A new toll on global energy: Can Iran permanently control the Strait of Hormuz?

Summary

ENERGY GANG | May 12, 2026
“A new toll on global energy: Can Iran permanently control the Strait of Hormuz?”

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Episode Overview

In this episode, host Ed Crookes (Wood Mackenzie) is joined by Amy Myers Jaffe (NYU), Chris Avisano (Wood Mackenzie, maritime partnerships), and Eddie Fishman (Council on Foreign Relations, author of Choke Points) to unpack the global energy and security consequences of Iran’s ongoing control of the Strait of Hormuz. With the situation in the Gulf fraught and the future uncertain, the discussion explores the real-time impacts on shipping, the economics of “choke points” in energy, the U.S. geopolitical conundrum, oil market risks, and whether the world can adapt—or must accept—a new energy normal.

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Key Discussion Points & Insights

1. The Situation in the Strait of Hormuz (11:41 – 19:00)

• Ongoing Disruption: Despite a nominal ceasefire, attacks on ships and port infrastructure persist. Several incidents have highlighted the vulnerability of ship transits—including US-flagged, Chinese, and French commercial vessels.

  “It is very much an evolving and almost case by case situation.”
  — Chris Avisano (11:41)

• Shipping Industry Response:

  • Traffic through the Strait has dropped dramatically (from ~150-170 to 10-25 daily transits).
  • Ship owners/operators are pragmatic, adapting quickly and making seafarer safety and insurance prime priorities.
  • Some ship captains shut off transponders (“going dark”) to evade detection or attack—particularly for LNG shipments.
  • Insurance is increasingly difficult to secure, especially if delays extend beyond initial coverage limits, creating mounting pressure.

  “Once we've gotten past this initial kind of shock to the system, now it's just part of the system.”
  — Chris Avisano (13:02)

  “People are sort of taking this strategy of turning off their responders and kind of hoping for the best...”
  — Amy Myers Jaffe (15:55)

2. The Policy & Strategic Dilemma for the U.S. (21:43 – 24:10)

• Fishman delineates the US government’s impossible choices:

  • Door 1: Cut a deal with Iran, allowing Iranian control and potentially accepting their role as global energy gatekeeper.
  • Door 2: Escalate militarily (akin to Iraq 2003), which is politically unviable and extremely costly.
  • Result: A deadlock—neither option is palatable, U.S. policy “shuffles its feet,” unable to act decisively.

  “Door 1 is humiliating and a loss. Door 2 is politically impossible and extremely risky. So... you just fumble around and shuffle your feet and don't go through either door.”
  — Eddie Fishman (00:00; recapped at 24:10)

  “To the extent we still have an international order, it's really one of the core pillars... that the United States is guaranteeing open sea lanes.”
  — Eddie Fishman (22:09)

3. The Economics & Practical Realities of the Blockade (26:54 – 37:42)

• Oil Price Paradox: Despite massive supply disruptions (10% of global oil, 3% of global gas, 20% of global LNG), prices haven’t skyrocketed as some predicted; explanations include:

  • Existing surpluses
  • Release of emergency stocks
  • Lag in the market absorbing the full supply shock due to logistics and refinery cycles

  “We have not seen yet the actual disruption in the physical market. My feeling is whatever it is that you're describing, Ed, is actually about to happen.”
  — Amy Myers Jaffe (00:13, 26:54)

• Market Psychology:

  • Trump administration’s rhetoric has “talked down” market panic.
  • Investors burnt by betting against Trump’s previous market optimism are hesitant to act.
  • Buffers like crude stocks and shadow cargoes are running out; a crunch looms if the Strait remains closed.

  “The market can stay irrational longer than you can remain solvent.”
  — Eddie Fishman quoting Keynes (31:32)

• Iran’s Oil Industry Resilience:

  • While some argue field shut-ins could cause long-term damage, past experience shows Iran recovers quickly from low output.
  • Authoritarian regimes can often weather economic catastrophe (Venezuela, Syria), and military force, not sanctions, has historically triggered regime change.

  “I've never seen a magic bullet like that where if only you stop them from selling oil for a few weeks and everything goes to hell.”
  — Eddie Fishman (37:48)

  “America's economic arsenal has demonstrated that it can inflict tremendous damage, but that has not proven that it can reliably advance U.S. strategic goals.”
  — Eddie Fishman, read by Amy Myers Jaffe (38:47)

4. The Toll: Iran’s New Leverage (39:41 – 42:46)

• Why Iran Can Sustain Control:

  • Drones/missiles are cheap and hard to eradicate.
  • Even minor attacks have created effective paralysis for most traffic.
  • Iran is now charging “tolls” on transiting ships—potentially collecting tens of billions annually, with little incentive to stop.
  • The private sector may prefer paying the toll over blockades or military conflict.

  “If they're charging $2 million a ship... that's $1 a barrel... For the Iranians... they're making somewhere between 30 and $100 billion of additional revenue every single year.”
  — Eddie Fishman (39:41)

  “The Iranians have a huge incentive to keep it. The private sector... has an incentive to accept it because it's actually not that costly.”
  — Eddie Fishman (41:24)

• International Community’s Inertia: No appetite (especially in the US, Europe, China) for military intervention or paying the costs of being the “world’s policeman.” Iran’s control is now a likely semi-permanent feature.

  “I think the Iranians are going to be able to keep this just because... there's a huge incentive for them to keep it. I don't and I don't see anybody stopping them.”
  — Eddie Fishman (42:46)

5. Global Energy Adaptation: Infrastructure, Alternatives & Efficiency (50:42 – 58:47)

• Long-Term Workarounds:

  • Suggestions to bypass the Strait via new pipelines (across Saudi Arabia, to Jordan/Mediterranean, UAE to Gulf of Oman), but this is a multi-year, hundred-billion-dollar solution.
  • Rerouting of exports already pushing volumes into alternate routes (Yambu at 4.5 million barrels/day vs prewar 735,000).

  “It's going to take a lot of time...To build all this infrastructure, what are you going to need? You're going to need steel, all manner of commodities that are going to come in through the Strait of Hormuz.”
  — Eddie Fishman (52:25)

  “Shipping is built on efficiency. And right now ships are inefficient in the sense they're not doing the optimal route.”
  — Chris Avisano (56:47)

• Demand Destruction & Fuel Switching:

  • Asian countries restarting coal plants due to LNG shortages.
  • Renewables and AI are also shifting demand profiles, with efficiency gains possible but offset by surging AI-driven power needs.

  “One of the things that AI really enables is energy efficiency... reducing the need for fuel. All kinds of things can be done more easily now with the digital world than you could do in the 70s.”
  — Amy Myers Jaffe (57:55)

  “Unless all of this AI infrastructure uses all the energy that's needed elsewhere. That... is a double-edged sword."
  — Chris Avisano (58:47)

6. Financial and Geopolitical Leverage: The Dollar & De-dollarization (59:01 – 65:29)

• The Dollar's Power:

  • The dollar remains the dominant medium for global reserves, trade, and settlements (90% of FOREX txns).
  • US can wield outsized influence and apply “economic warfare” without blockades, simply by threatening counterparties’ access to dollars.

  “The dollar is the dominant currency across all use cases of money.”
  — Eddie Fishman (59:29)

• China’s Efforts to Dethrone the Dollar:

  • China is working to shift trade into RMB but has only achieved about 30% of its own trade in RMB.
  • Central bank digital currencies and stablecoins are emerging, but most are USD-pegged, ironically entrenching the dollar further.

