration has been based on their chant of "Death to America", that the animosity of the US. And that they, in a sense, for many years, the West, the US, has war-gamed what would happen in the Strait of Hormuz with Iran. Iran clearly was war-gaming as well, and built up very considerable missile capabilities.

• 9:04Speaker 06

  And indeed, I think it was quite, it was a shock when you realized that the Iranians could send a missile 2,500 miles. So that they have really built themselves as a resistance state. And for them, this war is existential.

• 9:21Ed Elson?

  Did this strike make sense to you in terms of timing, in terms of reasoning?

• 9:26Speaker 06

  Well, I didn't think about it one way. In those ways, I thought that, in a sense, that this war had been brewing for 47 years, is the way I thought. Was it going to take this form? This, you know, I think that probably the administration, having seen the decimation of the Iranian proxies in the Middle East and so forth, that this seemed timely to do. And there was that congregation of senior leaders all in one place, a target of opportunity. But I do think of this quote from Winston Churchill, who say, "Once a war begins, policy and plans go out the window,

• 10:07Speaker 06

  and it becomes unknowable and unexplainable in terms of what happens." And I think we're in that state today. And I was just talking to some people in the Gulf today. For them, on the Arab Gulf, it's absolutely intolerable.

• 10:25Speaker 06

  To have a situation where Iran remains in control of the Strait of Hormuz, it's their highway.

• 10:31Ed Elson?

  So it sounds like your view is that this has been boiling for a while and then we kind of reached a boiling point this year. Was that boiling point, the conflict that we saw within Iran, the persecution of their own citizens, was that the moment or was there something else?

• 10:50Speaker 06

  I think that certainly contributed to it, to the sense that the regime's hands were really weakening, that there was popular uprising opposition, but the notion that they also killed perhaps 30,000 people or more is very sobering because all the guns are with the IRGC, with the militias and with the military. It may have been read that the regime was weak because of the scale of these demonstrations and the degree to which the rulers have ruined the economy. Iran today could have been a great force in the world economy. The basis was there before 1979 and they've ruined it.

• 11:32Speaker 06

  It's a country where people have been impoverished. They don't have enough water. It's just, you know, it's been very badly ruled. I mean, you know, there were so many talented Iranians who were studying in American universities, getting PhDs in economics and engineering, who would have gone back and, you know, some of them did go back when the Shah failed, but now many of them are in exile again.

• 12:00Ed Elson?

  When you think about how the invasion has gone down so far, it seems as though we keep on semi claiming victory, or at least the administration continues to semi claim victory in various ways, but ultimately the result seems to be the same, which is that the Strait of Hormuz is still blockaded, the regime remains somewhat intact, or at least it's now led by the old leader's son. It still seems that the situation is extremely volatile on the ground, extremely radicalized. When you look at how it's unfolded so far, two months into this war.

• 12:46Ed Elson?

  What do you make of it? Do you think that it's going to plan or is it not?

• 12:51Speaker 06

  Of course, there's been a war, but it was an aerial war. It was air power, so there has not been a land invasion. I think it's thought that any boots on the ground is very precarious. It's the thing that Trump criticized everybody else for. The scale would have to be very large. Will there be a more focused military option to sort of regain control of the Strait? Everything is more difficult now. Of course, we're in an age of drones where, you know, an inexpensive drone can do a lot of damage and there are a lot of drones.

• 13:31Speaker 06

  You know, the way I think about it, Ukraine was really the testbed or the beta test for 21st century warfare in terms of both traditional warfare, but also drone warfare. And that is, you know, in terms of securing the Strait of Hormuz, unless you can also take out the drone problem, it's going to be harder. But I guess I find it hard to believe that the situation we see now with Iran in control of the of the Strait of Hormuz will continue, that it just, but you know, how that gets

• 14:12Speaker 06

  resolved, we're still going to see and it may be in surprising ways.

• 14:17Ed Elson?

