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00:00We talked about this notion of energy price relativism, that the president seems perhaps pleasantly surprised that oil prices haven't
00:07climbed as much as maybe he feared they would, raising the specter of $200 a barrel of oil.
00:12Oil prices are higher, but we're not at 2008 prices, for instance.
00:16What do you make of what he's talking about there, the fact that the spike has been sizable but maybe
00:22not as bad as he and others might have feared?
00:23I think that's true. If you go back to 2008 or 2012 to 2014, prices were over $100 a barrel.
00:30If you put that in today's dollars, that's like $160 a barrel.
00:34So we haven't seen that, and there wasn't that same kind of disruption that we're seeing now.
00:38But the question is, is this still the relative calm before the storm?
00:42The longer this goes on, the more the risk on the upside grow because the impacts are being felt.
00:48The last cargoes have arrived in Europe, in Asia, and inventories are being drawn down.
00:53Is that what we're waiting for? Because my question is, why isn't it that bad?
00:56I'm confounded as a foreign policy person about the markets and their resilience and how any sign of life from
01:02these negotiations from the White House,
01:04they seem to look for any shred of evidence that things are going to be okay.
01:07Why is that happening?
01:08Well, you see a divergence between the financial markets, which, as you say, respond to the news, you know, a
01:13deal is near or they're going to negotiate,
01:15and the reality of people in Asia actually not having enough oil, shortages, rationing, businesses closing down, restaurants not operating
01:23because they don't have energy.
01:24So Asia is one area.
01:26Europe is starting to feel it, particularly jet fuel, and we're seeing it at the gasoline pump.
01:31But it's been there before.
01:34Talk a bit more about that, the pain that many people around the world are feeling.
01:38And, yes, we're fixated on the market price and futures and all of that, but there's a very real cost
01:43that's already taking effect here.
01:44And I'm curious sort of how you assess that level of pain.
01:47Well, I think what was, you know, I think one of the things that people didn't think about before this
01:52happened,
01:52if they thought about the Strait of Hormuz, they thought about oil.
01:55Maybe they thought about natural gas and LNG.
01:58They didn't think about fertilizer.
01:59They didn't think about helium.
02:01They didn't think about aluminum.
02:02They didn't think about petrochemicals.
02:04And it turned out that that region is much more integrated into the global economy because of all the economic
02:09development there.
02:10So it produces, what is it, about 30%, 40% of the world's helium, which you need to make semiconductors
02:19or MRI machines.
02:20So this is actually, unlike all the other things we were talking about in the last 20 years, this is
02:25a much bigger disruption to the global economy.
02:27But it's Asia because basically, economically, the Strait of Hormuz went east.
02:3380% of the oil, 90% of the LNG went to Asia.
02:37And that's where the shortfall is in ways that people really didn't model.
02:41I saw Fatih Biro at the International Energy Agency saying we were facing the biggest energy security threat in history.
02:47And I wonder if you agree with that assessment of the moment that we're in.
02:50I'm very curious what Dan Juergen's perspective is on this moment in the wider street of history.
02:54Yeah, I think this is the biggest energy disruption we've ever seen.
02:58But as you say, it's ironic that we're not seeing the full price impact.
03:02And so time is really the key factor here.
03:05When you look at this, is it so bad because geographically there's just really no alternative as there have been
03:12in some other conflicts?
03:13Obviously, there are pipelines that go out to the Red Sea, but you just can't get that volume through anywhere
03:18else.
03:19And as we've also been talking about, how concerned are you that this could be a chronic problem?
03:24Just because Iran agrees to something in the room doesn't mean they're going to change their minds if they've shown
03:29they have the capacity to shut this down.
03:30Yeah, there was, until this happened, there was a thing called the TSS, the Traffic Separator System,
03:35where people understood that, okay, in an orderly way, this goes this way, this goes this way.
03:41Now there's going to be uncertainty over it, and it raises questions not only about the straight,
03:45but it raises the question about freedom of seas on which the world economy and world trade really depends.
03:51So I think there's, we come out of this, there's going to be an uneasiness about it,
03:56and so much will be critical as to what the outcome will be.
03:59Will there be an actual system, an understanding of how this operates, or is it something that will fluctuate?
04:04We last spoke with you eight weeks ago, I think, at the beginning of this conflict.
04:08Right at the beginning, yeah.
04:08Yes, and it was on the eve of you.
04:09Oh, it was eight weeks ago. I feel like you were just here.
04:11Okay, sorry, continue.
04:12You are on the eve of going to run your conference in Texas, Sarah Week,
04:16and I'm very curious, with that in the rearview mirror, what those conversations were like.
04:20I imagine that your agenda had to be adjusted and changed as a result of what was happening in the
04:25Middle East,
04:25but what were the conversations like among executives that you had on stage and indeed had on the sidelines about
04:30this conflict?
04:30I think there are two things.
04:31One goes to what we were talking about, which is the sense that the market was underpricing risk the longer
04:37it goes on,
04:38and I think that was a very strong message.
04:39And from the company people, you heard they were focused on constraints, logistics, how do you get supplies,
04:45how do you make up for supplies?
04:47So they were not looking at what the futures markets were doing, expectations.
04:50They were saying, how do we deliver oil?
04:52The other big thing, of course, the theme of the conference was big tech meets the energy industry.
04:56Where are you going to get the electricity for all the AI development and what will be the sources?
05:02And so that was a theme that was in place before the crisis.