  “All stablecoins are pegged to the dollar... Even if you're say, tether... they're now one of the top 10 biggest buyers of US treasuries... they're actually just entrenching US dominance of the financial system.”
  — Eddie Fishman (63:35)

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Notable Quotes & Memorable Moments

• “Can the IRGC remain defiant longer than the world economy can stay solvent?”
  — Ed Crookes (00:29, 35:24)

• “The New York Times actually finally interviewed people from Iran's oil sector and some of them said what I'm about to say, which I've been saying. ...They re-inject natural gas into their aging fields... And they need South Pars to do that. ...The expense that the Iranians would have to bring their fields back online if they start having to really shut them in could be quite large and there could be in some cases some damage to the fields.”
  — Amy Myers Jaffe (32:40)

• “There's no magic bullet...These authoritarian regimes are really hard to dislodge...what did it take to get those guys out of power? It took military force.”
  — Eddie Fishman (37:48)

• “America's economic arsenal has demonstrated that it can inflict tremendous damage, but that has not proven that it can reliably advance US strategic goals.”
  — Amy Myers Jaffe, reading from Choke Points (38:47)

• “Where the keel hits the water—that's where shipping lives in this. We're starting to see this reality.”
  — Chris Avisano (56:44)

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Key Timestamps

• (11:41): Update on shipping in the Gulf; evolving risk and traffic levels
• (16:10): Tactics—ships going dark, insurance dilemmas
• (21:43): US dilemma and options for response
• (26:54): Oil market resilience and looming risks
• (39:41): Iran’s "toll" strategy and its incentives
• (50:42): Prospects for massive bypass infrastructure
• (59:01): The dollar’s role, de-dollarization, and geopolitical risk
• (63:35): Stablecoins, digital currencies, and the persistent strength of the petrodollar

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Takeaways

• Iran’s effective control of the Strait of Hormuz is now exerting real tolls—both financial and strategic—on the global energy system, and there is little sign of an imminent change.
• The shipping industry and the market are adjusting pragmatically, but huge risks lurk if the situation persists.
• The US and its partners are caught between impossible choices, and the world may have to accept a fundamentally altered energy and security landscape.
• Investment in alternative infrastructure, efficiency, and energy diversification is underway but won’t offer immediate relief.
• The dollar remains the most formidable “choke point” in global trade and finance—even as new digital instruments shift some transactional patterns.

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This episode is a must-listen for anyone looking to understand the intersection of geopolitics, energy markets, and the evolving architecture of global trade in the wake of a major crisis.

Transcript

[Eddie Fishman]

Door 1 is humiliating and a loss. Door 2 is politically impossible and extremely risky. So if neither door one or door two looks good, you kind of just fumble around and shuffle your feet and don't go through either door.

[Amy Myers Jaffe]

We have not seen yet the actual disruption in the physical mark. My feeling is whatever it is that you're describing, Ed, is actually about to happen. If the straight doesn't open back up,

[Ed Crookes]

can the IRGC remain defiant longer than the world economy can stay solvent? Right. That's kind of the debate we're into now.

[Chris Avisano]

We saw a handful of LNG ships do that, where the ships went dark at a certain spot and one showed up on the other side of the world, you know, a couple weeks later.

[Ed Crookes]

Meeting rising energy demand will require every reliable, scalable source of power available, including nuclear. Bechtel has been at the forefront of nuclear energy for more than 70 years, helping design, build and deliver projects that have shaped the industry around the world. From the first generation of reactors to today's advanced nuclear technologies. Bechtel continues to help bring complex energy projects online safely and reliably. As momentum grows around nuclear power, Bechtel is helping customers move from ambition to execution, delivering the expertise needed to build at scale. Learn [e-mail] that's B-E-C-H-T-E-L.com. Hello and welcome to the Energy Gang, a discussion show from Wood Mackenzie about the fast changing world of energy. I'm Ed Crookes and on this show we're going to be coming back to the subject of the war with Iran. It is of course a very fast moving situation at the moment. We're speaking right now on Friday, May 8. The ceasefire is still officially holding, but there have been several attacks on ships and installations around the Gulf. So it's a confusing situation, but we're going to try and make some sense of it and explain what it might mean for the future of energy. To do that, I'm joined by Amy Myers Jaffe. Amy is the director of the Global Energy, Climate and Sustainability Lab at New York University. Hi, Amy, how are you?

[Amy Myers Jaffe]

I am great, Ed, but it's starting to get tiring having to watch, watch this war. Flip this way, that way, this way, that way. I have a little bit of a neck pain from all the gyration.

[Ed Crookes]

Yeah, no, it certainly is a stressful situation, isn't it? Even for those of us watching it at a distance. It's also a pleasure to welcome back my Wood Mackenzie colleague, Chris Avisano, who's our director of maritime partnerships. Hi, Chris, how are you?

[Chris Avisano]

Hi, Ed. Hi, Amy. Hi, Eddie. Thanks for having me once again. And yeah, to concur with Amy. It's, you know, every day is different. Just don't look at your phone between the time we start, the time we stop because it could all change.

[Ed Crookes]

No, absolutely. And certainly we are going to try and take that into account as we're talking today and try and look at some of those longer term things that can be said with certain amount of certainty because we don't want to be caught out too badly by events changing. But onto that in a moment. Before we get into our discussion, I also want to introduce our other guest. It's a great pleasure to welcome for the first time a new guest to the show who's Eddie Fishman. He's a senior fellow and director of the Morris R. Greenberg center for Geoeconomics at the Council on Foreign Relations in New York. Hello, Eddie. Welcome to the show.

[Eddie Fishman]

Thanks so much for having me. I appreciate you letting me crash your party.

[Ed Crookes]

Well, you're very welcome. Eddie's also the author of an excellent new book, choke Points, which was just published last year. More on that in a moment. But I have to say, certainly very timely publication of that book, among other things, it's a fantastic backgrounder for understanding what's going on with Iran right now. So I guess, Eddie, you know, when you published that book last year, you probably didn't expect things to play out in quite the way they have just to make the book as relevant as it is right now.

[Eddie Fishman]

You know, I think the only industry that has had consistent tailwinds from Trump's tariffs and the closure of the Strait of Hormuz is probably books about economic warfare and choke points. So I did not plan it. But you know, I will say that we have been seeing more and more economic warfare over the last couple of decades. So doesn't surprise me in some ways that it's gotten this bad.

[Amy Myers Jaffe]

But, you know, I have to say, because Eddie's book is really brilliant listeners. You know, it's usually Melissa Lott who's making a book recommendation, but this is like a high, like buy it today. But let me just say, Eddie, right in the beginning of the book, you make the point that all this economic warfare for the United States anyway has often not avoided the next stage of kinetic attack where we go military. I thought that was a brilliant takeaway because we're thinking that this stuff is preventing us from having wars where people get killed and terrible things happen and we have all kinds of negative consequences. But actually, when you go through the history of economic warfare, not only are you showing that that hasn't really been 100% successful in the United States, avoiding the wars on the people we did sanct or took out of the banking system, but even in history it has backfired. So it was just a great read. Just have to throw that out there.

[Ed Crookes]

That is a great point. And as you say, Amy, that is one argument the book makes very strongly that has 100% been borne out by the events we've seen this year. I want to come back, actually, and talk about that specifically a bit later on before we do that, before we get into our kind of general discussion about the war. Something we always like to do, Eddie, when we get new people on the show, is get them to talk a little bit about their careers, what got them started on the path they took, how they got to the roles they now hold. Looking at your cv, you've had a very interesting and varied career in the public and the private sector. Could you just talk a little bit about what you've done and perhaps also particularly to explain to people your particular expertise in discussing this question of, as you say, economic warfare.

