Transcript
Jigar Shah: Hello, my name is Jigar Shah. I'm a clean energy entrepreneur.
Arnab Pal: Hi, I'm Arnab Pal and I'm a clean energy policy whisperer.
Jigar Shah: I was wondering what you were going to call yourself. That's amazing. I mean, I don't know if you slept at all, but Illinois is in the Final Four. So I'm wearing my orange.
Arnab Pal: When was the last time you guys were in the Final Four?
Jigar Shah: 2005.
Arnab Pal: Yeah, I still think the biggest feat in Illinois basketball history is that Michael Jordan's son played for your team. Good luck at the Final Four and hopefully that won't be your biggest feat, but right now it still is.
Jigar Shah: Well, our good friend Brandon Hurlbut texted me. He's getting his next ticket to Indianapolis to see the game. He and I both went to Illinois together.
Arnab Pal: There you go. Well, I'm a UCLA Bruin. We still hold the record for the most national championships, but I think the last time we won one, Bill Clinton was in his first term as president. So it's been a while.
Jigar Shah: Well, this week we got James Gutman back on. I love James. I am always in awe of just how much he's thought about this over the last 15 months, even before the Iran conflict started. But I do think that this time is going to be a lot more somber. I mean, it is very obvious that on Day 31, we're starting to see a whole bunch of the effects that people predicted could happen. But I think we're just not interested in thinking deeply about it.
Part of the way that I described it was that we needed to stop treating the Strait of Hormuz like a thought experiment, because it's not anymore. It's real people, real lives. It's real humanitarian outcomes.
Arnab Pal: Yeah, well, in some ways it is a thought experiment and we've been thinking about it for almost 50 years and there's been 50 years of war gaming that has shown us what would happen if we were to engage in this conflict and it is playing out exactly like the war games the last 50 years have shown, which is why no one else has done it before.
Jigar Shah: My God, it's so crazy. But you've got folks in India who don't have LPG to cook. You've got folks in Pakistan and other places that are cutting down the number of days that people go to school. They're trying to get people to work from home. They're basically replicating COVID-like mechanisms to save fuel. I don't see how this doesn't lead to economic consequences.
Arnab Pal: Yeah, and look, this is why — as someone who's always seen themselves maybe a little bit more of a globalist — I have respect for what I think is a bipartisan opinion amongst some really MAGA conservatives and progressives that Americans should not go around the world and get into military conflict because there are unintended consequences, both for Americans and for other people around the world who had nothing to do with this. And that's what we're seeing.
Jigar Shah: Look, I mean, I think Obama got elected as an anti-war president. I think Trump got elected as an anti-war president in 2016. I think he got elected again in 2024 as an anti-war president. It's kind of shocking that he would be the number one source of conflict in the second administration.
Arnab Pal: Yeah, in some ways, but in some ways not. I think about James — the most interesting thing, and I think we pulled this out at the end, was sort of what he saw as the end game. And I just don't know how you can explain to people if we do all of this and the end game is a fee or tax on the Strait of Hormuz that we all pay for. I mean, there are much worse things that can come from this, but that's not a good outcome for the amount of time and effort and money and lives on the line that are being put into this.
Jigar Shah: I mean, it's unfortunate, but we've structured this such that Iran has all the cards. And I think what you're going to see is a big fat taco.
Arnab Pal: Man, well, it's not the kind of Taco Tuesday I'm looking forward to, Jigar.
INTERVIEW: JAMES GUTMAN
TAKE THE WIN
Jigar Shah: James, welcome back to Energy Empire. We've also got Arnab Pal, who's joined us. He is a friend of the pod and going to join us to provide his expert commentary. What do I call you, Arnab, like a political wizard?
Arnab Pal: No, I mean, today you call me Jamie's substitute. And Jigar, the few times I've substituted for Jamie and tried to do her job, it has not gone well. So let's hope today goes better.
Jigar Shah: There you go. All right, James, we're going to jump right in. The last time you were here, you talked about Trump being the clean energy president. Is that still the case?
