{"text":[[{"start":9.15,"text":"Attention all ships! Attention all ships! From now on, no ship is allowed to pass from the Strait of Hormuz! "}],[{"start":15.75,"text":"So the immediate effect of the outbreak of the conflict on the oil markets was that everybody panicked. "}],[{"start":21.7,"text":"The very first thing that happened is that government bonds weakened. "}],[{"start":25.9,"text":"They wanted to see the government fall. But that didn't happen either. "}],[{"start":30.099999999999998,"text":"Donald Trump himself campaigned against forever wars. "}],[{"start":33.9,"text":"We will measure our success not only by the battles we win, but also by the wars that we end and perhaps, most importantly, the wars we never get into. "}],[{"start":43.849999999999994,"text":"He doesn't like wars! Well, that turned out to be wrong. "}],[{"start":48.099999999999994,"text":"There was a lot of, sort of, mixed messaging coming from the US in particular, saying it is going to be a short disruption. But it became clear quite early on that having seized control of Hormuz, there was no incentive for Iran to then give that up. "}],[{"start":62.05,"text":"I personally never understood this 'Don't worry, it'll all blow over' kind of mindset. It was pretty clear to me this was going to be an extended conflict. And that's what we've seen so far. "}],[{"start":73.8,"text":"What surprised me about the market reaction? In the early days that oil prices didn't go higher. I remember actually pitching to my editors, very early in the conflict, that we should write a piece, and we did write a piece saying, why are oil prices not above $100 yet? There were lots of reasons why oil prices didn't go higher. And for a long time that was because the White House was basically talking down the conflict. "}],[{"start":100.05,"text":"Then what happened was it became clear China had dramatically cut its imports of oil. Now China is the world's biggest oil importer. So if they step back from the market, that's a real big deal. "}],[{"start":113.6,"text":"Normally, if you look at markets around big, horrible events like war, pestilence, pandemics, all of these sorts of things, normally you'd see bonds go up in price, because they are the world's safe asset, particularly US Treasuries. In this instance, the very first thing that you saw, alongside the rapid rise in oil prices, was a rapid drop in bond prices and, therefore, a rise in yields and borrowing costs. That I think is a big signal. "}],[{"start":141.04999999999998,"text":"And it's a signal that these oil prices matter and that they're going to help to underpin inflation all around the world. Bonds hate inflation. This is just how they work. "}],[{"start":150.95,"text":"The thing that surprised me most, but that's been generally true of energy crises, is that it happened at all. I certainly didn't expect that the Americans would be persuaded to start an aerial campaign with the aim of overthrowing the regime. It assumes regime collapse. I didn't expect the regime to collapse. It turned out, even though I knew rather little about it, that I was right. "}],[{"start":172.1,"text":"The actual, essentially, assassination of the leadership of Iran on February the 28th, by these bombs which killed the Supreme Leader and many of his entourage, then set off a crisis, which I think once it became apparent that that didn't immediately cause Iran and the Iranian regime to collapse, that we were then in a whole new ball game. And the consequences of that decision are still playing out. "}],[{"start":196.65,"text":"What are the risk that things will get worse? "}],[{"start":199.5,"text":"What is the risk that things will get worse? I cannot see any hope of things getting better without some sort of peace agreement in the region. So every passing day, we can either use more oil and gas from our reserves. So they don't last forever. And when we run out of buffer, there is suddenly a very sharp price spike upwards in order to force people to stop using oil and gas. That's the endgame here. "}],[{"start":221.65,"text":"So on the question of whether we're heading for another inflation shock of the type that we saw in 2022... I hate to be annoying, but I think it's yes and no. "}],[{"start":231.45000000000002,"text":"The answer here very clearly is no. If we were going to have that, we would already be seeing signs of that. "}],[{"start":237.8,"text":"There is clearly an additional slice that's put on top of already reasonably punchy inflation that's never quite got back down to central bank targets after the pandemic. There is an extra underpinning to that inflation that's going to come from higher oil prices. But it's not really on the same scale