[Eddie Fishman]

Sure. And actually it ties into Amy's point because my interest in this area really originated when I was in university in the 2000s. So if you were studying history and international relations in the years, sort of in the aughts, I guess we call it the first decade of the 21st century, you were focused on the wars in Afghanistan and Iraq. Right. The United States was fighting two wars and neither was going particularly well. In fact, both of them were quagmires. And at that same time, Iran started supercharging its nuclear program. So right around when George W. Bush was reelected in 2004, the next year, the Iranians elected a populist hardliner, a gentleman named Mahmoud Ahmadinejad. And one of the first things he did was to sort of accelerate their nuclear enrichment. And so there was sort of this quandary that US Policymakers had, which is we had just invaded Iraq to try to get rid of a nuclear program that proved not to exist. But the country right next to Iraq, namely Iran, which was multiple times bigger, more powerful than Iraq, actually was, building an industrial scale nuclear program. And so when I was sort of observing this, I was like, well, what are we going to do about it? Right? We're not going to fight another war. Is there another sort of lever of American power we might be able to use to try to nonviolently contain Iran's nuclear program. And it just so happened that the wonderful journalist Robin Wright wrote a profile of a U.S. treasury Department official named Stuart Levy. I think this was in 2008, and it was called Stuart Levy's War. And it was basically about how this effectively unknown treasury official was creating new ways of pressuring Iran by manipulating its access to the US Dollar. And I found this to be fascinating. And so I was like, this is what I want to work on. I want to find a way, be part of this effort to try to create new ways of using American power more effectively than what I had seen going on in Afghanistan and Iraq. And so, literally, a week after graduating from college, I moved down to Washington, D.C. and started working for Stuart Levy's successor at the Treasury Department. So that was my sort of first foray into government. I eventually wound up moving over to the State Department, where I worked on the Iran sanctions, the sort of the pivotal oil sanctions on Iran in the 2013 period, and implementing the first Iran nuclear deal, the Joint Plan of Action. And then when Russia invaded Ukraine in 2014, we didn't have a Russia sanctions team or program at the time. And so I found that that was a good opportunity for a relatively early career person to raise their hand and say, hey, I'll take this on. And I became the first Russia sanctions lead at the State Department. So helped design and negotiate all of the original Russia sanctions in 2014, 2015, and then spent the last couple of years of the Obama administration working for John Kerry on the policy planning staff, where I covered all international economic issues, plus a few other items that Secretary Kerry wanted me to handle when Trump was elected. To your point, Ed wound up serving or pivoting and working in the private sector for a number of years, but always was very focused on economic statecraft and had been teaching a class at Columbia on the issue. And it really was when Russia invaded Ukraine the second time in 2022, when I realized there's got to be some definitive book on economic warfare, and I might as well be the person that that writes it. And so I. I left my job at a tech company called Via that actually just went public last year after, you know, I was running one of their. Their business lines, and I said, you know what? I'm just going to write. And I spent the next couple years writing choke points. And I guess that's the path that led me to where I am today.

[Ed Crookes]

Thanks very much. Well, great that you're on here to share your expertise with us and our listeners. So as I was saying what to come on to talk about that book and some of the lessons from it and the lessons from that whole experience of sanctions. In a moment, do that. I want to talk about where we are right now and what is happening in the Gulf. What is happening in the Strait. As I was saying earlier, we're recording this on the Friday, 8th March. It's a confusing situation. The ceasefire is supposed to be holding, but there are these persistent attacks. Just recently, I think we've had news about Iran attacking three American destroyers heading out of the Gulf through the Strait. Iran's also launched missiles and drones at the UAE doing some damage at the Fajira oil facility, which is the one outside the Strait of Hormuz that the UAE uses to export oil to the world. So it seems, I mean, if we are in a state of ceasefire, it seems like quite a fragile one and certainly an uneasy and tense one. I mean, Chris, in terms of what that means for the Strait of Hormuz, what are you seeing in terms of this crucial question then? Is the Strait open or not? Are we actually seeing energy being able to flow from the Gulf to the rest of the world? What's the position there?

[Chris Avisano]

Well, I think let's just start with what we've seen this week, because if we go back to our last chat about two months ago, obviously a lot has happened, as we have alluded to, it is a moving target. But looking at this, just in the last week, you know, you've had some news that everything from a couple of US flag merchant ships have left the area after being inside, including one under escort earlier in the week. On the other hand, you also saw this morning from the Chinese government that they put out that actually one of their ships, which clearly said Chinese ship on their AIs transponder was attacked by Iran. So you kind of have this situation that is just, you know, it is very. It is very much an evolving and almost case by case situation.

[Ed Crookes]

So, Chris, so give us the ship owners and the ship operators and the ship crew's perspective on this. Given this complex situation, how are people responding to that?

[Chris Avisano]

I mean, you know, just looking back, going back again to when we started talking about two months ago, you know, we, right after, I think we were on, we were seeing about 10 ships. We have set up on our little polygon on our, on our AIs tracker, what we could see, and basically we were seeing about 10 ships that started to creep up a little bit in April maybe.

[Ed Crookes]

Right.

[Chris Avisano]

I think the timeframe was right after the first Ceasefire. We started to see things creep up. The average got into the low 20s, high teens. So again, commerce not moving. I think ship owners are playing it day by day. And now this week after we've seen these attacks and French container ships, the company CMA CGM had one of their ships attacked and I don't think there was any casualties. At least that's what I saw earlier in the week. So saying that all of a sudden everybody stops. So I think that their view, you know, looking at shipping and ship owners and coming from my background, the word that sticks out is practical. These are practical people that deal with problems every day. As a matter of fact, when there's a day without problems, that's an interesting day. There's always a problem. Is it a valve, is it a six seat sailor, is it a bill of lading that doesn't match? There are thousands of problems. And now what I think has happened in the shipping community now that once we've gotten past this, this initial kind of shock to the system, now it's just part of the system and that includes things like, you know, making sure that the seafarers have food, making sure that they're doing seafarer swaps, which I've read someplace that, you know, the Indian seafarers, which are a pretty sizable chunk, they're kind of swapping out. People who want to leave the ships can leave. People who want to go home can go home and be replaced. And the other big question, and I've tried to talk to some folks in the community, is coming down to insurance, what they call the protection and indemnity insurance. So not necessarily what the insurance is on the hull and the machinery of the ships because you know what generally it would cost to replace. But what happens if there's a spill? There is some reports that there may be some. A satellite picked up some spill in the water near Carg Island. I read it about two hours before we came on. I'm not sure what that means if it's a spill, if it's something else. But certainly that's the type of protection and indemnity that ship owners up until recently couldn't get. You could get covered now. But asking, I think it's a case by case basis like everything else. So I think that that's where the shipping community is. And I think at this we could get to this later on. It's now what else are they doing? How else are the ships meeting the demand for energy or for building or what have you in the world. Now that we know that this choke point to kind of quote Eddie's book, is now more of a choke point. How does shipping deal with it? I think once we've kind of gotten past the initial shock, now it just becomes routine. Okay, this is how we're going to deal with it Again, never to minimize the seafarers at risk, of course.

[Amy Myers Jaffe]

Hey, Chris. I'm hearing from people that I'm friendly with from the shipping side that people are sort of taking this strategy of turning off their responders and kind of hoping for the best for some things that they want to get in and out of the strait. Are you hearing that?