James Gutman: I mean, I think that's pretty much a done deal now, right, Jigar? Everywhere you go, the people I talk to, all they seem to be focused on is how they can get a long-term sustainable path to localized energy, which is mostly, but not exclusively, about renewables and nuclear. So nuclear is on there. And if you put that in clean energy, then I think so too. And this is a function of Trump's choices that he's made.
Jigar Shah: I think nuclear is very clean, so I think that's great.
James Gutman: I guess the only thing that I'd want to say is that whereas Trump has really kind of pushed this whole thing forward — not because he wanted to make the world greener, but for other reasons — this was also an energy transition that had its own legs. So it's not simply about responding to the policies of a president. It's about there are reasons why we are using renewables and nuclear and other alternative energy solutions and why they are coming to dominate, quite frankly.
Jigar Shah: Well, folks have been planning for this moment for some time. And a lot of those plans, frankly, were gathering dust and were not being deployed at scale. But they were written. And so those plans are now getting dusted off. And it sounds like folks are starting to implement them.
James Gutman: Yeah, I think that's right. And I think what's really important now for Team Green — I think what I want to say is take the win. Take a deep breath, look around. The world is transitioning to clean energy, not perhaps because we're all holding hands and singing kumbaya and saying this is the best way to decarbonize and bring abundance to the masses — for other reasons, which are a bit...
THE HUMANITARIAN CRISIS
Jigar Shah: Well, I mean, some of those reasons are not great, right? I mean, we're on Day 31. Forget the barrel price for a second. But what does this crisis actually look like on the ground right now for a family in Thailand or Pakistan or Kenya?
James Gutman: Well, and that's exactly where I'm going here. If you're talking about people who have few options today, the only option they have is rationing. So if you're on the ground in some of these emerging markets, you don't get LPG for your cooker. You just don't. You don't drive your car. You just don't. And that's just the way it is because you can't afford this now scarce commodity.
If you just fast forward though a bit to tomorrow, you're installing solar. You're patching yourself into the grid. You're getting the BEV or you're doing what you have to do in order to not repeat the experience of having this fossil fuel cut off from you yet again. And that is how we are transitioning. Not because we're all holding hands and saying this is a really good idea. It's because this is how I get to have my lights and my food hot — cook my food and have a hot shower when I need it, because that's what's really important to me. And it's going to be renewables for a lot of these people.
Arnab Pal: Well, I got to say, this is not the way I envisioned us winning, but that is an interesting way to look at it. James, in Pakistan, they're telling people to watch cricket from home to save fuel. In Thailand, government employees are being told to take the stairs instead of the elevator. Some countries are adding extra public holidays just to reduce energy consumption. And hundreds of gas stations in Australia are running dry. Airlines are canceling flights across Southeast Asia over and over again. This isn't really a price story anymore — it's a rationing story. And my question is, how far does this go?
James Gutman: So all rationing stories are price stories. Let's just agree that at the end of the day, the market will decide who gets what in a scarce commodity for which you can't borrow from the future. And that's really what we're talking about. You can't print molecules. You can print government bonds to your heart's consent, but you can't print molecules. Whatever you've got in storage or coming out of the ground today — that's what you got.
So how you will ration that painfully is through price. There's just no two ways about it. The people who are at that first level of willingness to pay are the people who get squeezed out. And those are people in emerging markets first off.
But it's also kind of important to note that because of the geography of where this curtailment in energy supply is happening — it's coming out of the Strait of Hormuz, which feeds first and foremost into Asian refineries — so it's the Asian refineries that are waking up and saying, I don't have heating oil for you, I'm very sorry. So that's where it hits first. It's the emerging market countries and they're the first in line to take the blow.
Where does this go? I mean, I really don't want to get into this game of trying to forecast how long this will last, because I did this a couple podcasts ago with you, Jigar, and it turned out to be a shockingly bad forecast.
Jigar Shah: You were overly rational.