05:05But you could see, really, when it was late January when the military buildup started,
05:09and that prices were already rising before the war started.
05:12So what is the solution for that?
05:14I mean, as we talk about big tech data centers, this sudden spike in requirement coming at the same time
05:19there is an energy crunch.
05:21Green energy is not very popular right now.
05:23Alternatives are not very popular right now.
05:24Now, is that something that needs to be reevaluated?
05:27Do they need to reevaluate how they move this oil through the region?
05:30Is anyone talking about an alternative long-term plan so that we're not dealing with this every few years if
05:35this happens again and again?
05:36Well, I think out of this is going to come a bigger focus on energy security.
05:40And the Gulf countries themselves are going to say, what do we do to protect ourselves?
05:45What do we do in terms of investment within the Gulf and outside the Gulf?
05:49But I think that, you know, this is the first, you know, we're in the China EV era.
05:5520 percent of the cars built in the world this year will be EVs, and that's going to get a
06:00tick up from this, certainly.
06:02In our last block, we talked about the blockade, the utility of it, the degree it's weighing on negotiations that
06:07are unfolding.
06:07And I know that there's been some debate about what that, the presence of that blockade, the strait being effectively
06:13closed, is going to mean for oil prices going forward.
06:16We have the president of the United States saying, and I'm going to paraphrase him here, he's got all the
06:19time in the world.
06:21If that blockade persists, if we see the kind of stalemate that we have been seeing for three months or
06:26six months or whatever, what is the effect that's going to have here?
06:28Well, you know, of course, sitting here, it's hard to believe that it will last for another three months or
06:32six months.
06:32But a lot's happened that we already, this was all, war was going to be over in five days.
06:36I think there are two things.
06:38One is a question and the leverage point about how bad is the Iranian economy, how much strain can it
06:44take without the resources?
06:46And that's the bet of the U.S. blockade.
06:49I think the Iranian blockade, which it basically is, is that they can wage war in the world economy and
06:54the pressure will be so great that they'll come out in a better position.
06:58And in a sense, it's a clash between these two blockades that's unfolding now.
07:02We haven't talked about, sorry, on this point, we haven't talked about Karg Island in many weeks now,
07:07but that was something that was kind of looming as something the U.S. might do, try to take Karg
07:11Island or destroy Karg Island.
07:13Play out that scenario for us here, too.
07:15If things really go south in Islamabad, if there isn't any advancement in these talks,
07:19and President Trump, as he says, he will pursue his military action once again,
07:22targeting power plants and infrastructure and perhaps the refining capabilities of Karg Island, what does that mean?
07:27Well, Winston Churchill said once that once the war starts, what happens, whatever your plan is,
07:32what happens is unforeseeable and uncontrollable.
07:35And we're sort of in that state right now.
07:37I think Karg Island, as I understand, it's doable, but it's also very vulnerable from the shore
07:44because it's fairly close in and Iranian artillery and drones and so forth.
07:49I think one of the factors here that is new is that really the new form of warfare
07:53that was really beta tested in Ukraine is now being played out in the Gulf region,
07:58and that would affect decisions about Karg Island.
08:01These are the cheap drones and other, yeah.
08:03Yeah, cheap drones.
08:04And we were talking about it. It's been fascinating to see this pivot for Vladimir Zelensky.
08:07He's had a good run of luck with Orban being ousted in Hungary and getting new allies in the Gulf
08:12as he's in Saudi and visiting the region and then trying to—
08:15Well, to paraphrase, he has some cards now.
08:16He does indeed.
08:18I want to go back to something you were saying earlier.
08:20When you look at these two economies, you're talking about the Iranian economy and how long they can last,
08:24but there's another issue here, and that's the U.S. economy.
08:27And we were just talking against the Admiral about wars of attrition.
08:29When you look at who can outlast if this becomes a waiting game, you've got the very serious streets the
08:35Iranian economy is in.
08:36But you've also got some not happy American consumers and a midterm coming up and a president and a party
08:41who wants to get reelected.
08:42If this lingers into the fall, who blinks first?
08:45Well, we certainly know that there's one thing—we see it every two years, every four years, that gasoline prices really
08:53matter,
08:53and they really matter at the polls.
08:54And clearly that's in everybody's calculations right now.
08:58But you look at the position of the U.S. economy, we're going to grow, what, 2 percent or more
09:03this year.
09:05And I think this is one of the things that the financial markets are so driven by what's happening with
09:10AI, data centers,
09:11that vast, is it going to be $800 billion or a trillion dollars of investment this year,
09:15that that's bolstering the overall economy.
09:18Obviously gasoline prices remain—it's the most sensitive political price in this country.
09:22But our economy overall is, you know, is the envy of many other people,
09:28and Iran's economy is actually in shambles.
09:31Let me put an unfair question to you as the last one.
09:33I know you're not an expert on monetary policy, but we have a Fed that's adamant they can kind of
09:36see through this conflict,
09:37or they said that at the beginning of it.
09:39How difficult does that become if this conflict persists?
09:42In other words, what's the effect going to be on inflation in the economy?
09:44Well, I think the question is, were we in an inflationary period beforehand for a lot of reasons,
09:49including the amount of expenditure and so forth, what's happened to supply chains?
09:53Once you build energy security resilience in that as cost,
09:57and then simply all the inflationary impacts that come from these higher prices.
10:01And so in order to see through inflation through this period, you're going to need really good glasses.
10:08You're going to need really good glasses.
10:09We will leave it there.
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