[Chris Avisano]

Yes. So if you look at it, I mean, we saw three, a handful of LNG ships do that where, you know, where the ships went dark at a certain spot and one showed up on the other side of the world, you know, a couple weeks later. So yeah, I think it comes down to. I think it comes down to, you know, talking to the crew. I'm not sure how insurance works or any of that, you know, those sort of things. I think maybe they just took a risk and they went for it. I think you saw more of that when it got a little bit quiet. But I would imagine that's gonna go. That will now cease a little bit as things have gotten a little bit hotter here.

[Amy Myers Jaffe]

Right. So the other thing I heard, which was kind of interesting, I have a close friend who transports like big bulk, big bulk, dry, dry materials. And they said good friend to have. Yeah, right. And they said that one of the things that's interesting is that people are still kind of covered by the insurance for not having made the delivery yet, but that at some point that insurance is going to, you know, say it's 45 days or whatever, gets past that. I don't know the exact numbers, but we might get to a moment in time when the shipping industry is under more pressure because the insurance on delivering the cargo to the customer is going to start to run out.

[Chris Avisano]

I think what I learned in my, you know, 18 years of commercial negotiations, everything's up for negotiation. And remember too, I truly believe that the shipping industry is extremely pragmatic that I don't think you're going to have this abandonment of cargoes with no insurance because people also have long memories and it is an extremely relationship driven industry. So that's kind of my feedback on that. Just kind of not knowing all the details or exactly what type of car goes. That's kind of how I feel about that.

[Ed Crookes]

So question then. What does it really take to get shipping flowing back to normal again. I mean, so as you're saying, if we're at this level where there have been maybe 10 ships a day at the low point, rising to maybe 25 a day at the best traffic volume that we've seen since the war started, that's still down from what, 150, 170 transits a day in peacetime. So it's still very small proportion of the traffic that we've seen, very small proportion of essentially what the world needs to get those essential supplies of oil and gas and chemicals, fertilizer, aluminium, everything else out of the Gulf to the world. So, as I say, given that we're still operating well below those levels, how do we get it back there? What does the industry need to see to be confident, to start moving back again at peacetime rates?

[Chris Avisano]

I just don't see a silver bullet here. And I think what's going to happen is it's going to be incremental. I think if the peace holds, you'll see more and more ship owners do things a little bit more publicly. The other kind of question is, is this free trade? In other words, are the Iranians charging a toll or not? That becomes a question. So I think there are going to be ship owners who will kind of stick their toe in the water, maybe try to make one. Now, I think people will leave. I think the big question is when will people start to do free trade? So I think the first part of it is getting the ships that want to leave and are loaded to get out of that area. Because there's a whole other question of operational issues like inspections and underhull cleaning, all these sort of things that you're going to have to take care of, which is going to effectively reduce Those ships will be minimally or potentially longer out of commission to kind of do some service that they can't. Saying that, I don't know, Ed. I think it's going to be a long time, and I think it's going to be kind of incremental. And then ultimately, at the end of the day, does the insurance market go back to, quote, unquote, normal, even though if they're paying higher premiums, you could pay that because you could pass that on. But I think we're a little ways away from that. Even if tomorrow everything on paper looks good, it's going to have to hold for a little bit.

[Ed Crookes]

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[Amy Myers Jaffe]

Hey, Eddie, can you give us, give us a perspective as a former policymaker and someone who's looked in depth on things like you've talked about freedom of navigation in history, in early times, as opposed to even now, what's at stake for the US and can you kind of walk us through what people must be saying behind closed doors inside the US Government?

[Eddie Fishman]

Well, there's quite a bit at stake. I mean, if you think about the U.S. role in the world and to the extent we still have an international order, it's really one of the core pillars of it is that the United States is guaranteeing open sea lanes, right? That's the whole idea of having this large blue ocean navy that the United States has. And that's why, I mean, and I think this also helps maybe address Ed's question about, you know, when is this going to end? When are things going to go back to normal? I mean, look, Trump has a conundrum on his hand because he really has two options, right? Option one is cut some kind of a deal with the Iranians that, you know, probably looks a whole lot like the 2015 nuclear deal. So it's not going to be substantially better than that, which maybe he could sell politically. But, you know, I think will be some, there can be some who are skeptical about that. And then probably leaves Iran as the gatekeeper of the Strait of Hormuz, right? Iran is going to be controlling the world's most important maritime choke point. That's option one, Right. Option two is you escalate substantially militarily, right? You basically run back the Iraq 2003 playbook. You put a whole lot of boots on the ground and you remove the Islamic Republic of Iran's government from power and you go for regime change that obviously, you know, if it goes, well, the straight of hormone moves maybe does go back to, you know, the status quo ante. The problem with that is it's extremely costly and risky and there's zero political support in the United States for that kind of a military commitment. So if you think about it, door one is humiliating and a loss. Door two is politically impossible and extremely risky. So if neither door one or door two looks good, you kind of just fumble around and shuffle your feet and don't go through either door. That's what we're dealing with right now. I think that's what we're going to be dealing with for quite some time because there's not a third option. To Chris's point, there's no magic bullet politically, just like there's no magic bullet for the shipping industry.

[Ed Crookes]

Right. So that then raises the question of what that means for global energy. So as you say, you have your two doors. You don't want to go through either door one or door two, but you can't just stand on the hallway forever because while you do, that hallway is kind of catching fire. Right? For as long as the world is deprived of maybe 10% of global oil supply, let's say, is roughly the oil that's not being rerouted through other routes, through Saudi Arabia, out through the UAE, about 3% of global gas supply, 20% of the LNG, 3% of global gas in total is missing whatever it is, 30% or so of global urea. All these things are not reaching the world market and they are absolutely essential for the world economy. And I'm still, I feel like I've

[Chris Avisano]

been

[Ed Crookes]

slightly, what's the word over pessimistic early on about what would happen to oil prices. You'll see the people who are essentially oil price bears who are kind of like, ah, nothing to worry about, everyone's got overexcited. You've all kind of been catastrophized about this. Look, here we are. Brent crude is still around only $100 a barrel, which is true. However, it is also still the case, which I fundamentally believe that if you want to bring supply and demand into balance, if the strait remains closed for a period more of months, let's say six months more, however much it might be, if you want to bring supply and demand into balance in those circumstances, you will need oil prices that are very much higher than they are today, and you will need maybe $150, maybe $200 a barrel, maybe more than $200 a barrel. That's just. It's impossible to see any other way that the oil market balances and that inevitably then implies very serious consequences for the world economy and a global recession. And as I say, I feel like them sort of. There's a bit of triumphalism from the kind of the don't panic crowd to say everything's fine. I would accept things have not been as bad as we might have expected so far, but the clock is ticking. I have a colleague who likes to use the term the frog is boiling. The frog is in some hot water. Eventually the frog is going to get cooked and it is going to happen at some point in the not too distant future, even if it hasn't happened now.