  Why do you find that hard to believe? Is it because they are too weak in comparison to American military forces? I mean, just as an observer, I look at it and I'm like, well, they still, I wouldn't have thought that they could last this long in control, but they seem to be somewhat in the, having the upper hand.

• 14:38Speaker 06

  They're prepared for this, you know, and it looks like, you know, in companies, they always talk about succession planning. It sure looks like the Iranians did succession planning in terms of who will step in. And maybe they've seen this pattern of assassinations, they saw what happened in Lebanon. And, you know, so they seem to have devolved authority to new leaders. Some people talk about moderates, but I think people who know Iran well don't think there are any moderates there. I mean, they may be pragmatists, but they're not the same as moderates. They're all, for them, this regime is who they are and what they're defending and what they believe in. And martyrdom is is part of the ideology, actually.

• 15:22Speaker 06

  But but to say, I just think that at the end of the day, all those Gulf countries cannot, you know, cannot abide this control. So that there will have to be something, something worked out. You're not going to just be able to fix it with new pipelines. So in other words, we're still in the middle of of it. And it is, it is the classic situation where, you know, people will make decisions, you know, one decision or another. But Trump does always go back to his favorite word, a deal, you know, and it's deal, but then the question is, who are you negotiating the deal with?

• 16:07Speaker 06

  You know, and do they, and we can see that there were clearly tensions between, it appears, between the negotiators and the people of the IRGC, which is the real power in the country now.

• 16:19Ed Elson?

  This is, I mean, the big question, and this is a market show. We're interested in the price of oil, but we're also interested in other things. But the the big question for investors, it seems that there is a consensus among investors that the prices of oil is going to come down at some point. That's that seems to be a given. But the question is, when? How, for how long will oil prices remain elevated? And will they remain elevated for such a long time that it starts to have a real impact on the economy?

• 16:52Speaker 06

  You got to say which economy. Because in economic terms, the Strait of Hormuz flows east eighty percent.

• 17:00Speaker 06

  Cent of the oil ninety percent. So Asia is already feeling it. Restaurants shut down in India because they can't get the fuel they need. Rationing, gasoline stations closed, business is not operating, air flights being canceled. European canceling air flights. You can see European inflation going up. The US is insulated because of our great, because of the shale revolution, United States has put us such a different position. So there's already a big market effect. But I think the other part, the heart of your question is at our SIR week conference. Again and again, I heard the CEOs of major companies saying the risk is, risk is being under, is not being reflected in the price of oil.

• 17:42Speaker 06

  And the market price of oil, as, as you know, has sort of fluctuated up and down with, you know, pieces at hand. Or no, this, there's no deal. So, but if you look at the price for prop delivery of oil. You see there that, that that's a higher price. So our own view is at this point, and you know, change, the circumstances change. Is we're going to see, you know, high prices at least for quite a number of months to come. Because even if this miraculously ended tomorrow, it's going to take months and months to, you know, unwind what's happened.

• 18:23Speaker 06

  I mean, and some production will come back. Most, you know, some of the countries, a lot of the production will come back. Some it won't come back at the same extent. So there'll be still shortfalls. So I would think that for the people following this podcast, what's really critical is to watch what unfolds in the next month. And to watch not only crude oil, but watch jet fuel, watch diesel and watch LPG, those prices. Because those are the prices, you know, of products that people, that people use.

• 18:55Ed Elson?

  Yeah, the point that. Which economy are we measuring is an important one. I was I was referring to the US, but yes, the impacts are far greater abroad. And that's something that I think both US investors seem to forget a little bit and also just US consumers of news. Could you tell us more about how impactful this has been to either economies, Asia being an example? I mean, to what extent will this have long term impacts on Europe or Asia or any other market outside of the US?