James Gutman: So on day three-ish of this, I felt like the U.S. should walk away and say we won, but just let it be. And the reason I felt like that is because everything which has transpired since has been perfectly forecastable. The behavior of the Iranians, conditional upon their not caving early on, has been exactly what you would expect.
Anybody sitting down in Washington and playing that game backwards would have said, I don't want this outcome, therefore declare victory, go home, and conserve my munitions. That isn't what happened. So I still think that the way this ends is with one or both sides sort of declaring victory. And there's a new order that exists in the global community and in geopolitics and in the energy relationships.
What I don't want to do is say this ends today, this ends in two weeks. Here's what I will say. We've already lost — call it 200, 250 million barrels of just shut-in production. That's just gone. It's going to take time, even if sweetness and light breaks out tomorrow, to get those wells producing again, to get the tankers picking it up, to start moving the flow. And we're not even talking about the damaged infrastructure, particularly the LNG trains that the Iranians have attacked.
Jigar Shah: But I want to double down a little bit, James, around the fact that this really is a humanitarian crisis. I feel like people continue to talk about this in sanitized terms around figuring out what the rationing story looks like or the price story looks like. But it does feel like fundamentally there are hospitals that will run out of backup diesel power. There are people who will not be able to use fertilizer this year. Things are going to happen that will have these ripple effects for months, years to come. And once it becomes a humanitarian story, this becomes seared in the minds of people for the rest of their lives. These are things that people don't forget about for 50 years.
THE SUPPLY CHAIN CASCADE
Arnab Pal: Yeah, and talking about the humanitarian crisis and how it cascades — oil isn't just a fuel, it's also a feedstock. 92% of the world's sulfur comes from refining oil and gas and sulfuric acid is how we extract copper and cobalt. And if seaborne sulfur is now cut in half, is this something that traders are looking at? This impacts transformers, batteries, data centers — our economy even beyond what the humanitarian concerns are at risk.
James Gutman: So the short answer is yes. The closer you get to a trading desk where they actually buy and sell crude oil or gas, the more palpable that tension becomes and the more profoundly concerned they are with the implications further down the supply chain for everything that happens.
Jigar was asking about the humanitarian concern — can I cook my meal for my children? Can I provide air conditioning in sweltering heat? These are very real, tangible things. Now what you're talking about are first world problems. Am I going to get the helium that I need to feed my AI economy? Oh dear me. I probably will, but a third of the world's helium — more than that actually — passes through the Strait of Hormuz.
Jigar Shah: I mean, come on, James — screw the silicon data chips. Am I going to get helium for my kid's birthday party? Are those balloons going to be there? There are going to be a lot of unhappy kids.
No, I agree that the whole helium thing came out of left field to me. The fact that all of our fabs require helium — this is really a much bigger deal than I think anyone had contemplated.
James Gutman: Yeah, I mean, I think it's important to just bear in mind that the people in the emerging markets who are going to be struggling with the humanitarian aspect — what they're losing out on is the joules. They're losing out on the heat and the energy.
What we're talking about in these first world problems that Arnab's mentioning — this is where you've got the oil or the gas as a feedstock into another process. And this is going to have ripple effects down the chain. So it's going to affect everything from the production of copper to sulfur and fertilizer. Crop yields in the U.S. will go down because we will have less fertilizer. Crop yields everywhere will go down. So the price of everything that's grown will just have to go up because there's going to be a shortage of fertilizer. From the AI supply chain to the grocery store supply chain — it's going to hit everything.
And I think if you talk to people who actually have to figure out how they're going to get the petrochemical film to wrap the tomatoes that end up on the grocery store in London, they're scratching their head. They're thinking, yeah, I don't know how this is going to work out. Now, at the end of the day, it will work out. Some people will do without and other people will pay up and gradually over time supply will adjust. But it's going to be painful.
