AVOID HORMUZ

“Oh, that's a rough one. So if you'd said April Fool's Day, I would have said yes. To me, I think that this has got at least another couple of weeks in it. It wouldn't shock me if tomorrow we woke up and there was reports that we're done for now. We've reached that kind of ceasefire. So I'd say about another two weeks or so of this. And then again, my scenario, my baseline is we get to a kind of unresolved ceasefire that then lingers for some period of time.”

“So the risk is that the current incumbents have invested a large amount in their AI infrastructure, in data centers, in trillions of dollars, in the hope that they will be able to raise revenues that can explain, justify these level of investments that they're making. That is completely unclear because you could very easily have another competitor come in and produce the same product or pretty close to the same product, a fraction of the cost, given how the technology is evolving. Then the current incumbents can't really make the money they're expected to make to justify their investments.”

“Now if this continues and the fact that we are still here with no ships going through the Strait Of Hormuz, regardless of the fact that there's no bombs necessarily falling, but the fact that shipping has basically come to a standstill through that Strait has much more durable implications than what would be there in the reference scenario. And so the IMF provided what they called an adverse scenario, which is when we are looking at oil averaging about a $100 a barrel for this year as opposed to the assumption in the reference scenario, which is more like $82 a barrel.”

“And we really haven't seen any of those things. We've seen some cheap drones and a small number of incidents targeting ships for insurers and shipping companies, who then decided it's unsafe to cross the narrowest S-curve of the waterway. So from the looks of it, from a military standpoint, the IRGC has essentially weaponized commercial risk aversion, rather than actually imposing a blockade.”

“One of the main risks attached to US LNG is the price risk because most of US LNG is actually priced on Henry Hub. I know what my friends in the US LNG industry are going to tell me. No problem, Anne-Sophie, don't worry. There is plenty of gas available at $3 or $4 per MBtu. Maybe they're right, but I think this is still a very significant risk that a lot of buyers are thinking about. And the second thing that buyers are thinking about is diversity. And given that I teach energy security, the very first thing that I teach my student is diversity, diversity, diversity, diversity.”

“We may be very soon in a situation where the incremental LNG supply in 2026 is actually going to be zero. The worst-case scenario would be, in my opinion, if LNG liquefaction plants in Qatar are not restarting at all during 2026, which would mean that we would be roughly back to where we were in 2021 in terms of global LNG supply. So, that would be a very substantial shock to the global LNG market.”

“The downside is, of course, this is going to make many more countries and economies, at least in the medium term, susceptible to political and economic pressure from China because China is the country that has a real dominance over clean energy supply chains. So again, the energy weapon is back, but it's not just the old weapon. It's not just oil and gas. It's also weaponization of clean energy supply chains.”

“The US is doing incredibly well because of where it is in the AI race. I mean, it is at the front. China is also up there pretty close. Outside of these two countries, there are not many other regions of the world that have this much of dynamism when it comes to AI. And if you look at 2025 and growth in 2025, basically, AI, you know, offset the drag that came from tariffs, right, almost one to one.”

“The lesson of the Red Sea and the lesson so far in Hormuz is that, you don't have to hit every ship. You don't have to hit even 1 percent of ships. You just have to hit a ship now and then to make people not want to fully return to this environment.”

“But as the longer story goes, Russia made some bad choices. Its decision to invade Ukraine has been tremendously costly. It has led to an allocation of resources to this war economy, and that's affected their productivity, that's affected the more critical investments that they need to make, and it's also affected the number of people who are staying in Russia and willing to work and contribute to the country. There's been this exodus of people out of Russia. So for all those reasons, you know, this is not going to end well.”

“Take the example of Sri Lanka. Sri Lanka was a country that went through a very bad crisis, was on the path of recovery. This kind of a shock is like a nightmare situation for a country like that, which is just trying to get out of the crisis that it had with fuel prices the way it is, with fertilizer prices going up. More generally, with jet fuel prices going up, which means travel is going to become much more expensive, which means tourism is affected in the region. Countries like that, Pakistan is another country that is in a fragile situation with everything that's going on.”

“But in Venezuela, President Trump very explicitly said, this is about taking control of the oil. And to me, it was harkening back again to a very old frame of thinking, but it also didn't really make sense to me. In a world where the price of oil was bumping along at $65 and American producers were struggling to make ends meet with such a low oil price, to claim that we should use American military prowess to try to bring more Venezuelan oil onto the global market. I didn't see how that made sense for America commercially, except in the one narrow sense, which is not insignificant, but keeping China and Russia from really having the ability to develop Venezuela's oil.”