• 19:35Speaker 06

  Well, I think for Asia, this is a it is a real very painful shock what's happening. And, you know, it's really almost a desperate situation for those countries because they were so dependent on those supplies. I think for Europe, this accentuates what is this chronic problem of the weakness in the European economy because of the policies it's pursued, its throttled investment, its burdened businesses with so many regulations. We had the German Economic and Energy Minister at CERWIC at our conference this year, and she was complaining about the European Union. She says they manufacture a new regulation every day and just it's so hard to do business

• 20:19Speaker 06

  there, which is why you see the deindustrialization of Europe going on. This will affect travel, you know. Even here, I'm talking to people when I was, you know, before I left the United States, they were saying, oh, I'm buying my air tickets for the summer now because they're going to be 20% more expensive. We will see flights canceled and the US will not be as insulated as those other markets. Very bad news for Africa, which basically East Africa got all of its jet fuel, it came from the Gulf. So, you know, and for farmers in Africa, in Asia, the fertilizer issue is a huge issue.

• 20:59Ed Elson?

  I wonder what this means for those economies' relationship with the US. Because if you think about it from Europe's perspective, Asia's perspective, East Africa's perspective, they weren't doing anything. They were minding their own business, doing their thing. Maybe they got their regulatory processes wrong. But ultimately, it was the US that caused what is now their pain and potentially very serious and long-term pain. I just wonder what you make of what that will do to the US's relationship with those regions.

• 21:35Speaker 06

  This adds to pressure in the relationship. This, you know, that they they know where this came from. You see polls showing that the US is not seen in the same light as it was a few years ago. And it's also to follow from what you've said. This crisis in the Gulf has also really become a crisis for NATO, for US relations with Europe. We've seen President Trump announcing German troops being pulled out, US troops being pulled out of Germany because Chancellor Merz said that the Iranians are humiliating the United States and humiliating President Trump. And he got really mad about that. And so with very little notice there.

• 22:18Speaker 06

  So there's already tensions on NATO. But this is really highlighted. And the NATO countries are saying, what the Gulf countries are saying too, you didn't tell us you were going to do this. And now we're left with the consequences of it. I mean, we're more dependent. A lot, a very significant part of Europe's jet fuel was coming from one refinery, this big, modern refinery called Zurich in Kuwait. And they're not getting that jet fuel. So Lufthansa is cancelling flights. We really have two energy shocks. We have the energy shock of what's happened in the Gulf. Then we have the other energy shock, which is electricity in the United States and the

• 22:58Speaker 06

  data center and the AAL buildout and the $700 billion that is going into it. And so you look at the US economy and when you see...

• 23:09Speaker 06

  Is it more than half or 75% of US economic growth is coming from the data center, from AI? That's the huge offset in the United States to the economic costs of pains that's come from this biggest disruption in the history of world energy. But no other country has the hyperscale or spending money on that scale. So, you know, one energy shock is a negative. The other energy shock, you know, about electricity and data centers is a positive, a big positive for the economy.

• 23:47Ed Elson?

  We'll be right back after the break. And if you're enjoying the show, come join us on tour. We will be going live at the end of May. You can get your tickets at profgmarketstour.com. The link is in the description.

• 24:02Speaker 00

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends, like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra because it's not just a superior light beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

• 24:38Speaker 01

  Are your ad campaigns lighting up the dashboard, but not the pipeline? That's bull spend and marketers are calling it out in dashboard confessions.

• 24:49Speaker 02

  My boss asked for results, so I opened my dashboard for the only positive sounding metric I had, impressions.

• 24:56Speaker 01

  Cut the bull spend. See revenue, not just reach. LinkedIn delivers the highest return on ad spend of major ad networks. Advertise on LinkedIn. Spend $250 on your first campaign and get a $250 credit. Go to LinkedIn.com/campaign. Terms and conditions apply.

• 25:10Speaker 03

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• 25:38Ed Elson?

  We're back with Prof G Markets. Just to go back to our relationships with other nations and other regions. Another interesting one is the Gulf because it seems as though this administration had developed quite a close relationship with the Gulf regions, especially Saudi Arabia. There was, of course, the announcements of these multi-trillion-dollar investments that were supposed to come into the pipeline at some point for the US, between the US and Saudi Arabia. But at the same time, it does seem as though we have massively destabilized that region.

• 26:22Ed Elson?