And I think something that Jigar mentioned a couple minutes ago, which I think is actually the most important part of this conversation — this will be seared into people's memories. Everybody's memories. If you look back at the 1970s and the first oil shock, it only lasted a couple months. It wasn't actually the change in the price or the curtailment in oil availability that was really the important takeaway. It's that everything then changed on the geopolitical landscape.
What we're looking at now is a sequence of very substantial changes in the geopolitical landscape. And this is going to be something that echoes for years to come. It's not just about the hit to growth and the boost to inflation because of supply chain bottlenecks. That sucks. And it's going to hit the poor harder than the rich. And that's going to suck. But more importantly, it's going to change how countries look at each other and who they play with.
HOW ALLIANCES ARE CHANGING
Jigar Shah: Let's dig a little deeper into that. How are alliances going to change going forward, given we're on Day 31 and we might be double that before this crisis gets fully resolved?
James Gutman: I mean, knock on wood, let's just hope that by the time we're done with this podcast — which is March 31st at 7:22 London time — we're going to turn on our screens and everything's going to be resolved. So let's hope it doesn't extend another 31 days. But the damage is done.
One of the points that I've been pushing for the past couple of years is that you need to look at the incentives that nation states have when they deal with each other. We focused a lot on the U.S. and how energy independence meant that the U.S. no longer felt obligated to protect global energy supply chains because it wasn't an energy importer anymore. The Carter Doctrine no longer applies, as you can see.
So now flip that around. If you're sitting in the Gulf states, your immediate concern is finding an end to the pain. Make Iran stop and make Iran not do this again in the immediate future. But who do you now have common cause with?
And I think what's really fascinating is that Donald Trump in one of his many tweets actually spelled it out perfectly. He keeps spelling it out perfectly. China, India, the Europeans, the Japanese and Koreans — the people who take the energy through the Strait of Hormuz — they should be cooperating and dealing with the Gulf states in order to manage and protect the supply.
So what you now have is a shared interest between the Europeans and the Chinese and the Gulf States. They don't have to like each other. They don't have to say we have shared political values. All they have to do is say we have a shared interest in making sure that the Strait remains open.
Extend that to the next level. There's no point of obvious friction between Europe and China apart from Taiwan — and that's a hard nut to crack. But they don't share a border. They don't have any points of friction or conflict. So it's not out of the realm of possibility for the Europeans to say, look, China, let's take more of your clean tech. It's a stopgap. We're not handing over our industry to you forever, but we want to do this now in a planned and thoughtful way. Let's talk about technology transfer. Let's talk about you reconfiguring your clean tech so that it's modularized so that we can start to remove and replace with European components the bits that we think are really crucial.
I'm just spitballing here, but what I'm saying is you have that conversation with somebody that you actually have a shared interest with. And I think that's what's being forced out of this whole crisis that's been created with the Strait of Hormuz.
THE PETRODOLLAR
Jigar Shah: One more area I wanted to make sure we covered here. When you study the 1970s, there's this whole concept of the petrodollar where all of these excess profits made by the Gulf were reinvested into New York banks and ultimately provided cheap credit. How does that cash cycle change? Because you guys covered that in a few other reports that you did with Jeff Currie. Where does this go in terms of the petrodollar cash cycle?
James Gutman: So when Jeff and I originally wrote The New Joule Order, one of the phrases that I used in there was barrels, bombs, and bonds. We talked about the barrels in The New Joule Order and what energy independence meant for the U.S. and therefore for the world. In another follow-up piece called The New Marshall Plan, we talked about what no longer being afraid of a Eurasian hyperpower — the Soviet Union — meant for the security arrangement. And then the follow-up piece, which is in process, is looking at how the U.S. financial underpinning for the global system, which has had a lot to do with the petrodollar story that starts in the 1970s and the people who are buying those bonds and holding those bonds — how that is changing.
In the immediate term, what you have is a financial market that is unable to wean itself off of the dollar. It's just too big. So to the extent that people have choices at the margins, they're trying to take on less dollar exposure.
