Let's start with where we are recognizing the fact that all this is

changing very quickly. But when you look at the Strait of

Hormuz and the state of play in the Middle East, sort of, what are you

thinking? What are you watching right now?

Well, I think all eyes right now are on the Strait of Hormuz.

The conflict, which had originally been about Iran and Iran's nuclear

capabilities, has really nicked down to being primarily about the Strait of

Hormuz. If you think about it, the agreement

that was reached in mid June was an agreement just on managing the strait in

order to get to talks on nuclear capabilities.

We never even got there. There wasn't even really time for

product markets and crude markets and LNG markets to normalize.

We're back to a situation, as you know, the U.S.

announcing that it's going to have a new blockade on Iranian exports and imports,

um, that is poised for more escalation in the Hormuz Strait and clearly not a

path to normalization there in the near future.

How do you look at this? Is it intractable?

Do you think we're kind of stuck, for lack of a better word.

You know, I guess it depends on stuck in the short term.

I think it's very hard to imagine that in the next few days, in a week or so,

that will be at a place of credible normalization.

I think even if there is an agreement between the Trump administration, the

Iranians, Omanis, the Pakistanis, which of course people are trying to get to,

we are attuned to the fact that Iran is going to try to enhance its position

through sporadic disruption of the strait.

And that is something that I think is going to have to be accommodated by

markets over the medium and long run. We're already seeing that in the sense

that you have Gulf countries announcing new investments in infrastructure,

ports, pipelines. Over time, the street will become less

important because people are adapting to the reality that this is the choke

point, which is going to be problematic, which doesn't mean catastrophic, but

problematic for quite some time. What is the time horizon look like for

that adaptation? So I know that there's been this effort

to build more east west pipelines. Um, when is that going to be something

that's a viable kind of competitor to using the Straits to get energy in terms

of infrastructure? I mean, the infrastructure can be built

maybe quicker than you think, but still, we're talking a year or two years.

And in that interim period, there still is the opportunity for the redundant

infrastructure, the infrastructure that is currently taking Saudi oil out of the

Gulf, you know, not through the strait or Emirati oil that could be disrupted.

So that's been one of the most important buffers in the crisis going from, you

know, February, March until today is getting a significant amount of oil out

of the Gulf through that alternative infrastructure.

We have to hope that infrastructure doesn't become targeted.

In subsequent rounds, we did see the Houthis kind of come back into the

conflict, or at least remind us that they're still potential actors.

That, of course, could create, um, new constraints on a market that is very,

um, it's less well positioned if that's not terrible English than it was in

February to manage a prolonged disruption.

No doubt you've heard the president asked about higher oil prices, and

something he says is it could have been much worse that going into this

conflict, he was told it could be oil at $200 a barrel and low.

We never got to that point. Why is that the case?

Why have we seen yes, oil prices spike, but kind of stabilized around the $75

level. Sure.

And he's right. It could have been much worse and many

people expected it to be much worse. And the reality is that we had a massive

disruption. The International Energy Agency has

called it rightly the largest supply disruption in history.

And what is striking is that that didn't translate into an economic massive

global disruption, because the system was more resilient than many, including

me and many other analysis analysts expected.

And there were a whole number of reasons why that was the case.

I would say there are three that are very, very important.

The first is the redundant infrastructure.

The fact that there were ways of getting a significant amount of the disrupted

oil out of the Gulf without using the street.

That was very important. Secondly, was the use of strategic oil

reserves. So of course, as you know, in the 1970s,

after the big disruptions in Middle Eastern oil, then you had the

establishment around the world of global strategic reserves.

And the IEA, the International Energy Agency coordinated the largest ever

release of those reserves of 400 million barrels.

And that really helped ease some of the pain.

About 5 or 6 million barrels of oil a day were brought on global markets from

those reserves. And then lastly, most surprisingly, is

the role that China played. So China actually curbed its demand for

oil on the global market. It didn't stop consuming oil, but it

stopped building its reserve, which it had been doing for some time, and

started using its reserve. It put uh, uh, restriction on the export

of product markets, so it had more product inside of China.