  And there were the issues with desalination plants in Saudi Arabia and just the fact that we've basically started huge, created a huge amount of instability in their backyard. Now, you mentioned earlier that there's also at the same time the fact that a lot of these Gulf regions don't want Iran, or at least the current regime in place. So I guess the question becomes, are they grateful for what has happened? Are they angry about what's happened? What does this do to America's relationship with the Gulf states?

• 26:53Speaker 06

  Well, I was in Saudi Arabia just a year ago when President Trump was there at his, you know, at this big investment conference where I think this, they pledged $600 billion of investment in the United States. And then I think that number was raised to a trillion and UAE came in at a trillion and Qatar came in. So it was quite a, quite an investment hall that was brought in. I think there's mixed feelings and I talk to different people from the region. I get different views. I mean, one senior person said the US... Hit the hornet's nest and they never told us they were going to do it.

• 27:34Speaker 06

  We have to figure out a different defense system and we, as the GCC, at the Gulf Cooperation Council, we need to work more on our defense. So I think there is that one sense that they didn't tell us and we're being hit. And no country was hit as much as the UAE, 2,800 missiles and drones. Because I think the UAE's economic model is the antithesis to what's happened in Iran. Because it is, it shows you how you become a global economy. But I think the message you also get from them, and I saw, you know, others I've talked

• 28:14Speaker 06

  to the last few days, say, well, we can't survive with Iran. This Iran, it's too dangerous for us. And now they will go for nuclear weapons, whatever happens. And saying, you know, the US started it, needs to finish it. Now, I don't know what finish it means. So it's an ambivalent message. But, you know, they count on the US for security. But then it's interesting that you see that it's Israeli military technicians who are in some of those countries, helping them defend against drones. And the US had a big military presence there. I think the UAE, they shot down like 95% of the drones, but 5% and missiles did get

• 28:59Speaker 06

  through. So I think they're shaken and it raises the question of what will be the role of the Gulf in the future? I mean, and that will very much depend upon what the outcome is here. Is there stabilization so there's a sense of security? I think one consequence is too, is that it's going to accelerate what was already processed, building up a new drive, exploration to discover new resources in other parts of the world. Because it's sense that at some point, the US shale, the consensus view, you know, which has made the US the world's largest oil producer by far, is going to flatten out. And therefore, people are starting to think again, we've got to discover new resources.

• 29:41Ed Elson?

  It seems that one of the learnings from this, if you're anyone other than the US, I guess, is that it's a lot better to be energy independent.

• 29:53Ed Elson?

  You don't want to rely on anyone else, really, because you don't know what's going to happen. And it seems as though this is sort of reflective of the disintegration of globalism and the previous world order that we had all gotten used to, that this is the next step in that. If oil is representative of power, as you have written about before, then what we're starting to see here is that everyone needs to sort of create their own powers on their own, every man for himself. It seems as though that is the trajectory where we are headed.

• 30:29Ed Elson?

  Do you believe that that is one of the learnings from this oil crisis?

• 30:32Speaker 06

  Yes. In other words, you're saying energy security, which already went up, energy security was forgotten about during COVID. Prices went down. It went up after Russia invaded Ukraine. And then you suddenly had Germany going around the world, asking people for liquefied natural gas or asking them for oil. This, I think, takes it to another level. Most countries don't have the advantage the EU does of this incredible shale resource, which has, you know, been transformative for the US position in the world. So the first step is, yes, try to be independent. Secondly, is you diversify your sources, which has been the premise of Japanese energy policy ever since the 1973 crisis.

• 31:15Speaker 06

  And you want, as Churchill said, variety, safety lies in variety and variety alone when it comes to oil. I think it gives a boost in many places to renewables, which will be seen, not about climate, not about sustainability, but about energy security. So I think there'll be a boost there. I've heard of projects in Vietnam that were going to be based upon LNG, that are now looking to be based on solar panels from China instead of LNG from the United States. So I think that will be, you know, for countries, you realize that.