“I don't know if you saw the headlines today, that the UAE have decided to pull out of OPEC. That's just another contributor to volatility. I mean, on the plus side, you could see that it may prevent having a high price floor on oil. But one of the things that OPEC did was prevent a large amount of volatility in these prices. And if the UAE pulls out, you could have a lot more volatility.”

“I think energy independence is going to be critical. And thankfully, for many countries in the world, there are alternatives. I mean, there are renewables that one can invest and develop even more. I mean, Sri Lanka with, you know, solar can do great. So energy independence, I think, is very doable for countries. The cost of doing it in terms of just the inputs that are required is cheaper, much cheaper than it used to be.”

“It's really crunch time for the Houthis. You know, they probably, like the rest of us, can tell that the Iranian regime has a good chance of surviving this. And we're going to see in the next 12 hours whether they take shots at the US carrier group, there's going to be no better chance to hit a US aircraft carrier, you know, in this entire crisis than what's about to happen now with the straight transit down in the Red Sea. If you want to create that iconic image of a US aircraft carrier on fire, now is the time to do it.”

“Taking Kharg Island, taking parts of the Iranian shoreline, maybe stops those particular jurisdictions from being areas with which the Iranians can manage the straits. But Iran's missiles are longer range than that. Iran's drones are longer range than that. You're going to have to go a fair ways inland to try and stop Iran from being able to launch missiles. And I'm not sure the US is prepared to have 2,500 Marines going that much further inland to try and chase missile sites on the shore of the Persian Gulf.”

“South Pars, this is the largest gas field in Iran. It's accounting for about 70% of their gas production. It's actually the same gas field as what we call the North Field in Qatar, because this is the same infrastructure. And in fact, this is the largest gas field in the world. But gas is very important for Iran's economy. This is about, actually, 70% of their primary energy consumption. And almost 90% of their electricity is coming from gas. So you can understand that if you are attacking South Pars, you are really attacking the Iranian energy system and its economy.”

“In many Southeast Asian countries for which, I mean, gas be above $10 per MBTU is already pretty expensive. So at 20, of course, this is outrageously expensive. So we might see a lot of other countries thinking a little bit like Pakistan and turning pleasingly towards renewable while keeping coal at the same time. So basically skipping the LNG stage, which is exactly what I think a lot of LNG exporters, including in the US, this is exactly what we're thinking will not happen.”

“But as the longer story goes, Russia made some bad choices. Its decision to invade Ukraine has been tremendously costly. It has led to an allocation of resources to this war economy, and that's affected their productivity, that's affected the more critical investments that they need to make, and it's also affected the number of people who are staying in Russia and willing to work and contribute to the country. There's been this exodus of people out of Russia. So for all those reasons, you know, this is not going to end well.”

“And if it gets even worse, and we are looking at oil averaging $110 a barrel this year, and this is a much more disrupted situation with bigger hits to energy infrastructure, which means next year too, oil is going to stay very high and financial conditions get a whole lot worse. Then we're looking at the world economy growing at 2%, which again, those are extremely rare occurrences. So the risk seems squarely to the downside at this current point.”

“The first one is bringing back Russian gas through Ukraine. Not an easy one, because I can imagine the discussion with President Zelensky. So by the way, we need to bring Russian gas back. You can imagine how well that would go. The second one would be to bring back Russian gas through Belarus and then landing in Poland. Given that Poland was the first country cut by Russia in April 2022, it's not going to be easy. And the third option would be to restart the only part of the Nord Stream pipeline, which has apparently not been impacted.”

“My worst case scenario on the supply side is that we go again for an over attack on Cargaylon or South Pars and then as a retaliation, there is more damage being done on the LNG facilities in Qatar, which is impacting not only the existing ones, but also the ones which are under construction, which basically means the LNG oversupply story, that's gone forever. But I do hope that a full destruction is not going to happen, because otherwise people are going to start calling me Cassandra, which I don't want to happen.”

“I think energy independence is going to be critical. And, thankfully, for many countries in the world, there are alternatives. I mean, there are renewables that one can invest and develop even more. I mean, Sri Lanka with, you know, solar can do great. So energy independence, I think, is very doable for countries. The cost of doing it in terms of just the inputs that are required is cheaper, much cheaper than it used to be.”

“I think they want four things. Thing number one is they would also want unimpeded access to be able to sell oil. And it goes to the second thing, which is I think the Iranians would look for some kind of sanctions relief. I think third, they'd be looking for some kind of non-aggression assurance. This is going to be the biggest one of all because there's no real way of verifying it. Then I think the fourth big thing is they'll be looking for some broader regional security arrangement, at least discussions along those lines.”

