The World’s First Energy Crisis | Foreign Affairs Interview Podcast

The energy transition is one of the greatest drivers of geopolitical risk in the coming decades and will probably dwarf the impact of the pandemic and Russia's invasion of Ukraine on geopolitics because it involves remaking the entire global energy system—how we generate, use, store, and ship energy—which is the backbone of the global economy over a few short decades.

“the energy transition is going to be one of the greatest drivers of geopolitical risk in the coming decades and I would say that you know both Jason and I have said it's probably going to dwarf what we've already seen in the century the pandemic's impact on geopolitics even Russia's invasion of Ukraine the impact on geopolitics that this energy transition is not just about substituting you know one form of energy for another it's about remaking the entire Global Energy System how we generate how we use store ship energy and being the backbone of the global economy we're talking about remaking the global economy in the space of a few short decades and that is going to be highly disruptive”

Markets alone fail to provide energy security redundancy and infrastructure because low-capacity-utilization assets (backup LNG facilities, extra refining capacity, pipeline diversification) have poor commercial returns; government must socialize these infrastructure costs to achieve resilience.

“there are market failures where does energy security come from the market alone doesn't provide the redundancy the extra infrastructure the sorts of things that are not going to be used you'll have low capacity utilization you might build LNG terminals the cheapest gas for your economy might be pipeline gas Imports in Europe but you want to be resilient to the idea that those pipeline gas Imports might be disrupted so you want to have a few LNG import facilities on standby there's not a commercial rationale to do that government would have to socialize those costs for energy security”

Public perception of climate-energy policy is vulnerable to a vicious cycle: if people come to believe ambitious climate plans endanger energy reliability, affordability, or supply security, political support for transition slows, making it harder to sustain policies needed for actual energy security long-term.

“If people come to believe that ambitious plans to tackle climate change endanger energy reliability or affordability or the security of energy supplies the transition will slow”

Energy demand-side management—conservation and efficiency improvements—is an underutilized policy tool that could address immediate crisis while supporting long-term resilience, but receives insufficient policy attention compared to supply expansion.

“I do think we shouldn't lose sight of the fact I don't think we've talked about it yet much more should and can be done on the demand side we need more energy conservation and Energy Efficiency it's a powerful tool and we don't I think talk about it enough”

The Trump administration's unpredictable energy policy approach (contrasting with Obama and Biden administrations) illustrates how political shifts create volatility in energy transition planning; different administrations bet on different technologies and make different bets wrong.

“we're inevitably the case we're going to have political fits and starts going from Obama to Trump to Biden we're going to make some bets on technology and we're going to get those bets wrong we're going to move to an electricity grid with much more intermittent renewable energy and we're gonna have to figure out how to manage that”

Every time governments respond to oil crises, they seek short-term solutions but fail to invest in longer-term energy security measures, and then become complacent when crisis passes, repeating the cycle with next crisis requiring similar emergency responses.

“every time we have an oil crisis we look for what we get scrambled to see what can we do today and the answer is not much and if we had done the thing last time that would have made us more resilient today we'd be less oil dependent in the first place and then as soon as the crisis passes we become complacent and we forget to stay the course and do the things to reduce oil use reduce hydrocarbon demand in the first place”

Russia built more than half of nuclear reactors operating outside Russia, and China accounts for approximately 20% of nuclear reactor construction; clean energy supply chains concentrate geopolitical leverage in small numbers of state actors, creating new dependencies that parallel oil geopolitics.

“Russia builds more than half of the nuclear reactors outside of Russia and then China accounts for another 20 percent”

The developing world faces simultaneous crises—energy access, energy pricing, inflation, food security, climate impacts—and cannot stay on a favorable climate trajectory without enormous support from developed nations; expecting developing countries to maintain climate commitments amid these pressures is 'overly optimistic' without material assistance.

“so you know to expect the developing world to be able to stay on a good climate trajectory without enormous support from other parts of the globe is really overly optimistic”

Saudi Arabia is uniquely positioned in global oil markets due to spare capacity—the ability to rapidly deploy additional production or reduce supplies at will—which creates geopolitical leverage because there are few alternative policy tools available to address oil price spikes and shortages.

“Saudi Arabia is unique in the world not only because they're such a large producer the US and Russia produce almost the same amount of oil they're unique because they hold spare capacity which is at a cost to themselves the ability to rapidly put additional oil supply on the market or make a decision to pull oil supply off and that helps to balance volatility in the market”

Government policy in the 1970s energy crisis (price controls, import restrictions, federal allocation systems) made the crisis worse by preventing market adjustment and supply reallocation; free market forces allow interconnected energy systems to absorb and redirect supply when disruptions occur (hurricanes, strikes, embargoes).

“you had in place price controls and import restrictions a complex allocation system where the U.S federal government micromanaged who could buy energy and at what prices and it really made it much harder for the market to respond to an energy crisis and reallocate supplies”

Government should implement energy cost subsidies specifically targeted at low-income and vulnerable households to protect them from crisis price spikes, distinct from blanket subsidies that distort market signals.

“I think you should make sense to do that for particularly low income people and vulnerable households”

Energy transition will likely shift the global economy toward regionalization rather than continued globalization, increasing national energy self-sufficiency and reducing cross-border energy trade, though complete energy independence will remain unattainable for most countries.

“this transition will add momentum to the movement away from globalization or let's just say towards regionalization so ultimately more countries will have a greater ability to meet their own energy needs it won't be complete they'll still be components of the energy system which will be Global particularly if there is a robust ammonia or hydrogen Market that type of thing but in general I think it's safe to say that there'll be more countries that have higher levels of energy self-sufficiency and that will change politics in a very significant way and even countries that are not self-sufficient they'll be much more likely to be reliant on their neighbors”

China maintains a strategic energy security policy limiting any single supplier to no more than approximately 15% of its imported oil supply; because Russia has become China's largest oil exporter in recent months following the invasion, Chinese leaders will likely enforce a lid on further increases to avoid excessive dependence on Russia despite attractive discounted pricing.

