Russia, China, and Iran: The Future of Global Energy in a World at War

CHRISTIANE AMANPOUR: Now, as we’ve heard, the United States and Iran are both choking off the Strait of Hormuz. As energy costs surge, our next guest is sounding the alarm about the global economy and noting how Russia and China benefit. Daniel Yergin is vice president of S&P Global and a leading authority on energy and economics. He tells Walter Isaacson what could lie ahead.

 

WALTER ISAACSON: Thank you, Christiane. And Dan Yergin, welcome back to the show. 

 

DANIEL YERGIN: Thank you. 

 

ISAACSON: So we’re now blockading the Strait of Hormuz. Iran’s thinking of doing it in the Persian Gulf. What are the implications now for the oil market?

 

YERGIN: The implications are that we’ve seen it remains the largest disruption of world energy that’s ever occurred. It’s hitting particularly hard in Asia where some countries are already rationing, supplies, prices are going up, people are closing restaurants and stuff, because they can’t get the fuel that they need for heating. So that’s where the biggest impact is. It’s starting to be felt in Europe, and we’re seeing it at the US and the gasoline pumps. But one particular area, Walter, is jet fuel, which is the Gulf of – the Persian Gulf, those countries were major sources of aviation fuel, and that’s going to affect travel.

 

ISAACSON: Well, you say the biggest we’ve ever seen, and it’s pretty bad. But, you know, it’s – I look at the markets, the markets aren’t going totally nuts. We have a hundred dollars crude oil, generally.

 

YERGIN: Yeah, well, what you have is – it’s true. I mean, we’re seeing it less impact in the United States because the United States went from being the world’s largest importer of oil to being the world’s largest producer of oil and a major exporter. So we’re not seeing the same pressures here, but there is this kind of sort of almost divided world. If you look at the futures market, which you’ve talked about, and that’s where you get that hundred dollar barrel, which is – you know, before this crisis began, oil was $60 a barrel. But if you look out at the, you know, what’s actually being sold in Asia, there, you get prices like $135, $140 a barrel compared to $60 before the crisis. So it’s an uneven impact around the world, and it’s an uneven impact in markets themselves.

 

ISAACSON: You said though, at the beginning of this war with Iran, that it would be a nightmare scenario if the Strait was closed more than four or five weeks. Are we really in a nightmare scenario?

 

YERGIN: Well, I mean, it seems to be day by day whether negotiations are happening or not happening, but all the kind of planning, all the scenario thinking, all the war games that went on for decades, the nightmare scenario was the closing of the strait. Nightmare scenario in terms of oil. I mean, you can have other nightmare scenarios that involve things like nuclear weapons. But in terms of the oil market, you know, this is a source of 20% of world oil, 20% of liquified natural gas, and a lot of other things that people didn’t think about, like petrochemicals, like aluminum, like fertilizer and of all things helium, which is what you, which is required for the manufacturer of semiconductors and also for MRI machines. So what had happened, what had happened, the Gulf, that region, those Arab countries had become major players in the world economy, not just in terms of oil and gas. And also one other area, Walter, they’re also major exporters of another commodity called money because they have these huge sovereign wealth funds.

 

ISAACSON: Now, what could that do if the sovereign wealth funds quit investing?

 

YERGIN: Well, I don’t think they will quit investing because you know, you’re talking about funds that are trillions of dollars or more than that. But there is a question of how much of their investment will be shifted back to domestic to be required to repair the damage of infrastructure. Because it’s not only been about the Strait of Hormuz being closed, it’s also about the major infrastructure that supports all those industries being attacked as well.

 

ISAACSON: You said a big change is that the United States is now a net exporter of oil, net exporter of liquified natural gas. Is there a silver lining for the American economy here?

 

YERGIN: I think overall not, but I think that obviously prices go up temporarily, that benefits those sectors of the economy. But on the other hand, you have higher gasoline prices and that hits particularly lower-income people who have to, you know, travel some distance to work. So it probably, you know, if you did an economic analysis, you would say it probably kind of balances out. I think the big concern here is there was generally a sense that there were a lot of inflationary pressures already building in the US economy. And this adds to inflation here, and it adds to inflation, of course, around the world.

 

ISAACSON: What will this do for other energy sources like renewables?