[Amy Myers Jaffe]

So, Ed, I want to defend your position with some basics, like just factual information. Okay? We went into this crisis, people were predicting There was like 3 million barrels a day of excess supply per demand, right? Then we had these shadow cargoes that were under dual sanctions, and so they were in distress and they were just floating around from Iran and from Russia, right? And then we had this IEA stock release at a time, March, April, when the refining system, at least in the United States, but also in other markets, goes into annual maintenance and switches from, you know, winter grade to summer grade and so forth. So demand for crude oil at that time of year tends to be a little lower because, you know, you have this maintenance. So my opinion is that you are right in the following way. We haven't actually experienced the crisis yet because we had the release barrels, we sold all the shadow cargoes, right? We had the surplus which was already on the water. So it's, you know, takes 45 days to go from the Middle east to, to Western markets. It takes 30 days to go to Asia. So that oil that was produced before the shut in has now arrived and it takes six weeks to go through the refining system. So we have not seen yet the actual disruption in the physical market. Right. And to me, the real test is going to be, in my opinion, sort of post Memorial Day, like when we start really seeing, and I've talked to refiners in the US and others, we're seeing a lot of customers now arriving in the US with ships to take US Petroleum products out of the United States system. We export a lot. We've had periods during the Biden administration where exports were as high as crude and products combined at 14 million barrels a day. I think we're going to see those kind of numbers again. So my feeling is whatever it is that you're describing, Ed, is actually about to happen. If the Strait doesn't open back up. And then the question becomes, how does that affect things? And have countries been able to make what I call other arrangements? Are we seeing demand destruction? Are people moving to other kinds of fuels? Are people going to do more biofuels? Are people going to do different things? The economic hit so bad that they don't even need the oil anymore because there's such a tight relationship in many countries between oil demand and gdp. Right. Or, you know, in a lot of places, not the United States, because we don't think like this, but, you know, China's sales of electric cars back on an upswing. So, you know, how those two things balance out, I think, is now is the time we're going to actually start to see it as we get to the end of this month if Hormuz doesn't open back up.

[Ed Crookes]

So, Eddie, how do you think about this? Are we heading towards some really serious global economic catastrophe?

[Eddie Fishman]

Look, I mean, in some ways, you have to credit President Trump, right? If there's one thing that he's done well so far in this crisis, he successfully talked down the market. Right.

[Amy Myers Jaffe]

I mean, that's true. Good point.

[Ed Crookes]

The oil market, you mean. So you talk down the oil market,

[Eddie Fishman]

I guess, talk down the oil price, and the stock market is hitting record highs. Right. And I do think, having talked to a number of, you know, large institutional investors, I think a lot of this is investors who have felt burned betting against Trump in the past. Right. Basically, with Liberation Day, folks who were short on the market wound up losing their shirts and many of them losing their jobs. And I think if we take a broader perspective for commodities, you look at 2022, there are a lot of commodities traders who lost money in the second quarter thinking that oil prices were going to stay very high when we didn't have a real physical disruption. I think, to your point, Amy, one thing we're learning from this crisis is that even when you're losing huge amounts of oil on a daily basis, Right. I mean, we've. We've probably at this point, What, a cumulative 600 million barrels, probably that otherwise would have been exported.

[Ed Crookes]

I've seen even higher numbers floating around. I think while someone at Shell was talking about it the other day, I think his number was 900,000 barrels. Sorry, 900 million barrels of oil.

[Eddie Fishman]

Yeah, it's a lot of oil. But I think what we're seeing is, like, there are buffers and they're working and the stocks are being drawn down and emergency stocks are being released. And I think the question is when do we get to the point where like actually it's the oil that's being exported that's being consumed right now and there's nothing else. Right. I don't know when that date is. I don't think anyone really does. But certainly if we get there, we're gonna have a absolutely massive spike in oil prices that will probably lead to a very, very substantial recession. One final point just to make. Cause this, this quote's been on my mind. There's this great John Maynard Keynes quip where he said, you know, the market can stay irrational longer than you can remain solvent. And I think we're seeing that. Yeah, we're seeing that play out right now. Right. I mean, there is some irrational elements in this market, probably partially because of Trump talking down oil prices and people learning from experience. But what that means is, you know, those who are betting going long on oil right now, you know, they may not depends when those trades are going to, you know, finalize, you know, timing.

[Amy Myers Jaffe]

Timing is everything in commodity markets in terms of when. And the fact that something hasn't hit doesn't mean it won't hit. So that's the great lesson of commodities. I think the interesting fact which was debated, and I'm on the other side of everybody on Twitter, so maybe the listeners are going to attack me on Twitter for saying this, but here's the deal. The New York Times actually finally interviewed people from Iran's oil sector and some of them said what I'm about to say, which I've been saying. So I feel like I'm in a little bit safer ground, but it's very murky. Okay, Iran's uses natural gas uplift. So what do I mean by that? They re inject natural gas into their aging fields in some locations because the fields have poor natural drive. You know, oil fields, when they start out, they have a lot of natural pressure. When you start to lose that pressure, then you can't recover the barrel. And so The Iranians inject 300 million cubic meters of gas a day. So that's 110 BCM a year just to produce their oil. And they need South Pars to do that. And what the Times was reporting and kind of what I mean, I'm not like I have any contacts in the Iranian oil industry at this moment in time, but, but what makes sense to me based on history and knowing what I know about the fields, they're saying that if the blockade were to really continue for a lengthy period of time, like we stay in this Stalemate state, then the expense that the Iranians would have to bring their fields back online if they start having to really shut them in could be quite large and there could be in some cases some damage to the fields. Again, just to give you a number, South Pars, back before we thought we were all going to be in a war, Iran had estimated that they were going to have to spend $17 billion to halt the decline in the South Pars natural gas field, which they need to provide the gas to produce the oil. So one question is, what happens when the Iranians start to really like this impact that's going to happen on the long term health of their industry? Does that change the picture at all or does the other thing I said earlier in the show about there not being such unity and brotherly love among the people running the country makes that like it doesn't matter kind of fact because at least it provides a motivation.

[Ed Crookes]

Agreed. I do think that's an important point. I think it's a point which is quite often overstated. I don't know if you saw President Trump talking about it the other day where he said, yeah, he definitely within a few days, you know, their fields start exploding. And yeah, that is clearly not true. But as you say, there is something there about damage to the formation, what happens to production in the long term. But I guess then, I mean, it comes back to your point about resilience. I'm trying to adapt that Keynes quote, but it's kind of, you know, can the IRGC remain defiant longer than the world economy can stay solvent? Right. I think that's kind of the debate we're into now.

[Amy Myers Jaffe]

Right. That's the question of the moment, 100%. Eddie, I'm interested. What you think? What do you think?

[Eddie Fishman]

Well, Ed, first of all, you've coined a great. You're going to go down with Keynes now with these famous sayings. I like that one. Look, clearly the blockade, the US Blockade gives the Iranians an incentive to negotiate. So I'm very much in favor of the blockade. If you think about the status quo before the blockade, Iran had shut down the Strait of Hormuz for everybody's oil besides their own. And so they had spiked prices by virtue of their actions, and then they were benefiting from it by virtue of being able to sell their oil at higher prices. That was a terrible scenario. If the Iranians could live in that world forever, they would. Right. I mean, that's a fantastic.

[Amy Myers Jaffe]

And they were collecting a toll from the few people who were really desper. Yeah, 100%.

[Eddie Fishman]

It's a fantastic world for Iran. So look, I'm glad that we have this blockade on, on Iran because they shouldn't be able to selectively close the strait and it at least gives them some incentive to come to the table. But to your your point, Amy and Ed, I'm glad you brought up some of these forecasts previously. I know by the foundation for Defensive Democracy saying, you know, Iran's oil sector is going to collapse in two weeks. I mean, I've been around economic warfare for a little while and there are a few things I can say. One is because I've never seen a magic bullet like that where if only you stop them from selling oil for a few weeks and everything goes to hell. We've heard that said before. You look at Iran in March of 2020, post maximum pressure strategy at the peak of COVID they were selling, what, 200,000 barrels a day. They were effectively selling nothing. And they rebounded very quickly shortly after,

[Amy Myers Jaffe]

and their fields rebounded very quickly. So I'm always a little cautious to mention that they might be under some structural pressure.