• 31:55Speaker 06

  Adequate energy supplies are the foundation of your economy. And without it, you don't, not only don't have economic growth, you have social disorder. And you have pain and you pick people suffering. So I think out of this, a much bigger focus on energy security. And I think it means when companies will certainly be looking also to go where Namibia, where can you go, Guyana, Suriname, where are the places you can go and develop new oil resources? I think Africa could well be a beneficiary of this if governments get organized because they have the resources there.

• 32:39Speaker 06

  And it doesn't depend upon the Persian Gulf, doesn't depend upon the Strait of Hormuz. The Eastern Mediterranean, gas in the Eastern Mediterranean, I think takes on new salience because it's close to Europe.

• 32:52Ed Elson?

  Something that has struck me about the invasion and the Strait of Hormuz being closed is how much it has emphasized and shown us just how dependent on oil and gas we really are, even today in 2026. And you wrote what is known as sort of the Bible of oil, your book, The Prize, which you wrote in 1990. And it was really a demonstration, an illustration of how oil is the backbone of modern industry. And I guess when you look back, comparing when you wrote that book to now, are you surprised at all at the extent to which we are still dependent on oil, the extent to

• 33:36Ed Elson?

  which that statement, that thesis is still true?

• 33:39Speaker 06

  Am I surprised? I mean, since I live it on an ongoing basis and I've written these other books, I wouldn't say surprised, but it is noteworthy that if you include coal, hydrocarbons are still about 80, depending on what you measure you use, either 80 or 86% of total world energy. So, I mean, that will change. We see a renaissance of nuclear. We see, although that will take time to unfold, but it does bring home the fact that the world is still dependent, highly dependent. But the huge change is the change in the position of the United States. You know, because in a sense...

• 34:20Speaker 06

  Oil prices now are partly formed in the United States in a way that wasn't the case before, and that that has given the US flexibility. I mean, if we were importing lots of oil, would we be in the have carried out the kind of attacks in Iran that we are? Maybe, you know, you wouldn't have done it with the same confidence.

• 34:44Ed Elson?

  When you think about the future of energy, where does this go? I mean, there have been all of these debates as to whether we should be investing more in nuclear, whether we should be investing more in in solar and wind. Obviously, the administration has been generally against solar and wind. What is the future of energy at this point?

• 35:07Speaker 06

  First, I want to just go back to something that you said before. You know, ever since about 2019, there's been this focus on supply chains. And what we've seen, if we can think about that, this is a very huge supply chain that's been disrupted with many ramifications that we've been talking about. And one of the other books I wrote was The Commanding Heights, which was about how the age of globalization came about and how it was playing out. And this it goes back to your remarks, basically, which was, if we look back on those years, that were, you know, not so long ago at all, it was sort of this easy globalization. Goods moved easily, services moved easily, people moved

• 35:50Speaker 06

  easily, visas were not a problem at all. All of that has changed. So we really are in a more fractured world to begin with. And I think and oil was a global commodity until Russia invaded Ukraine. And then you've got a fragmented, a divided, partitioned world market in oil. So that whole trend, as you were suggesting, is to a more divided world. And that does make countries put more emphasis on security and resilience rather than just lowest cost. And to the degree that they can diversify their energy supplies, they will.

• 36:28Ed Elson?

  If we're living in a world, you said a more fractured world from an energy perspective. And if, you know, we saw this, the invasion of Russia into Ukraine, and now we've seen this invasion from America into Iran, and a lot of this does have to do with oil, and it has to do with the flows of power and energy. It's hard to imagine a world in which energy prices just aren't more elevated for the long term. If this is an inherently more risky world from an energy perspective, if there is a greater concern about invasions, about the supplies and flows of oil and gas, I don't really see how this couldn't mean

• 37:12Ed Elson?

  that oil prices and gas prices and energy prices in general will not just be higher for longer.