“China is very very serious about its own energy security and it has had a policy that it doesn't want more than say 15 percent of any supplier to provide energy in a certain market and so there'll be a limit to how much China really wants to be fully dependent on Russia for its imported oil Russia has already become the largest exporter over the last couple of months to China and I think there'll be you know a lid on what Chinese leaders are comfortable with”

Managing an electricity grid with much more intermittent renewable energy is technically solvable but requires intentional planning; the transition from fossil-dominated stable baseload generation to renewable intermittency is a major infrastructure challenge.

“we're going to move to an electricity grid with much more intermittent renewable energy and we're gonna have to figure out how to manage that and we can do it but you know we're not going to get it all right and that kind of volatility if it leads to price crunches price spikes is going to make it harder”

The things that make you more energy secure (reducing hydrocarbon dependence, transitioning to renewables, improving efficiency) also make you more climate secure, so energy security and climate security goals are actually aligned despite apparent tensions.

“those are things we need to do not just for the climate crisis but because they can make you energy secure as well”

Europe was compelled to disentangle itself from Russian energy supplies not because of deliberate sanctions strategy but due to moral imperative of not funding the war, which reversed the long-anticipated dynamic where Russia would be the actor cutting off supply to Europe.

“the imagination was always that Russia was going to be the one to cut off the supply of oil and gas to Europe and what we've actually seen up until very recently is the opposite that actually Europe has felt compelled to disentangle itself from the energy relationship because of the moral imperative of not being the funders of this war”

There is a growing and not shrinking gap between climate ambitions (Paris targets, net zero by 2050, limiting warming to 1.5°C) and energy reality: oil use, gas use, and coal use continue rising except during recessions or pandemics, indicating that unless investment keeps pace with hydrocarbon demand growth, markets will tighten and price crunches will occur.

“we've been writing for a while about what we are concerned about both from a matter of energy security and the economy and also the climate crisis which is a growing not shrinking gap between reality and ambition when we talk about goals like Net Zero 2050 right we've had lots in Glasgow of last year lots of effort to elevate ambition 1.5 is the gold not two degrees countries promising Net Zero by 2050 the reality is oil use is going up gas use is going up coal use is going up other than recession or pandemic”

Three trillion dollars per year is the rough amount of capital that needs to be invested in the energy transition, with most of that capital needing to flow to developing countries rather than developed ones, raising equity and financing questions.

“you know this is three trillion dollars a year roughly of capital that needs to be invested in the transition most of that will be in the developing world not the developed World where's that money going to come from these are parts of the world that did not cause this problem are not responsible for historic emissions don't have the capacity to deal with it”

Rising trade tensions are playing out as countries impose trade restrictions on clean energy technologies to encourage stronger climate action in trading partners, creating a form of climate protectionism that fragments clean energy markets.

“we see Rising trade tensions playing out as some countries impose trade restrictions to try to encourage other countries to take stronger climate action”

Europe faced an energy crisis requiring exorbitant natural gas bill payments even before Russia's invasion of Ukraine, with governments subsidizing energy costs for citizens, which strengthened Putin's hand by creating conditions where energy could be used as a weapon more effectively than in prior years.

“Europe was in an energy crisis even before Russia invaded Ukraine Europe was paying exorbitant Natural Gas bills utility bills were high they were subsidizing energy costs for people”

Petrostates like Russia and Saudi Arabia will enjoy temporary geopolitical leverage that peaks during the energy transition, with dependence on dominant fossil fuel suppliers most likely rising before it falls, creating a 'feast before famine' dynamic where these producers gain greater influence before eventual long-term decline.

“Petro States you wrote may enjoy feasts before they suffer famines because dependence on the dominant suppliers of fossil fuels such as Russia and Saudi Arabia will most likely rise before it falls”

The reallocation of Russian oil to global markets will not be 100% complete due to shipping and insurance sanctions constraints, political diversification preferences of importing countries, and time lags in establishing alternative delivery mechanisms; even if only 20% of Russian oil fails to find a home or takes significant time to relocate, this could be disruptive given other market tightness.

“if I could just summarize what I tried to say in one sentence is that yes there'll be a lot of reallocation into the global market but it won't be 100 and it will take time and that might be okay but we are in an energy situation where even if only 20 of Russian oil doesn't find a home or it takes a year to find a home that could be really disruptive because of the other Dynamics in the market”

The energy transition will occur against backdrop of worsening US-China competition rather than cooperation; climate issues cannot serve as cooperation domain when economic competition dominates, making energy transition more difficult to execute successfully.

“geopolitics shapes energy so it's a two-way street and everything we're talking about happens against the backdrop of a very changing geopolitical scene and most importantly perhaps the U.S China competition that we haven't even really spoken about yet but you know the big question is how can we enact an energy transition in a world where the U.S and China are not cooperating but they're more competitive I think a lot of us and I put myself in this basket were hopeful that climate and energy transition issues could be kind of a sea of cooperation and otherwise competitive relationship between the US and China that seems increasingly less likely”

The assumption that the U.S. doesn't need Middle Eastern oil because it is energy independent or the world's largest oil producer is a 'real misreading of reality' because even if the U.S. uses less Middle Eastern oil, the Middle East still shapes global markets through its control of residual supply, which affects all consumers regardless of their own energy independence.

“the idea that we don't really need to pay attention to Middle Eastern powers or we can treat them differently because we don't need their oil is a real misreading of reality”