[Eddie Fishman]

Exactly. But then I think there's a broader point, though, sort of going above sort of just the oil, you know, the oil geology and dynamics is that if you look at countries that have been under really dramatic economic pressure, so in recent history, like late 2010s, Venezuela, their economy contracted by 75%. Right. There's no way Iran's economy is going to contract by 75% this year. And what happened with Venezuela? Maduro stayed in power. Right. These authoritarian regimes are really hard to dislodge. Same with Assad. Right. I mean, during the Syrian civil war and all the sanctions in the 2010s, their economy is completely obliterated. And he held onto power in both cases. In both the Maduro and Assad case, what did it take to get those guys out of power? It took military force. Right. In the case of Assad, you had armed groups that took Damascus and pushed him out of power. In the case of Maduro, it took a special operations raid that arrested Maduro and his wife and brought them a couple miles from my apartment in the Metropolitan Detention center in Brooklyn.

[Amy Myers Jaffe]

I have to read a quote from Eddie's book. It's the most brilliant sentence I've read in a long time. It says, the United States must prepare for this future where, you know, we're having this problem that Eddie's now describing, end quote. America's economic arsenal has demonstrated that it can inflict tremendous damage, but that has not proven that it can reliably advance U.S. strategic goals.

[Ed Crookes]

Well, I wanted to go back to something Eddie was saying earlier about his working assumption being that the Strait of Hormuz will remain under Iranian control. Let's ask you, Eddie, that question, because that struck me as a very significant statement. You think this is kind of it now, that in the long term, the international community is just going to have to accept that Iran has some kind of control over the Strait of Hormuz?

[Eddie Fishman]

Yes. And a few points to sort of justify why this is my perspective. One, how have the Iranians closed the Strait? They've done so by using inexpensive drones and missiles. Some of these cost 10, 20, $30,000 a pop, and by hitting a very small number of ships. Right. Only, you know, maybe two dozen commercial vessels that have been actually hit by the Iranians. And that's been enough to close the Strait of Hormuz. Right. So they're doing it at extremely low cost. And there's really no scenario where you could actually completely destroy Iran's ability to manufacture drones and missiles. I mean, it's a huge country, right? We're talking about, you know, the 15th or 16th largest country in the world. I mean, in terms of land mass, there's no way that you could eliminate those capabilities. And I'm told that they could produce these drones in a facility about the size of my office if they need to. So there's. Yeah, so, like, there's no chance that we're eviscerating that. So they certainly will maintain the capability. Then there's a question of, you know, sort of why do I think this is likely? I think with any of these issues, you just got to think about the incentives, right? From the Iranian standpoint, if they're charging $2 million a ship, which they've said for some of these, you know, oil tankers carrying 2 million barrels of oil, oil from the commercial, from the vessel, that's $1 a barrel. Right? I mean, from a margin destruction perspective, it's not that high. Whereas from the Iranian perspective, you multiply it out and they're making somewhere between 30 and $100 billion of additional revenue every single year. I mean, that's like if they were able to double their oil export revenue and it's even better than oil exports because it's an annuity. Right. I mean, it doesn't fluctuate with the

[Amy Myers Jaffe]

price, and it's everything that has to go in and out of that way.

[Eddie Fishman]

Totally. So. So the Iranians have a huge incentive to keep it the Private sector, I think, has an incentive to accept it because it's actually not that costly. And I've talked to a number of folks in the private sector who said, look, we'll pay the toll if that's the cost of reopening the strait. If we can get traffic flowing, I don't care, we'll pay a toll. So I think the commercial sector has an incentive to accept the toll if that means that they can actually get out of the Persian Gulf and get back into it it. And then if you think about who's going to be upset, sure, the U.S. you know, the Gulf countries, but what are they going to do about it? Right? I mean, the, the only country that really could stop this would be the United States. But to our point earlier, you know, door number two, Iraq style 2003 invasion, I just don't see that happening. So I think the Iranians are going to be able to keep this just because I don't, I think there's a huge incentive for them to keep it. I don't and I don't see anybody stopping them. I don't see anyone undoing it. And then there's a question about China because I want to preempt that because, you know, people say, well, aren't the Chinese going to say don't do this? Well, look, I mean, to your, I think we talked earlier. Apparently they just, you know, seized a Chinese, a Chinese vessel or, you know, struck a Chinese vessel. But even so, okay, fine, maybe you give a discount to the Chinese or maybe you don't charge, you know, you don't charge a toll to the Chinese. But I don't see the Chinese restoring an open straight for everybody, maybe for themselves.

[Amy Myers Jaffe]

Let me tell you something about this other theory I have on the Chinese and I'm particularly excited about throwing this really outrageous idea out to you, Eddie, having read your book. So you're China and you have this rivalry with the United States which on some particular months of the year in different administrations look pretty negative. Maybe everybody agrees that a real conflict would be geoeconomic suicide for both countries. I'm not saying that the United States and China is going to go to war or anything, but if you think about going back to the Reagan administration and that philosophy, we did force the Soviet Union to spend a lot of money on defense at a time when they were bogged down in Afghanistan. And it did help bring down the Cold War because the Russians, it's not that they ran out of money, but they just got to the point where the burden was Just really overwhelming. So if you're the Chinese and you want to convince the United States for whatever reason, because they're an economic rival, because of whatever, what a great strategy would be is to bog the United States down trying to keep the Strait of Hormuz open, right? And then we're spending billions of dollars doing that, which is increasing the deficit means that the administration is going to have a tough time reversing the deficit. Right. It's making our treasury bills look kind of, you know, not great to other players because you're you, you know, you can't present a scenario under which you think that the United States will turn the deficit around. And now, and you're China, right? That's, that's like a cold war. Chinese US Strategies that just kind of weaken the United States influence, which Eddie, you write about, because we control so much of the global economy through our economic infrastructure, you can put a dent in that economic infrastructure, right, by just letting the Iranians go, by letting Putin drain Europe, by, you know, doing these different things. And then you don't have to do anything. It's hands free. You're just making the pain of our being the global superpower really, really expensive for the average American. And I, I interested in your comment. I mean, I read your part on the dollar. Eddie makes this point in the book Ed and Chris, that foreign exchange trading today is $7 trillion, which is 80 times the value of world trade in the 19 prior to the 1990s. Well, in the 1950s there was barely any foreign exchange trading. And Eddie makes the point that 90% of those foreign transactions involve the dollar. So when people talk about de dollarization that sounds a little bit impossible given that statistics. But Eddie, you know, if you're China, maybe you could stomach having your oil supply cut off and having some of your economy, you know, a little bit under pressure from imports you can't get from the Middle east because it wins this other place where it weakens the United States economic power as a global currency, as a global system, as a global banking head. How do you see that?