“And if it gets even worse, and we are looking at oil averaging $110 a barrel this year, and this is a much more disrupted situation with bigger hits to energy infrastructure, which means next year too, oil is going to stay very high and financial conditions get a whole lot worse. Then we're looking at the world economy growing at 2%, which again, those are extremely rare occurrences. So the risk seems squarely to the downside at this current point.”

“An attack on Ras Laffan, this has always been my nightmare, my Armageddon scenario. I mean, I give that as a case study to my student at Sciences Po. So just to say how much I am worried about that. And apparently, well, I was wide to be worried. We can estimate that there has been one megatrans and one of the smaller LNG facilities. It's certain that the damage has been relatively extensive because I don't think the CEO would have said something like it's going to take three to five years.”

“Take the example of Sri Lanka. Sri Lanka was a country that went through a very bad crisis, was on the path of recovery. This kind of a shock is like a nightmare situation for a country like that, which is just trying to get out of the crisis that it had with fuel prices the way it is, with fertilizer prices going up. More generally, with jet fuel prices going up, which means travel is going to become much more expensive, which means tourism is affected in the region. Countries like that, Pakistan is another country that is in a fragile situation with everything that's going on.”

“And if it gets even worse and we are looking at oil averaging $110 a barrel this year, and this is a much more disrupted situation with bigger hits to energy infrastructure, which means next year or two, oil is going to stay very high, and financial conditions get a whole lot worse, then we're looking at the world economy growing at 2%, which, again, those are extremely rare occurrences. So the risk seems squarely to the downside at this current point.”

“I mean, certainly Russia and the former Soviet Union, I would say, has thought about stirring up geopolitical tensions as a way of increasing the price of oil. This has been documented for people who are historians and have looked through the Politburo notes from the end of the Soviet Empire, that it was actively debated whether the Soviet Union should stir up problems in the Middle East simply to increase the price of oil. So I wouldn't go so far as to say that Russia had any particular hand in instigating this phase of this conflict. But I agree with you that for the moment, Russia is really benefiting from this.”

“It's pretty clear it's in the interests of the United States, as well as basically the entire world economy, that the Strait of Hormuz has simply got to be open for energy transit. And so, you know, there's really only two ways this is going to happen. Either with an agreement of some kind of a deal that the Iranians need to agree to, so just us unilaterally saying we're done, but Iran doesn't stop, doesn't seem like that works, or Hormuz is going to remain disrupted until it is pushed open by force.”

“I learned recently that nylon and polyester come from petroleum products. So the price of thread has doubled in Bangladesh. We know that universities have been shut down in many countries in South and Southeast Asia. The Philippines declared a national energy emergency. Many airlines around the world, but many of them specifically in Asia, are cutting flights because jet fuel prices have doubled.”

“Iran is still able to utilize the long-husbanded resources that they have to threaten access to the Strait of Hormuz and thereby global energy supplies, to threaten financial centers in Dubai, to threaten even just population centers, whether they're in Israel and Gulf of Arab States or so forth, and certainly US forces operating too. So more than anything, I think what the current situation shows is that Iran still has the ability to throw its weight around, to throw a force around, and to try to impose real costs on the United States for this campaign. The Iranians still have a lot of capabilities, not necessarily to win, but to persevere. And persevering might be enough to really risk US interests long term.”

“I think energy independence is going to be critical. And thankfully, for many countries in the world, there are alternatives. I mean, there are renewables that one can invest and develop even more. I mean, Sri Lanka with, you know, solar can do great. So energy independence, I think, is very doable for countries. The cost of doing it in terms of just the inputs that are required is cheaper, much cheaper than it used to be.”

“The obvious energy shock that we compare it to are the shocks of the 1970s. 1973, the oil embargo where Arab members of OPEC declined to export their oil to the United States and other supporters of Israel in the 1973 war. But they also started to take oil off the market, the absolute amount of oil that was on the market. So, percentage wise and the physical number of barrels that were taken off the market in 1973 is considerably less than is happening today. As you and your listeners will have heard over and over again, this is the biggest supply disruption that we've ever seen.”

“And if you look at 2025 and growth in 2025, basically, AI offset the drag that came from tariffs, right? Almost one to one. So that was the positive effect that came from AI. And what's interesting is you see that despite everything that's happened over the last 24 months or so, the US remains the part of the world where people want to hold equities. So if you look at the net capital inflows into the US in 2025, that was at a record high.”