• 37:19Speaker 06

  I think that's right. I mean, I've learned that, you know, markets do change. If we were in the first three weeks of this year, the whole focus was we're going to have such a surplus of oil. We're having so much LNG, prices are going down. And, you know, and I think our base for thinking about how much oil prices have gone up should not be from the date of when the war started, but from January, early January, before the buildup. So we were like $60 a barrel. But I think if there is a concern about security, people will, you know, people will pay up. The cost of energy will be higher as people try and build security into their systems.

• 38:02Speaker 06

  Obviously, the global energy markets will be dynamic and they will ebb and flow. You know, as you mentioned, the prize came out a long time ago, not a couple of decades ago, let's put it that way. But I recently wrote a new epilogue to bring the book back. And I said, what are the enduring lessons of the prize? And one of them is that there are hundreds of characters in that book, but the two most important characters are supply and demand. And as that balance changes, it will affect prices. But I think people will, as you say, after this, will say, how do we build greater resilience into our oil and gas supply system? Just as in the United States, the question is,

• 38:47Speaker 06

  how do we build greater resilience into our electric power system so we don't have blackouts?

• 38:53Ed Elson?

  We'll be right back. And for even more markets content, sign up for our newsletter at profitemarkets.com.

• 39:09Speaker 00

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• 40:41Ed Elson?

  We're back with Prof G Markets. When you look at the U.S. as an energy power, on the one hand, we're... My understanding is that the U.S. is very energy independent. The U.S. is a net oil exporter. But for consumers, I think the experience is, well, my gas prices just went up 30% and I'm being told that we have an abundance of oil. But from my perspective, we seem to have a scarcity of oil as reflected in how much I'm paying per gallon. To what extent is the US actually independent?

• 41:25Ed Elson?

  Is it overstated, understated, or is it correct?

• 41:28Speaker 06

  Somewhere in between, we'd say relatively independent. And we can see that, you know, our gasoline prices have gone up, we should say 30%, but our gas stations are not empty of fuel. But we are part of a global market and global prices do get radiated back and inventories are coming down in the United States. And jet fuel prices go up, that flows back into the economy. So the sort of global prices flow back and still, at the end of the day, there is just one price. I mean, we need to, we export some qualities of oil and import others because it runs more efficiently in our refineries.

• 42:10Speaker 06

  But so we are, you know, we still are part of a global market and we're not, it's not like we have a Berlin Wall all around our economy. And the concern is that, you know, if this continues a month from now, we'll feel, we'll feel those pressures more. And of course, that becomes a huge political issue. You know, there's no price in the United States that matters more politically than the price of gasoline.

• 42:36Ed Elson?

  Do you think that that would be enough, that political pressure would be enough to have an influence on the way that this administration handles this war? I mean, on the one hand, they might want to see it through, but on the other hand, if gas is sort of the most important price, I think I would agree with you, then perhaps they'd give up their aims in order to make the voters happy.

• 42:59Speaker 06

  Well, that's why I think it's so volatile and not really predictable about what's going to happen because, you know, there are many factors from Iran's nuclear capabilities to the Strait of Hormuz, to drone warfare, shipping, but also in that mix is what happens in gasoline prices. And, you know, we're moving into an electoral season and, you know.

• 43:26Speaker 06

  You're going to hear from a lot of congresspeople about the price of gasoline. So I think this is a very difficult sort of vector in which to make decisions. And at the end of the day, it's really going to be one guy who decides here. And we don't really know whether he has, what interlocutors there are on the other side in Iran who have the credibility to make a deal. But the president has carved out that this is about the nuclear program. And so I think it's hard for him, would be hard to then say all over, and we haven't resolved that in some way or gotten some kind of deal.

• 44:05Ed Elson?

  Do you think that a deal would ever occur?

• 44:09Speaker 06

  A deal, it takes two to tango. And it would, it would depend upon whether either Iran's, the notion that the blockade has put such pressure on the Iranian economy that it starts to disintegrate and they really do have to do something. That could be one thing that, that leads to a deal. And I think the notion has been articulated for the blockade is if Iran is trying to wage war on the global economy, this is a way to wage war on the Iranian economy without using military weapons. Will we see, there's been some instance that maybe there would be a restart of the military campaign to, to move things along.