[Ed Crookes]

Sorry, before you answer that, Eddie, I do just want to touch on something else which. Because I think that's a great point, Amy, and I think that whole question of the dollar and de dollarization is really important and dealt with brilliantly well in your book, Eddie. But I think there is this separate issue about the status of the US as the world's policeman, effectively as the guarantor of shipping through these various vital shipping lanes around the world. And I thought it was really interesting. We've heard a couple of times now, people from the administration, US Administration, essentially reflecting that concern about do we really want to take on that role. And I just, in the past few hours saw Marco Rubio, the Secretary of State, talking, and he said something about it's obviously unacceptable if Iran has control of the Strait of Hormuz and the world needs to decide what the world is going to do about that. In other words, basically, we as the US Are not going to fix this problem again. I think it's a line in the book, that famous line about the dollar, which is it's our currency, your problem. Clearly, as you say, Eddie, there's not a massive amount of appetite in the United States for full scale invasion of Iran or whatever it might be, whatever it might take, whatever might be needed to reopen the Strait. Absolutely certain there's even less appetite in Europe or in Japan or China or anyone else to take that same kind of military action. So is that part of what's going on as well? That essentially there is, as I just, you can't build a consensus internationally that although, as you say pretty clearly is bad for the world, if Iran controls this strait, you're just not going to get people together to actually take action on it.

[Amy Myers Jaffe]

And could there be a coalition like we saw in Iraq? I mean, there was a coalition and, you know, people started because like I said, I don't think the pain, the pain of the cutoff has hit a lot of Asian countries pretty strongly. But there could be more pain to come. So, Eddie, you're the big picture guy. Fabulous book. What do you think?

[Eddie Fishman]

Think I don't see it. You know, I think there's some in the U.S. including in the Trump administration, who are sort of hoping for a deus ex machina, you know, whether it's the Chinese or the Europeans or an international coalition. I don't, I just don't see it for a few reasons. One, just to touch on your initial point, Amy, what's the Chinese disposition on this? I think their, their mantra right now is, you know, don't interrupt your enemy while they're making a mistake. Right. They see that the United States has caused a whole lot of problems in Iran. They realize that neither door one nor door two is attractive to the US and this is bogging down the United States and Iran. I mean, the costs of this war just in two months are staggering. Tens and tens of billions of dollars. Right. We don't have an accurate forecast. I think The Pentagon said 25 billion was sort of the baseline, but it's substantially higher than that also when you factor in the damage that's been done to US Military facilities and diplomatic facilities, plus sort of our expenditure of munitions. So, look, I don't see the Chinese doing anything to help us get out of this problem that we caused. And then I think when you think about the idea of a coalition, I mean, I would love to see that, right. If you could get some sort of a coalition. But you know, having just being in close contact with people all around the world, I mean, this whole US Message of, you know, we broke it, you own it, it just doesn't really resonate. Right. I think even countries that are typically sympathetic to the United States and don't like Iran blame the United States for this circumstance. We caused a war. This is a war of choice. Iran retaliated by closing the strait. We're not going to help you get out of it. And even if there were individual leaders in some of these countries who said, actually, I do want to help Donald Trump, where's the political support, right? I mean, you think like Italians or Brits or Germans are going to support their leaders for sending their own people into harm's way to reopen the Strait of Hormuz when the world's most powerful navy, the US Navy, won't even go through the strait because our sophisticated naval platforms are completely in harm's way of these $20,000 drones.

[Ed Crookes]

So I don't know if you heard on the show, the last time we talked about Iran, we had on Armos Hochstein, who I think was a colleague of yours in the Obama administration for a while. And essentially he was talking on rather similar lines as you, about Iran kind of permanently having this kind of control of the strait, the right of veto over who passes through the strait. And his suggested solution essentially was that all the infrastructure that is currently oriented to export oil and gas, other crucial materials, out through the Strait of Hormuz, is going to have to be rebuilt so that you don't need to use the Strait anymore. And so you would have more pipelines across Saudi Arabia, maybe pipelines across Jordan to the Mediterranean, maybe more pipelines across to Gulf of Oman through the uae, increasing the capacity on that pipeline that exists already. In other words, a massive, multi billion, multi tens of billion, possibly multi hundreds of billions of dollars of investment being needed just to make sure that the world in general will never be reliant on the Strait of Hormuz again. And he framed it as saying, again, to this point about this being an international global interest, actually, maybe if the world doesn't support military action together, if there isn't a military coalition, there might at least be a kind of an investment, an economic coalition that could be put together to help finance all this infrastructure investment. Do you see that as plausible? Is that a possible solution?

[Eddie Fishman]

I admire Amos's creativity and I think that it is at least somewhat plausible. I think it's probably the best solution for the Gulf countries like Saudi Arabia or the uae, because again, absent regime change, they're living in a world in which Iran can do this again kind of whenever they want. I think the challenge is that it's going to take a lot of time, right? It's not like these, these pipelines and this new infrastructure is going to be built overnight. And so let's say even in an optimistic scenario it takes five years, right? I mean, what's going to change in those five years, right? Are we going to see countries substantially start relying on Chinese electric vehicles and start relying on renewables? Right. I, I just don't think the timescale works out as well as probably some of the Gulf countries hope. And then one other point too is that in order to build all this infrastructure, what are you going to need? You're going to need steel, you're going to need all manner of commodities that are going to come in through the Strait of Hormuz. Theoretically, even Iran has a veto power over building this infrastructure, at least building it it in the most expeditious way possible. So I do think it's, it's a good bet that you're going to see a lot more efforts to divert oil away from the Strait and I'm sure that that will come online in the 5 to 10 year period. I just don't know if it's soon enough to make a huge difference.

[Chris Avisano]

You know, I also think that it brings us. Well, well, two things there, Eddie and guys, I think one is that we're seeing a little bit of, of this already, obviously just to give some reference, you have Yambu, which is the terminus of the east west pipeline across Saudi Arabia. Before the war we were about 735,000 barrels per day that terminal was handling. Right now, the month of April, sorry, the month of May, we're about four and a half million barrels, so about two and a half VLCCs a day difference. Most of that going south and then going out to the east, be it India or further east. I think the other thing, and we're starting to see this in the commodity side you talk about demand destruction, we can talk about demand destruction for a specific commodity. So potentially there could be demand destruction for lng, but that's going to be replaced by coal or potentially by other renewables. And that's what we're going to see. We're starting to see a little bit of that already, especially with coal where in the Far east they're looking to replace, I think Taiwan looking to restart one of their big generating plants, plants and so on. So I think it's going to be to Amos Point. Okay, we're going to do all these things and to your point Eddie, it'll take time. I think what countries are going to come back to is something that we've heard in the past as far back as Jimmy Carter and that is energy independence, whether that is reducing demand. And I always just opine on this. You know, Jimmy Carter basically said, and he lost the election four and part of the reason because he said put a sweater on. Imagine if we would all worn a sweater in 1978 when I was a certain age. You know, I think about that, right, because. And that's where the long term thinking of the Iranians outlives some of the short term political thinking that our leaders have to go through in order to stay and maintain being elected or at least a party in power. So from a shipping point of view, I think we're already starting to see these reroutings as well as in the hydrocarbon side of things. You know, places like talking about good timing, places like West Coast Canada has come online and feeding the Far east and they're just, you know, continually banging stuff that way. So I think it's a timing issue. Countries have already been thinking about it, but what I kind of see from where the rubber hits the road, so to speak, although there is no road and there's no saying that sounds cool with shipping because it just wouldn't make the same sense where the hull meets the water. That's like boring.

[Ed Crookes]

No, disagree. I think that that does sound rather cool.

[Chris Avisano]

Yeah, well, where the keel hits the water, you know, we're starting to see those sort of trades and, and, and we're starting to see people do energy independence to avoid choke points. That's why coal can move where coal leaves Brazil, Australia and to a lesser extent the United States. There's not a choke point unless you're gonna have Maryland and Virginia start to decide to have a toll at the end of the Chesapeake Bay. It could happen, but I don't think so. So that's kind of where, where the shipping lives in this. Because we're starting to see this reality with one last point. Shipping is built on efficiency. And right now ships are inefficient in the sense they're not doing the optimal route. And that to Eddie's point where you're saying we'll just live with the toll, we'll just live with not getting the crude out of the ae, the UAE or the ag, we'll just live with it coming out of Brazil or Nigeria. It's longer, it's not the perfect grade, but we'll live with it. And I think you'll see some of that play out as well.