“There are lots of reasons to think we might be in an AI bubble. For one, the simple reason, again, now we're back to U. S. Stock markets being driven by basically the AI stocks. Those are the ones that are leading the run up in stock valuations recently. And so the risk is that the current incumbents have invested a large amount in their AI infrastructure, in data centers, in trillions of dollars, in the hope that they will be able to raise revenues that can explain, justify this level of, you know, investments that they're making. And that is completely unclear because you could very easily have another competitor come in and produce the same product or pretty close to the same product, a fraction of the cost, given how the technology is evolving.”

“So India, among the major economies, India is being affected because of its heavy reliance on The Middle East in terms of imports of oil, also liquefied petroleum gas, which is LPG, which is what goes into cooking purposes. There's also a reliance on The Middle East just as a hub for sending their goods to other parts of the world. Also reliance on remittances from the region. So there are multiple channels through which India gets affected. And I think what we're seeing most directly is the effect that's showing up in terms of pressure on the currency because the expectation is that as the import bill grows, the current account deficit grows, and in the absence of strong portfolio inflows into India, that's gonna put pressure on the rupee.”

“I don't think the United States is asking for partners to come in because we lack the physical capabilities to target the Iranian missile launchers, drone fleets and launching points, mine layers and those sorts of things. I think the real reason why you want to bring in a coalition is you want ships that are not party to the conflict to be escorting other ships through in hopes that the Iranians won't attack them. It's also possible the Iranians would try and negotiate with those countries individually for safe passages, apparently has been underway with India, maybe underway with Pakistan as well.”

“Well, I would say it never went away. It just kind of receded to the background. And part of it allows me to pick up where I left off with this, the 1970s and the reaction of the world to becoming more integrated, to building up the global market in a way that oil became the most easily traded commodity in the world. So this is a very flexible global market that you can buy and sell pretty much in any part of the market, and the market will help that barrel of oil find its way to the most efficient destination. So this evolved over time, and it made the prospect of using energy as a weapon less attractive because the market could defuse the shock of cutting off a single supplier.”

“But we've been talking about how sobering all this is. Everybody, the thing is, everybody knows it's sobering, including the combatants. And as a result, that's why I kind of feel like this thing is going to fizzle within the next six to 10 days. I think the overall cost of this conflict to all involved is going to mean everyone finds a way to off ramp, I think within the next two weeks.”

“And if you look at 2025 and growth in 2025, basically, AI offset the drag that came from tariffs, right? Almost one to one. So that was the positive effect that came from AI. And what's interesting is you see that despite everything that's happened over the last 24 months or so, the US remains the part of the world where people want to hold equities. So if you look at the net capital inflows into the US in 2025, that was at a record high.”

“I learned recently that nylon and polyester come from petroleum products. So the price of thread has doubled in Bangladesh. We know that universities have been shut down in many countries in South and Southeast Asia. The Philippines declared a national energy emergency. Many airlines around the world, but many of them specifically in Asia, are cutting flights because jet fuel prices have doubled.”

“I think an interesting thing to watch in the next 24 hours is going to be the movement of the Ford Battle Group through the Red Sea. You can see that the Ford carrier has come down from the Med through the Suez Canal, and right now it is siking itself up around Jeddah for a run through the Red Sea and through the Babel Mandip Strait to get out into the Indian Ocean to come down to the Gulf. This is, if you think about it, a miniature dry run of what we are about to do in Hormuz potentially, which is to say a bunch of US ships have got to move past the hostile coastline, in this case Yemen's coastline with the Houthis, against a lesser set of capabilities than the Iranians have and they've only got to do it once.”

“Take the example of Sri Lanka. Sri Lanka was a country that went through a very bad crisis, was on the path of recovery. This kind of a shock is, like, a nightmare situation for a country like that, which is just trying to get out of the crisis that it had with fuel prices the way it is, with fertilizer prices going up. More generally, with jet fuel prices going up, which means travel is going to become much more expensive, which means tourism is affected in the region, countries like that. Pakistan is another country that is in a fragile situation with everything that's going on.”

“Well, the war was already the war that Russia was waging against Ukraine was already taking a toll on Russia before this conflict came about. So actually, in the absence of this conflict, they would have been in much worse place because of what's happened with the oil prices going up and the fact that countries are being allowed to go and buy from Russia. But as the longest story goes, Russia made some bad choices. Its decision to invade Ukraine has been tremendously costly. It has led to an allocation of resources to this war economy, and that's affected their productivity.”