And overall Chinese demand for globally traded oil came down by almost 4 million

barrels a day. So those three things were really

important, along with the fact that the market was oversupplied when this all

started. Now I'll end on an important point,

which is that I am nervous that because the global system managed the disruption

of the last five months better than I think almost any of us could have

expected, there might be a complacency thinking, well, we can continue to

manage it that way. The oil market is in a different

situation today, in July than it was in February, March.

And some of those buffers have been whittled down to the point where, you

know, we can't be so confident that we can manage a similarly sized disruption

for a prolonged period of time. Explain that a bit more.

So reserves are lower. I imagine that's one huge factor.

Reserves and inventories are lower. That is certainly the case.

The Strategic Petroleum Reserve of the United States is at its lowest point

since 1984. Um, so that's very significant.

That's the strategic reserve. There's also commercial reserves.

And in the United States, the combination of these two kinds of

reserves are again at their lowest point since the 1980s.

And this is true in other parts of the world as well.

So we don't have that, that buffer to the same extent as we might have.

There's still you might say there's still hundreds of millions of barrels in

reserve. That's true.

But the market gets very nervous when that gets lower and lower.

And that oil isn't always in the right place.

But I'd say the other thing that may not be making it onto people's, you know,

uh, you know, radars quite as much as it could be.

We're all watching the price of crude, but it's really the refined markets that

have been more problematic and that are likely to be more problematic.

Again, I'm not saying we're going to be into a new long term disruption, but if

we are in something, you know, quite, uh, up and down over the next several

weeks or months, the refined product, the diesel, the jet fuel, all of that is

much more threadbare than it was before. And you have Gulf refineries and Russian

refineries that have been disrupted. And that's putting pressure on global

markets and the refined products. This is the so-called crack spread.

And the president claims that gas companies are not lowering their prices

in tandem with the price of oil. Explain why that's not really what the

culprit is. And in the circumstances you say there's

been infrastructure that's been destroyed.

Why is there such a yawning gap now between the price of oil and these

refined products? Well, it's part because refined products

need to be. They need to be refined.

Right. So you have to have of the refineries,

import the the product and then refine it.

And then it's a whole nother, uh, uh, supply chain.

So it's we've got the upstream which people tend to focus on with the

president is sort of focusing on. And then there's the downstream, which

is a whole different set of actors in many cases.

And they have been, you know, useful in modulating how much demand they have

had. Um, but they come off in on line

depending on seasonal variables and depending on, in this case, things like

conflict. I mentioned the Gulf in Russia, like

those refineries are coming off because of unanticipated consequences.

So I think that's part of the reason why these are two different markets that

need to be understood separately. Let me close by asking you about

alternative energy and sort of how that conversation may be changing as a result

of what's happened in the Middle East. And you've written a lot about how there

will be kind of a radical, immediate shift to these forms of alternative

energy. We'll see them kind of continue in

tandem. Um, how has it changed the conversation

surrounding alternative energy? Yes, in the US, but but around the

world. I think, you know, the the impact on the

energy transition or the movement towards a cleaner global energy supply

is really right now ambiguous. We can see it cutting in both ways in

some places. Well, I'd say in every place there's a

new premium on energy security. You know, we've been reminded these

chokepoints still matter, that even if you're integrated into the global

market, there's still the potential of disruption.

And while it has been managed very nicely in OECD economies, in many parts

of the world, in the global South, this has been much more severe.

So in many economies, the desire is going to be to focus on energy security.

In some cases, that will mean alternative energy.

The best way of insulating yourself from the global market is to produce the

energy that you're going to consume. And so electrification makes a lot of

sense. Electricity is generally produced and

consumed in the same geography and often electricity can be produced by clean

sources, not always. Coal is also used to produce

electricity, but you may get a push towards electrification and that could

benefit the the energy transition in the move towards clean fuels.

On the other hand, you have countries and we're seeing this now.

They've had the second shock to LNG markets in the last two years.

Um, outside of the United States, where the price of gas has been natural gas

has been low. So in those places they're saying maybe

this LNG fuel, it's too volatile, it's too expensive.

It leads to potential product shortages. Coal is more reliable.

We need to focus on that. If you look at many of the policy

changes that governments around the world have made over the course of this

recent disruption, they have been towards subsidizing, uh, fossil fuels

and other policy measures that actually entrench fossil fuels in the global

energy mix. So it is a bit of a mixed bag.