[Amy Myers Jaffe]

Well, you know, the lesson of the 1970s is that, you know, people drilled and the oil appeared in different places. Right. And the other lesson of the 1970s is that people started to use different fuels for different purposes. In the United States, natural gas moved into power in a big way, into petrochemical. So but the thing I would add to that is that with AI, you know, one of the things that AI really enables is energy efficiency. Whether that's, we had a show with Uber, whether that's routing people's transportation, whether that's building systems, which would be another great show to have, you know, reducing the need for fuel. I mean, there's all kinds of things that can be done more easily now with the digital world than when you could do it in the 70s.

[Chris Avisano]

But unless, unless all of this AI infrastructure uses all the energy that's needed elsewhere. So that kind of. I see that being a little bit of a double edged sword. I don't know, maybe I'm contrarian.

[Ed Crookes]

Yeah, that is a great point. And then I did just want to come back to this question about the dollar, Eddie, because I do think that's critical at the. It plays a big role in your book. A very important feature of the international trading system as it exists today is that the dollar plays a critical role. Could you just very briefly just explain what that role is and why it matters? Because I think again, in terms of the global influence of the US it's very important. Right.

[Eddie Fishman]

So it's sort of commonplace to call the dollar the global reserve currency. And that's true, right? I mean, even today central banks around the world hold roughly 60% of their hard currency reserves in dollars. But I actually think that short changes what the dollar's role in the global economy is. The dollar is the dominant currency across all use cases of money. It's the dominant store of value. It's the place where you Invest your money if you have it. It's the dominant unit of account. If you're pricing a commodity or a product, generally speaking, you're pricing it in dollars. And it's critically the dominant medium of exchange. If you're making a cross border payment, most of the time you're doing so in dollars. I think Amy earlier invoked this statistic about foreign exchange transactions. The foreign exchange market's a bit wonky. You don't think about it. $7 trillion in turnover every single day. It is by far the world's biggest financial market because it captures all of this activity. Cross border payments, you know, investment across borders, it captures it all. And 90% of those transactions are in dollars. What that has given the United States is the ability to impose significant economic pressure on any other country without blockading their ports. Right. When I was involved in the Iran sanctions In the early 2010s, we didn't have a blockade of Iran, right? We weren't interdicting their oil tankers. We literally just went, went to refineries in China and India and Turkey and their banks as well, places like Dubai, Hong Kong, Singapore, and said, if you continue buying Iranian oil at the same volumes that you're doing today, we're going to cut you off from the US dollar. And that was enough. This is why we are able to have this non violent form of economic warfare. But China has witnessed that and they've done everything in their power to try to erode America's leverage, particularly when it comes to payments. Because China is the world's biggest exporter. They're the number one trading partner of two thirds of the world. And you would think that given their systemic significance in trade that they could say, well, at least, you know, pay us in our own currency. They've made some progress. They've gone from settling about 15% of their own trade in RMB about five or 10 years ago to settling 30% today. So they've doubled it, but still 30%, 70% reliance effectively on the dollar.

[Amy Myers Jaffe]

Eddie, just to re explain for people who might be in clean energy or some other system, but they don't actually track the dollar as economists, basically what you're saying is that you could be an African country doing trading with a European country or an Asian country or Latin America country. And the way you settle your accounts, I'm giving you goods and you're giving me back a currency, is we all use the dollar as the barometer. In the old days we used to use gold as the barometer. So now we use the dollar as the barometer. And so I do think it's hard in trade, even when you're trading with the China. You know, sometimes the Chinese are taking payment in kind. In Iran, for example, they're taking the oil as payment in part for services provided, including Chinese oil workers in the oil fields, which I note have not been evacuated like they were in Libya. You know, I think that's really the interesting piece of the puzzle, which is it's a pretty big undertaking to try to think of a different way to do your settlements.

[Ed Crookes]

And is that cryptocurrency? Is that something which is really going to make a difference? I know that for instance, when the IRGC has been asking for payment for ships to go through the strait, they've been saying they want to get paid in crypto. And then there have been crypto scammers out there kind of pretending, saying if you want to get your, your ship through, sending emails to ship owners saying if you want to get your ship through, pay us. And I think a couple of people at least have been caught that way. But is that going to be the thing which is then going to sort of take away that role for the dollar?

[Eddie Fishman]

Yeah. Look, I expect China to continue making progress chipping away at the dollar's dominance as a medium of exchange. And what that means is it doesn't mean that the RMB is going to replace the dollar as the world's dominant currency, but it does mean that at least when it comes to economic pressure, that China would have a degree of insulation. Right. So that if they were to say, try to invade Taiwan, they would feel a little bit more comfortable that they would still be able to get paid for their exports. Ed, to your point on digital currencies, Digital currencies are clearly part of the strategy for all the countries around the world that worry about the US control over the most important choke point of the global economy, which frankly is not the Strait of Hormuz, it's the US dollar. And digital currencies can to a certain extent evade us reach. That's why China, China has launched their own central bank digital currency. But if you actually look at the digital currencies right now that are used primarily for cross border payments, they tend to be these stablecoins. They're digital currencies that are pegged to a fiat currency. And 99% of all stablecoins are pegged to the dollar, which means that even if you're say, tether, which is the world's biggest stablecoin, it's based in El Salvador. They're not a US company. They are now one of the top 10 biggest buyers of US treasuries because they have to peg. They have to back all of those stablecoins with liquid US Assets. And so I actually got a bit of a laugh when I heard that the Iranians might be asking for tolls in US dollar peg stablecoins because I thought, well, maybe they think that this is making them immune to US Sanctions, or maybe this means that we're undermining the petrodollar, when in reality they're actually just entrenching US Dominance of the financial system.

[Amy Myers Jaffe]

Yeah, well, they're trading one kind of dollar for another kind of dollar, basically.

[Eddie Fishman]

That's right.

[Ed Crookes]

Yeah. That is really fascinating, that whole question about and then is there a petrodollar? And what does a petrodollar mean? What is the future of petrodollar? It's all really interesting things to discuss, a lot more to be said, but we're not going to be able to say it now. And clearly we're going to have to come back to this situation, I am sure, many times in the future. For now, though, we're going to leave it. Many thanks, Amy.

[Amy Myers Jaffe]

Thank you, Ed, for great, great, great conversation.

[Ed Crookes]

Many thanks, Chris.

[Chris Avisano]

Thank you once again, Ed, for having me on. Appreciate it. It was enlightening.

[Ed Crookes]

Yeah, pleasure as always. Looking forward to talking to both of you again soon. Also, I should say, check out Chris's podcast. If you've enjoyed this one, check out the Chris's podcast, the Last Dinosaur, wherever you get your podcasts. As I say, like and subscribe. And many thanks to you, Eddie. As I was saying earlier, if you're interested in these issues, please do go ahead and check out Eddie's book, Choke Points. It's really great. As I say, just fantastic background explaining how we got to where we are today. Thanks to our producers, Molly Merwin, Stuart Duffy and Toby Biggins Gilchrist. And above all, as ever, many thanks to all of you for listening. We really value your feedback. Please do keep that coming and we'll be back very soon with all the latest news and views on the future of energy. Until then, goodbye.