What the Strait crisis has created are two additional effects. First off, the Gulf states are no longer exporting crude — or not as much. Therefore they're not getting paid dollars, which then feed back into the financial system to buy U.S. bonds, amongst other things.
Secondly, they're taking their assets that they do have — gold, for example — and they're liquidating them because they need to buy stuff. This is why you save money for a rainy day. It's pouring for them.
The second effect is that Chinese efforts to push the yuan as a settlement currency have gained momentum here, because the Iranians are clearly not taking dollars or euros in exchange for cargoes. The cargoes that do pass through the Strait — the Iranians are insisting that they have Chinese links as far as the financial settlement.
So what ends up happening is there's this nudge towards more yuan as a settlement currency in the energy space. Does this mean that the dollar is on the cusp of being dethroned? No. But it's just another chip in that story. It starts to corrode the primacy of the U.S. financial system.
I really want to be clear here. I am not saying that the U.S. dollar is in any way at risk of immediately being dethroned as the linchpin for the global financial system or that the U.S. Treasury market is going to somehow find itself suddenly starved for capital. But on a marginal basis, you're losing the Gulf dollars and the Chinese are gaining.
THE POLITICAL FALLOUT
Jigar Shah: So let's pivot here. Arnab, you're the political expert here. Trump promised cutting energy bills in half. Gas is going up above $4, might hit $5. Groceries are going up. Consumer price index jumped from 2.4% to 3.4% in a single month. At what point do Americans actually blame the president for prices going up and when does this become a political crisis?
Arnab Pal: Yeah, so look, I think we have to take a step back and figure out why do we want to talk about the politics of this. Because I think a lot of times people just want to talk about it for sport. And I think in this case, it's really important because the decisions that are going to affect the markets, the humanitarian crises, the things that James here is talking about — those seem to be inherently made based on political calculations by the president right now. In terms of how we're going to cooperate with other countries to keep the Strait open, who's going to get the blame, who's not.
And your question's important here, Jigar, because ultimately one of the strongest predictors of presidential approval has been gas prices over the years. And that's irrespective of how the economy's doing. So my take here is the longer this goes, the more untenable it becomes because we have someone who promised to cut energy bills in half and we're doing the exact opposite now.
I see this as a political crisis already. And I think you're seeing some irrational actions that are taking place based on that. James, I'm curious what you think. At what point do you think this war becomes a domestic political crisis in your eyes?
James Gutman: Well, in a weird and perverse way, I think we're probably going to see people in the U.S. say, yeah, it's bad for us, but at least it's not as bad as all these other people we screwed over. Which is kind of unpleasant. But it becomes a talking point.
I think it's already at that level where it starts to pinch pocketbooks, and that's where American voters really respond. Where you're going to start to get real frustration and angst is when you start seeing products that just don't show up on the shelves because there's a disruption in the supply chain someplace. And people are saying, well, why isn't Amazon able to deliver that thing I wanted? And it's because there's some guy in Vietnam who wasn't able to produce it for you. And it wasn't able to get onto a boat and come over and get unloaded in Long Beach. Sorry, there you go. I think that's when you might start to see consumers even more riled up.
Jigar Shah: I mean, the other challenge I see on the politics side is there's this escalation occurring, right? Because we didn't get out in day three. We're already sending special forces into the region. How do you open up the Strait of Hormuz without a ground game?
James Gutman: I don't even think — I want to be careful here, I'm not a military expert, I don't want to get too far out of my lane — but I think you probably don't. I mean, the idea that we would be able to put boots on that much ground, thousands of miles inland, and clear the mountainous terrain that has been, I would presume, prepared for just such an event — this strikes me as implausible.
Now, maybe a Marine Expeditionary Unit could take possession of Kharg Island and squeeze Iranian revenues. Okay, I could see how that would potentially work. But then you just got American men and women sitting there with a target on their back, which doesn't seem like a sustainable long-term strategy. I mean, I think we applied that sort of strategy in Vietnam and it didn't really work.