 

YERGIN: Well, we’ve seen a tick up in sales of electric vehicles in the United States. It’s now up to about 7% of new car sales, a little higher than it was before. But I think that you know, the secret of energy security is diversification. And now I think people are describing renewables – wind and solar – less in terms of climate and more in terms of energy security. That’s the case in Europe for sure. And I know, you know, one project that was going to depend upon liquified natural gas in Vietnam is now switched to solar. So I think that renewables definitely are going to benefit. And, you know, over 90% of the new electric generating capacity that was installed last year in the world was wind and solar. 

 

ISAACSON: And what about China? How does it affect them and what are they trying to, how are they trying to influence this? 

 

YERGIN: Well, I think that’s one question of whether China’s a big beneficiary. China depends upon the Gulf for about 44% or 45% of its oil imports. And China, by the way, has replaced the United States. We, the US, used to be the world’s largest importer of oil. China is today. 75% of its oil is imported, and a big part of it from the Middle East. And China has been the major recipient of the sanctioned Iranian oil. So China has its own economic challenges. I think China wants to portray itself as a stabilizer in the world. In contrast to how they portray the United States is unpredictable. They also benefit in that they’re the country at the forefront of of, call it, renewables. And in particular, 80, 90% of the world’s solar panels come from them. So if people decide that they don’t want to depend upon oil or gas – or as you put it, liquified natural gas for electric generation – and want to go solar, China benefits from that.

 

ISAACSON: You talk about petro dollars at times, and could this reduce the use of the US dollar as the currency and maybe help China become the currency?

 

YERGIN: Walter, that’s a big question that even sort of goes beyond this current crisis. Because the question has been now for a number of years will the dollar retain its primacy? And its special prerogatives in the world in that basically world trade is priced in it. And there are two countries who would like to really end that. One is Russia and the other is China, and then throw in Iran as well, countries with sanctions. The Chinese want to push their currency, which doesn’t have the same convertibility as the US. But note that the IRGC, that Iran has been saying that those tankers that they allowed to go through the Strait of Hormuz – you know, we now have a blockade, I mean, things change day by day – would either be paid in cryptocurrency or in Yuan in the Chinese currency. So I think – and the question about the dollar, as I say, is it’s not just about this crisis but the Chinese would like to displace the role of the dollar and in a sense, displace the role of the US, so central to global trade.

 

ISAACSON: Do you think China then will end up supporting Iran more if Iran is insisting that the Chinese currency be used?

 

YERGIN: Well, I think that the Chinese are no doubt very happy for that to happen and regard that as more than a badge of honor. I think they’ve had a strong relationship with Iran. I think One question in all this diplomacy and all, will China, you know, in the background try and play a role to, you know, to end this kind of, this hostility?

 

ISAACSON: You say that China’s one of the big winners in this at the moment, or beneficiaries. The other seems to be Vladimir Putin and Russia. Are they benefiting from this situation?

 

YERGIN: Yes. I saw a clip of a Kremlin news conference where Vladimir Putin looks so smugly self-confident saying, we can recount on Russia as a reliable supplier of oil and gas. He benefits from it if sanctions get lifted on Russian oil, he benefits in that their oil that they do get out, gets sold at higher prices. He benefits because this helps to fund his war. And it also raises questions whether if these shortages persist, will sanctions, the EU sanctions about not importing Russian energy be tempered or pushed back? So he’s a beneficiary. Now, what’s happening, of course the Ukrainians know that. And they have been lobbing missiles and drones at the Russian oil infrastructure to try and impede the export of Russian oil and gas because they don’t want Putin to make more money from it. But, you know, he could win the jackpot here.

 

ISAACSON: How will that affect the war in Ukraine?

 

YERGIN: Well, I think first it’s taken attention away from the war in Ukraine. Secondly, weapons that might have gone to Ukraine are now going to the Gulf. The other side of it though, is that no country knows better how to fight drone warfare than Ukraine. No country has innovated more and done it more rapidly than Ukraine. And there is President Zelensky in the Gulf countries making deals with Saudis and others to provide them with anti drone capabilities. So, you know, that’s a positive. But meanwhile, that war grinds on, and the Russians have hardly gained any territory. It’s gone on longer than World War I. And Russia, Putin can’t stop himself. And you look at it and you say, what does he gain from this? He’s severed his relationship with, with the West, and to a considerable degree, made Russia a client state, an economic dependency of China. But that war grinds on.