• 44:53Speaker 06

  But then there's the risk of how Iran would respond. This is really a real quandary of how, how to bring this to a conclusion.

• 45:03Ed Elson?

  You mentioned earlier that there is a discrepancy between how Wall Street is pricing oil, how people who are trading from trading floors in New York are pricing oil versus actual physical traders of oil, the people who actually work in the oil industry, that their views don't necessarily line up. Do you think that Wall Street and markets in general are mispricing oil? Are they not understanding something?

• 45:33Speaker 06

  Well, I think they are responding to narratives, to what is said, to a notion that this will come, that rationality will prevail and this will come to an end sooner. I think the industry is looking at the logistical disruption, at the constraints of where the shortages are, and is looking down the road at the supply situation. And I would say that right now, and in our own work, when we, at S and P, we see, if this prevails, we see a situation for a global supply position that's much more difficult a month from now than it is today.

• 46:17Ed Elson?

  You also said earlier that it's all dependent on one person. I guess in your time studying oil, studying the history of energy, have you ever seen the future of the market so dependent on such a small handful of people?

• 46:33Speaker 06

  The decisions that were made to put the embargo on half a century ago were made by a small number of people, and then one person really got on planes and got it solved, and that was Henry Kissinger.

• 46:50Speaker 06

  And, but I think at that point, probably the people doing the embargo actually wanted to get out of it because it was a precarious position for them as well to be doing it. But I think, I can't think of any situation since then where, I mean, you've actually phrased a very good question, in which so much... Of what happens in the world rests on such a narrow base of decision makers. You know, we're talking, you know, one person in the United States and, you know, a couple of his, a few of his advisors on one side and kind of a handful of leaders in Iran

• 47:35Speaker 06

  on the other side, who have a very different vision of the world. They have no desire to see, you know, international hotels built in Tehran. They want to maintain their system of power, even if eighty percent of the population wants them to go. They've imposed a huge cost. And right from the beginning, you know, I write about that in, in, in the prize, when they took power, they did mass executions of people. So they've never hesitated in the name of their revolution to kill people almost indiscriminately.

• 48:15Ed Elson?

  We mentioned earlier that this is partly about the possibility of, of a nuclear proliferation event, but at the same time, we had been told by the administration that their nuclear capabilities had been ruined or had been destroyed, which brings up the question of what is this all about really? And it seems that this is, to your point, this, this seems to be the most critical lever of power that exists in the world, which is who's controls the supply of oil, who's really in control of energy. I guess what could we learn from this about how power works and who really dominates

• 49:00Ed Elson?

  our society today?

• 49:01Speaker 06

  Power comes in many different forms. I mean, we could also say, look at, you know, we've never had companies of this scale or the hyperscalers and, and the amount of money and indeed, you know, what are they, forty percent of the stock, the stock market? So that's a form of constant, of concentration too. But, but.

• 49:28Speaker 06

  You know, I think this did start off being about Iran's nuclear weapons. But now it's about the Strait of Hormuz, which has turned out to be an incredible piece of leverage, at least for the short term, for Iran to try and control the world economy. We don't see it so much in the United States, but you certainly see it in Asia and increasingly in Europe and in Africa and in developing world. As we start to wrap up here, who's winning? Well, I still think that, I think China's a winner because it stayed out of it. And we'll see when Trump goes to China in less, in about two weeks now.

• 50:10Speaker 06

  Even though China has benefited from cheap oil from Iran, it's built up reserves, but I think it sends a message that, you know, we don't do, do, you know, things like this. But of course, we don't know what they're going to do about Taiwan. And I think Vladimir Putin is a big winner because the sanctions have been relieved on his oil. He's replenishing his war chest with higher prices and attention has shifted away from the Ukraine war. It's funny in a way, Ukraine has benefited from this because they're the country that is, knows how to fight against drones. And they have showed up in, in the Gulf countries now and have done deals with them to help