So I got to think that the deployment of paratroopers and Marines to the Gulf is as much about signaling and demonstrating a negotiating position.
They are negotiating — as much as the Iranians insist that they're not. Every time they insist that they're not, they're saying something with respect to the negotiations as to what they are rejecting or where they see something that they want. They're negotiating through tweets, they're negotiating through demonstrations of force, through blowing up targets elsewhere in the Gulf. That is what negotiation looks like.
Can you force the Strait of Hormuz open at this stage? Short of the Iranians running out of drones, which I don't really see happening, I'm not really sure how.
Arnab Pal: James, I want to click back to where I think your expertise makes a lot of sense. Trump, for whatever everyone says about him positive or negative, is a very sophisticated political actor. And he is smart enough to know that when people can't get the things they want on Amazon, that's when it's going to be over for him in terms of explaining this war. So my question to you is, how much time do you think we have until we're at that point? Because I think that'll explain a lot of where this is going.
James Gutman: We're already there. There is a pipeline and a lot of stuff is in the pipeline. And as long as the stuff is coming to us through the pipeline, we don't realize that actually there's been a seizure upstream and that's just coming.
So there is already a disruption to production of a lot of these goods that eventually find their way into Amazon warehouses. It's just going to take time to get there.
There's a reluctance in financial markets to price that in. And I think a lot of people scratch their heads as to why. I think there are three reasons. First, for the past 20 years, markets have been repeatedly schooled and trained to buy dips. Over and over and over again you have been told: buy dips.
Second, Trump himself has kind of created an impression that when push comes to shove, he will do what it takes to back down, declare victory, move on, forget about whatever happened in order to protect the stock market or the bond market. He's kind of made that pretty clear. So there is almost an implicit Trump put.
And third, and probably most important — we have an incredibly sophisticated energy system. It's really breathtaking and beautiful to behold, where there's all sorts of stockpiles built into the system and a supply chain which is resilient and able to adapt. But to an extent.
I mentioned earlier that we've already burned through maybe 200, 250 million barrels of shut-in production. That's not stuff that's been produced and is sitting on the water. That's in the ground. It's not coming out until stuff restarts. You could see 500 million barrels that just doesn't get pulled out. That is three times the oil glut that people were looking at that was floating on the seas. There's only so much SPR release that you can do before you just don't have the product. We haven't seen that fully played out in the financial markets yet because they haven't felt it.
THE MIDTERMS AND THE ELECTION CYCLE
Jigar Shah: When you think about the fact that 36 governors are running for office this year — no matter how this plays out, no matter what the deal looks like in the end, it doesn't look like an awesome deal. It doesn't look like America is stronger after this effort. How does this play into the election cycle?
Arnab Pal: Yeah, I mean, look, in some ways it's hard as a governor because the people of your state are going to be suffering because of this and everyone's going to be paying more for gas and the vast majority of the country will feel that immediately. But in other ways, it's quite easy because it's very easy to point to whose fault this is.
If you're a Democratic governor in a Democratic state — if you're Gavin Newsom and everyone's been blaming you and your policies for high gas prices — I think it's pretty easy. You're like, actually, it's Donald Trump. And everyone's going to be like, yeah, that seems right. And if you're a governor in any of these other states, it's the same thing. You know who to blame for these high gas prices. The best political statements are the ones that are just true. And this is one that's true.
Now, if you're a Republican governor, you're going to have to make some real calculus in terms of — do I stand with the president as gas prices go to five, six, seven dollars a gallon and go down with it?
Jigar Shah: Why don't they just all turn on the president? Aren't they going to turn on the president?
Arnab Pal: Well, the rational thing — if I'm a Republican governor running in '26, knowing that I would run for reelection in 2030 or be termed out — I would probably after my primary, the day after it, turn against the president and be like, I agree with him on all these other things, but when it comes to gas prices and this war, I'm not with him.