“I also think at some point, maybe not this time, but in the next couple of iterations of this, we're going to get a change of regime in Iraq. At that point, Hormuz won't just be better, it will be awesome. We won't have a webisode like this ever again. I think it's about getting through, it's darkest before the door. We're probably not going to see a change of regime this exact time, maybe. We could still, but the regime is circling the drain faster than it was before this crisis, I think.”

“Don't worry, oil industry, we're nearly there. You can see that I think he recognizes the easiest way to end the risk to Hormuz might be to simply end the war, rather than to throw the US Navy in there.”

“When Iran shut the Strait of Hormuz, Trump said, who knew they'd do that? Well, his own Director of National Intelligence, Tulsi Gabbard, told a Senate hearing that that was exactly the assessment of the entire intelligence community. Trump said nobody expected Iran to attack the Gulf states if it were provoked. Wrong again. Multiple former policymakers have told me this is exactly what was expected in war games. Experts sometimes get it wrong. You still need them in the room.”

“When it started back in the 80s, and we did the tanker reflagging during the Iran-Iraq War, when Iran was attacking Iraqi and Gulf tankers, we were deploying about 30 surface vessels, we being the US, out of 268 If we deployed the same number of vessels today, we would be deploying them out of only 111 US surface naval vessels. So it's a far heavier lift for today's downsized US Navy than it was back in those days, and the US Navy is facing a much more advanced anti-shipping threat than they were back then.”

“And the reasons for this goes back to the time that I spent in Iraq. I spent about two years in Iraq immediately after Saddam fled, and then throughout the years that followed off and on. And America's 2003 war in Iraq was about primarily weapons of mass destruction. It was not about getting control over Iraqi oil. But to this day, most Iraqis, when they try to make sense of the American intervention, they come back to oil, that it must have been about Iraqi oil. So, in a world where President Trump said over the weekend, he wishes he could just take the oil. That's what he'd like to do if the American people would allow him to. I think this is going to be rhetoric that we're going to hear throughout Iranian politics for a long time to come and not to America's benefit.”

“I don't know if you saw the headlines today, that the UAE have decided to pull out of OPEC. That's just another contributor to volatility. I mean, on the plus side, you could see that it may prevent having a high price floor on oil. But one of the things that OPEC did was prevent a large amount of volatility in these prices. And if the UAE pulls out, you could have a lot more volatility.”

“Look, I've described it as a tacit bargain. I'm not the only one who has. That between the parties, they've decided that this is an area they didn't want to go into, and for reasons. Both the US and the Iranians have an interest in these energy facilities maintained. The Iranians want there to be a future for them, and to be able to continue exporting oil in the long term. The United States wants the Iranians to not unleash what they could on oil and gas infrastructure on the western side of the Gulf.”

“We call it the Iran shock and the dangerous illusion of energy autarky, which is the idea that many countries are probably feeling, wow, exposure to this global market is dangerous, and we want to pull away from this global market. Now that could manifest itself in a number of ways. If you're China, it might mean you're going to stockpile energy. We actually saw Fatih Barul, the Executive Director of the International Energy Agency, just in the last day or so, warring countries, none by name, but warring countries generally don't stockpile. This is going to worsen the crisis.”

“When the president says they want to make a deal and people are talking about an agreement, I think what people would find radically quickly is that a deal is a lot harder to structure. I think coming up with an actual negotiated solution is probably beyond the parties at this point. What's much more likely is we're just going to collectively be done here kind of decision. It's not a deal, it's not a military solution, it's just we're done here for a moment, and that's just going to create a whole lot of tension, probably lingers for quite some time in the Gulf and beyond.”

“When you are looking at the shareholding of the LNG liquefaction plans, you can see that besides Qatar Energy, there is a name which is popping up again and again. This is Exxon. And when there was an attack on Karagaylon, I think the Iranians were pretty clear that the retaliation should the oil facilities be attacked would be on energy infrastructure with the US shareholding. So for me on the gas side, the first in line was Ras Laffan. The second thing is that impacting the global LNG market is impacting a lot of different countries in Asia and in Europe. And by doing so, I think maybe the Iranians are thinking, we want to do a little bit of divide and rule game.”

“So the risk is that the current incumbents have invested a large amount in their AI infrastructure, in data centers, in trillions of dollars, in the hope that they will be able to raise revenues that can explain, justify these level of investments that they're making. That is completely unclear because you could very easily have another competitor come in and produce the same product or pretty close to the same product, a fraction of the cost, given how the technology is evolving. Then the current incumbents can't really make the money they're expected to make to justify their investments.”