as what we saw in 2022. "}],[{"start":257.35,"text":"If, of course, the oil price exploded upwards, $200 a barrel or more, then the effect would clearly be larger. Some people think it will move in that direction. But I'd be very surprised if it were anything like 2022. "}],[{"start":272.40000000000003,"text":"At the beginning of the crisis the head of the International Energy Agency was warning that this could be as a bigger crisis as the two oil shocks of the 1970s combined. For a while that looked a bit hysterical. And actually, the world was riding it out fairly easily. "}],[{"start":288.65000000000003,"text":"But I think we're now in a phase where energy prices are surging again and the western world is heading into winter. And there are concerns about inventories of oil and gas. And so for that reason, things could get worse quite quickly. "}],[{"start":302.6,"text":"Traditionally, when we've worried about inflation we've tended to look at crude oil prices. And actually in this crisis, crude oil prices have not been the warning signal. In this crisis, the warning signal has been diesel prices, petrol prices, jet fuel prices. We can already see that some of that is feeding into inflation. The other thing that we need to be aware of is gas prices. Natural gas prices are... right now there are 160% higher than they were when the war kicked off. "}],[{"start":331.45000000000005,"text":"It's not about inflation. It's about the possibility of a significant slowdown, which would be caused not just by inflation, but because, of course, large jumps in oil prices have very specific price effects. That's a shock for the incomes, disposable incomes of a very large number of people. I'm not predicting a recession - that's a technical term - but a slowdown. That seems very plausible. "}],[{"start":351.65000000000003,"text":"Here we are, the second major energy crisis in four years. And Europe has lost access to gas from Qatar and is now reliant on the US for over half of its imported gas. That's a very tricky situation for a continent that has had an up-and-down relationship with the president of the United States. So does Europe want to be dependent on US gas to that extent? I don't think it has any other options. "}],[{"start":376.50000000000006,"text":"But I think we've been rethinking where we get our energy from really since the Russia-Ukraine war. But now that alternative supply has been, if not shut off completely, really seriously threatened. So then the question is, well, how do we respond to that? "}],[{"start":393.1000000000001,"text":"I think the Americans would say, well, look to us. We can supply you. And Trump is also urging Europeans to start drilling. 'Drill, baby, drill' in Britain, as well as in the United States. I think you'll get more of that. But I think that there's also a renewed focus on renewables: wind, solar, maybe nuclear as well. "}],[{"start":411.4000000000001,"text":"I can also see that if Europe really wants energy security, then we will see a repeat of what happened in the 1970s and 1980s, which is that people will start building nuclear power stations. The nuclear industry is absolutely poised to benefit from all of this, partly because with energy prices this high, nuclear prices don't look quite as high by comparison. "}],[{"start":431.80000000000007,"text":"Long term, the only fix to this is more solar, more wind, more alternative forms of energy. And they're expensive. There is an upfront cost for these things. "}],[{"start":441.4000000000001,"text":"Yes, this is painful for governments. Yes, they have a lot of other incredibly pressing demands on their resources. But it's difficult for me to see any kind of path out of this current crisis that does not involve more green, more renewable energy. "}],[{"start":456.4500000000001,"text":"Well, I think we do need to rethink. But the main reason for that is not these shocks, but climate change. My view, for now 20 years, is that's a risk we just shouldn't run, because it's not reversible. Making irreversible changes in our climate, seems to me, very foolish. "}],[{"start":475.1500000000001,"text":"Of course, you then run into the problem that, well, is renewable energy secure if you depend on China for all of your solar panels and your wind turbines and your rare earths and your magnets and the batteries and everything else that you need to make the system work? "}],[{"start":489.55000000000007,"text":"I think that you need to have as many energy irons in the fire as you can. And perhaps accept that simply going for the cheapest solution is no longer really viable in this world in which things are disrupted so easily. "}],[{"start":502.75000000000006,"text":"We are definitely