And this is what you saw in 2006, 2007, and 2008 with another unpopular Republican president who decided to have a war in the Middle East over oil. You saw people leaving. And if you're a smart political actor on the Republican side, you would leave the day after your primary is over. Because I think regardless of how unpopular the president is, he's still largely popular with his base.
James Gutman: Can I push back a little bit on that, Arnab? Because I'm very comfortable with the voting model that you have in your mind where people make this semi-rational calculation based on the pain they feel and attribute this rightly or wrongly to the president. And here it's pretty clear that they can. Great. So that's what they do when they go to the polls.
But then if I look at the way people have voted in 2016 and in 2024, I don't know, man. I don't get the sense that he is actually — when you had midterms in the first round and when you have midterms this round — I don't know that people are voting with that pocketbook impulse that we traditionally expect them to.
The reason I'm taking it in this direction, Arnab, is because I feel like the Democrats might have made the same mistake over and over and over again. They point to the policy, they point to the outcome, and they say, isn't it clear? Vote for me because the other guy stuffed you. And then they vote for the other guy. And we're like, huh?
Arnab Pal: Yeah, look, there's a very valid point you're making here in that the electorate is more inelastic than it was 20 years ago. So I think if this was 2006 or 2007, I don't think Trump's approval rating would be around 39, 40%. I think it'd probably be around 27, which is sort of where Bush's was. And I think the electorate has hardened on both sides.
That being said, the number one issue in the 2024 election wasn't immigration. It wasn't transgender rights. It was inflation and the economy. And there is no doubting that. And his approval rating has declined 10 or 11 points, partially on immigration and how he's handled it, but mostly based on the economy. So I do think that's still the prevalent issue, even if it's not as strong of a predictor of large swings of the electorate as it was before.
I agree that Democrats make a lot of mistakes. I think everybody kind of agrees with that. But in this case, I think if they're really honing in on cost of living, I do think that is why people went to the polls in 2024 and that is why people are going to the polls in 2026. So I think they're on strong ground there.
James Gutman: If you want to tie this back to the Strait — if you want to think about the one thing which is even worse than a higher cost of living for Republicans, it would be body bags. You start seeing body bags coming back from the Gulf for a war that nobody can explain. You're done.
Arnab Pal: Yeah, and I think we're at that point — we're so beyond politics. I think if people are going to war that people don't have rationale for and you're seeing — we've already had casualties and we've already had dozens, if not hundreds of American soldiers that have been injured. So I do agree with you. But I think at that point, we're at a place so much further than the midterm elections. But I agree with you.
THE TOLL BOOTH ON THE STRAIT
Jigar Shah: When you think about the end game here — Egypt is able to charge fees for going through Suez, right? Is that a deal where you go to Iran and say, okay fine, you get to charge a fee for going through the Strait of Hormuz and you're going to abandon your nuclear ambitions, but you're going to get all this windfall of cash? Is that how this thing ends?
James Gutman: I mean, first, that's already happening, right? So the Iranians have scored a massive win because now instead of stopping them from putting a toll booth on the Strait, now you have to try and convince them to take down the toll booth on the Strait. They're already one step ahead.
I think there's nobody who's really excited about the idea of tolling transactions on the Strait. The Strait is not just owned by the Iranians. The UAE and Oman have big pieces of territorial claim to those waters as well. And there's a precedent here which is really deeply negative. Are you going to start seeing tolling through the Strait of Malacca or into the Red Sea? This is just a terrible kettle of fish.
However, I can see where a settlement might involve something that's not a toll, but that's a toll. And the Iranians are able to have some sort of financial compensation that does reflect the fact that there's traffic going through and it's unmolested.
I can't see the Iranians at this stage backing down on their nuclear ambitions. Would you? Everybody saw what happened to Gaddafi. At this point it seems like you've already paid the price.
But I can see a world where the Chinese are invited along with the Europeans and along with other interested parties to help create some sort of a buffer or some stability there. And there might be a demand that many people around the world might think makes sense for the U.S. to take a step back.