 

ISAACSON: But if they lift, if the United States lifts different sanctions, especially Europe – United States lifts sanctions on Russian oil, doesn’t that help his war in Ukraine?

 

YERGIN: Oh, absolutely. And it, you know, ’cause right now he has to ship everything through his shadow fleet and, you know, so I mean, that’s out there. The US had a waiver, but I think the waiver expires on Saturday. And we’ll see whether it continues to, you know, to lift those sanctions. But, you know, the world needs to make up the, the missing supplies. So that’s where, well, that’s where Putin is standing there, you know, he’s in a much better position. And the other thing, he’s in a better position because people, at least in the US, have sort of stopped focusing on the war in Ukraine. I think the Europeans still feel that Russia is waging a hybrid war against them and have a very different attitude towards Russia right now than Washington does.

 

ISAACSON: Even if traffic resumes through the Strait of Hormuz and from the Persian Gulf, which may also be affected here. How is this situation gonna alter what you call the new energy map? Will it make structural changes?

 

YERGIN: I think so. I think that the world is, you know, the world’s gonna be different when this is over. How different depends on how it ends. But I think that first of all, they’ll take months –  even if it stopped now –  to unsnarl all this disruption of supply chains, it may take years to, and if not months, to repair some of the equipment. And it will be the sense of, well, what sense of security is there in the region? So I think a lot depends on how it ends. But I think you know, the world – you know, you started Walter by talking about the nightmare scenario. I think that people, that was a nightmare scenario, but more or less people didn’t think it would happen. And now it’s happened and there’ll be a rethink.

And the critical question will be, does the Strait of Hormuz, does it function as an international waterway or does it function as an Iranian canal where they collect the tolls? And that’s you know, that’s front and center right now. But I can tell you that the Arab Gulf countries, for them it would be unacceptable to have to depend upon permission from Iran where the funding that they pay for tolls goes to fund the Iranian IRGC, which is basically what the system that the Iranians have tried and want to impose.

 

ISAACSON: Do you think that the Gulf states and Saudi Arabia will eventually work with the United States to make sure the Strait of Hormuz is a free passageway?

 

YERGIN: Well, you know, if you look at their interests, the world’s interest, Asia’s interests, Europe’s interests, you would say yes. And it’s so much in their interest because otherwise they are dominated by Iran ends up as a dominant power. Iran may have lost a lot of its weapons, may have been pushed back, its nuclear capability, but they have at this point, at least, and things can change Walter, you know, in a day or two. But at this point, they have won something very important, control of the Strait of Hormuz which is the most important maritime choke point in the world.

 

ISAACSON: A lot of people think of you as an energy expert. I think of you as a historian. What could have gone differently after August, 1978 so that the Iranian people, the Persian people, could have remained friendly with the United States?

 

YERGIN: Well, it would’ve been – you know, there was the initial revolution and you had a sort of broad coalition and then the zealots, in effect, it was a second revolution. If there hadn’t been that second revolution… You know, history, as you know, with Walter, ’cause you write history so beautifully is a lot of accidents and mistakes and one thing leads to another. If the Shah hadn’t been admitted to the United States to be treated for his cancer, the Shah of Iran at Sloan Kettering in New York, would world history have been different? Would there have been a different balance of power? Truly don’t know. 

But you know, one thing, if you go back to 1978, ‘79, the Shah, you know, people criticized him. He was no doubt he was an autocrat. He had his secret police, but nothing on the scale or brutality of this current regime over these many decades, shooting tens of thousands of people in the streets. But Iran was also poised to become a significant economic power. You know, their Iranian students were doing PhDs in engineering and science in the US and around the world. Iran might have been on a very different vector. And I’ve been thinking as this crisis has been unfolding, you know, to look across the Persian Gulf, Iran could have been a modern, major economic power, as we’ve seen the Arab Gulf countries in Saudi Arabia become. But it went on a different course, and it’s been a course that has repressed the people and great costs for the Iranian people. But it’s also, what we’ve seen – and I think, Walter, this may be one of the surprises here – that maybe people didn’t understand the extent and scale of the Iranian arsenal of weapons. And at least from what we read, although it much has been degraded, much of it still remains.

 

ISAACSON: Dan Yergin, thank you so much for joining us again. Appreciate it.