• 50:55Speaker 06

  them in their defense against drones. And so it turned out that, you know, Ukraine has some cards here to play. At one point it was said it had no cards, but it's, it's building coalitions. Europe is a, kind of is a loser too, going back to what we said about the fight over NATO, that this has really accentuated it. Iran's not really a winner because their economy is in such bad shape. I guess we could say they're a tactical winner right now with their control over the most critical maritime choke point in the world, which has been recognized to be such for decades. I mean,

• 51:38Speaker 06

  It's the seizure of the straight of her moose has been the nightmare scenario for decades. And now we're living, you know, now the nightmare has come into the daylight. And what about America? Well, we said that the American economy right now is being driven more than anything else by AI data centers and just this unprecedented level of investment that's unfolding far greater in just adjusting for inflation than any other infrastructure build in the history of the country. So that's kind of balancing out. But gasoline prices, what this is doing to farmers in terms

• 52:20Speaker 06

  of fertilizer prices, because again, it's global markets, they're being felt. But we'll truly only know who the real winners are when this is over.

• 52:33Ed Elson?

  It seems that you're being diplomatic to America because I look at what's happened and some of the things you said there. I don't see how we have come out on top in any way, shape or form on this, especially to your point, if this has empowered both Vladimir Putin and the CCP in China.

• 52:53Speaker 06

  What I meant is that we have a lot else going on in our economy that is gives us kind of ballast that others don't have. That's what I meant. And that we've been, despite the prices ticking up at the gas station, we've been much more insulated from it than anybody else. So that's what I meant in that sense, that, you know, our stock market is not expressing concern about an oil crisis.

• 53:22Ed Elson?

  What does this mean for the future of energy? The fact that this has happened, the fact that we are living in a more unstable oil world? How does the future of energy unfold from here?

• 53:34Speaker 06

  I think it means the increasing drive from diversification, even if wind is not popular in the United States right now, from the administration point of view, renewables will get a boost. I can see right now, solar is the quickest thing that can be done to meet electricity. I think other countries will look more at renewables. I think

• 53:56Speaker 06

  I think Europe has, I think just Europe has really deep problems that they are having great difficulty dealing with. You know, we won't see the impact of this nuclear renaissance for five years or so, but there's sure a lot of money that's going into it. One small modular reactor company just went public with, I think, a $9 billion valuation. So there's a lot of optimism. And we see nuclear power plants that were shut down that are now being brought back. Germany is now saying we made a mistake shutting down nuclear. So I think, I think all of that, you know, there, you know, there, there's not an endless possibility of things you can do.

• 54:38Speaker 06

  Hydrogen, which was very big a few years ago, has really faded away. But, but I think, you know, like your portfolio, you want a diversified portfolio of your investments, you want a diversified portfolio of your energy investments as well. And I don't mean that is in, in companies, but in terms of where you get your supplies and where you get them from. And I think it's not, it's not like there's any, people always want a miracle solution. There's not a miracle solution to providing the energy for $120 trillion world economy. But diversification and, and, and not cutting the budgets for research and development

• 55:21Speaker 06

  in technology, because, you know, we do need new answers as we go into the, you know, look out beyond, you know, out into the century. And, but for now, it turns out, oil and gas are still pretty darn important.

• 55:38Ed Elson?

  Daniel Yergin is a highly respected authority on energy, international politics, and economics. He is the vice chairman of S and P Global and the Pulitzer Prize winning author of both The Prize, The Epic Quest for Oil, Money, and Power, and The New Map, Energy, Climate, and The Clash of Nations. He has served on the U.S. Secretary of Energy Advisory Board under the last four presidents. He holds a BA from Yale University, where he founded The New Journal, and a PhD from Cambridge University, where he was a Marshall Scholar. Daniel, this was fascinating. We really appreciate your time.

• 56:09Speaker 06

  Well, thank you. Great to be on and wide ranging discussion.

• 56:15Ed Elson?

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carti, our research team is Dan Shalan, Isabella Kinsel, Kristin O'Donoghue and Mia Silverio, Jake McPherson is our social producer, Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.