going to have higher energy prices. Even after all of this blows over, just the cost of making the system more resilient and more secure, building all of those storage tanks, building alternative sources of supply in case you need them, that all adds to the cost. "}],[{"start":519.0500000000001,"text":"Bond investors think, all of these governments are going to have to fix their energy supplies. There's going to have to be a lot of spending on energy. There's going to have to be a lot of spending on defence. We live in a more dangerous world. "}],[{"start":532.0500000000001,"text":"Where is that money going to come from? It's not going to come from taxation, because governments seem to have lost this ability to talk to voters about the need for higher taxes. It's going to come from the pockets of bond investors. "}],[{"start":544.1500000000001,"text":"It's unclear really who's going to pay that cost, whether it's going to be companies or governments. But ultimately, it's always the consumer at the end of the day, right? One way or another, the consumer will have to pay more for energy. "}],[{"start":560.3500000000001,"text":"I think it's too soon to say what the long-lasting geopolitical consequences of these conflicts and the energy shock will be, simply because we don't how the conflicts are going to end. Does it end with Iran emerging as the hegemon of the Middle East with America pulling back? That's a plausible outcome. Or do American and Israeli hopes that the Iranian regime will ultimately collapse? Are they eventually fulfilled, because that regime has been under tremendous both economic and domestic political pressure? "}],[{"start":589.8000000000002,"text":"One of the long-term impacts of this is that Europe will not forget in a hurry, and Asia will not forget in a hurry, what this war has done to its inflation levels, to the cost of energy. This was started in a way that was out of their hands. And it's Asia and Europe that really ware the consequences of it. I can't imagine them forgetting that in a hurry. "}],[{"start":609.1500000000002,"text":"So what you have is this sort of coalition on one side of Russia, China, and Iran, and on the other side of the US and its allies in the Gulf, and more broadly. That feels kind of a hardening geopolitical axis. "}],[{"start":622.6000000000003,"text":"What that means is geopolitical institutions of all kinds, the IMF, the World Bank, the WTO, all these things just don't work very well. So the world is inherently deeply uncertain and things happen. But the ability to cope and respond, I think, is impaired. And that makes it a bit more worrying to my mind. It's not shocks that matter, it's our ability to respond to them. "}],[{"start":645.2000000000003,"text":"Is this the new normal? Well, people in the energy industry think that we are in a new era of geopolitical volatility and permacrisis. And that's because they're carrying the scars from 2022. "}],[{"start":657.7000000000003,"text":"And here we are just a few years on and it's happening again. We're now living in a world where there's a fierce US-China rivalry. And a lot of that US-China rivalry is going to play out in the energy sector. "}],[{"start":670.6500000000003,"text":"First, we had two major oil shocks - one in the early '70s and one in '79 when the Iran-Iraq war started. Remember the Iran-Iraq war, we've been here before, which was our real mess. And oil prices shot up colossally, inflation exploded. "}],[{"start":686.7000000000003,"text":"And everybody said, this is normal: prices will be high and volatile. The assumption was oil prices will go on up forever, because that's what they do. And it turned out, they were volatile. And a few years later, they collapsed. The lesson I learned from this is we really don't what's going to happen. And that's partly because we can't predict geopolitical shocks. "}],[{"start":710.5500000000003,"text":"I don't think this is the new normal, because I don't think it will ever feel entirely normal. And nor should a world at war feel normal. But I do think that hopes that the crisis would be over swiftly and we would go back to a world of stable, low energy prices, look pretty vain. "}],[{"start":728.2500000000003,"text":"So is this a new normal? I think probably, yes. And I think inflation does set higher. And I think that borrowing costs do set higher for the long term. So this is a war that was effectively started by the US and Israel. But the rest of the world are going to feel the effects of it for a really long time, because it's going to cost us so much more money to keep the lights on. "}],[{"start":757.5000000000003,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1791384136_6645.mp3"}