If you just play that scenario out — and I'm not making forecasts, I'm not trying to say what I think is good or bad or right or wrong — but if you just look at how the incentives align: if you're in the Gulf states, once the immediate shock of this attack upon your civilian infrastructure from Iran has become a recent memory, you're going to ask — how do I involve other great powers in order to keep a flow of crude and product through the Strait? How do I keep Iran compensated enough so that they don't feel like it's in their interest to try and take the plunge? And how do I work out a new status quo?
Nobody's going to be happy, but I kind of think that's where we're going to end up. And it does look like that might have a reduced footprint for the U.S. in the region.
Arnab Pal: James, if you're right — and I'm not saying you will be — basically the net result of this is we will have spent hundreds of billions of dollars, risked the lives of American troops, risked the lives of Iranian people and those all around the Middle East, all so we can pay more for gas. Because that's what I'm interpreting from this.
James Gutman: Well, that's already happened. So if that's what I said, then I'm already right. What I'm actually pointing at is in addition — we can reshuffle the playing cards for the political and the energy system so that other people have a bigger role and we have a lesser role. We being the United States.
I know that last time I was on here, Jamie got really exercised by the idea that Trump is effectively the midwife for the green transition. And we talked about that at the start of this podcast. And I think that's exactly right.
THE MIDDLE KINGDOM
James Gutman: I think that Trump may inadvertently be the guy who helps to revive the Middle Kingdom. Because it's China which looks like they may have the power and the presence to be that stabilizing force here. I don't think that's a good outcome for anybody, but it kind of makes sense. And you can see how we could end up there.
So you're talking about spending hundreds of billions of dollars and putting people's lives in harm so that we can have higher gasoline prices. And I'm talking about all of that — and so that we can have less influence in the world.
Arnab Pal: This just seems like the exact opposite of building a wall and having Mexico pay for it. This seems like we're building something and then — what's that?
James Gutman: Did Mexico pay for that wall? Did we build that wall and did Mexico pay for it? Those are two questions. And the answer is no and no.
CHINA'S CLEAN TECH PLAY
Jigar Shah: All right, last topic. I think we talked about the fact that China comes out looking better out of this situation. The other thing that China has is they have been accused of a ton of overcapacity. Well, now that overcapacity has a place to go. There's a lot of people who probably want cheap Chinese electric vehicles. There's a lot of people who want to buy cheap Chinese solar panels and cheap Chinese batteries. And the Chinese don't seem to want to raise prices on anybody. They're happy to sell them at the same price they were selling them at two months ago.
And the other thing we talked about is that they were providing about $250 billion of trade credit, according to Michael Cembalest over at Eye on the Market from JP Morgan's asset management group. Talk a little bit about what China does in this moment to help folks decarbonize or localize or practice energy sovereignty — or whatever strategy it is that you're describing.
James Gutman: Yeah, I think China does precisely zero to help people decarbonize or to achieve energy sovereignty or any of those things. What China does is find a way to increase Chinese influence and presence in the world and to sell Chinese products. The Chinese own the clean energy space because this was a strategic priority for them, and they were right, and they did an amazing job, and it's theirs. Now they're going to sell us their stuff — if we'll let them. Not because it makes us better, but because it makes them better.
Now the smart thing for everybody in the world to do is to say, right, we're going to buy your stuff, but here are the terms. Here's what we want for local manufacturing. Here's what we want for technology transfer. Here's how we want to control the standards so that there's an easy way for us to slot out what you produce with what we produce. Here's how we want to control the software or the tech so that we don't think that you're a spy. There's a whole list of things that governments will do.
Jigar Shah: So when you talk to European leaders, are they going to do any of that?
James Gutman: Ha!
Jigar Shah: I mean, I was in Brussels like three times last year. I said exactly the same thing to them. I didn't hear them say, yeah, let's do this.
James Gutman: You know, I'm an optimist.
I do think that the tide has turned in European capitals. They are much more focused on the vulnerability that they face. There is little appetite to doubling or restoring dependence on Russia. And I think there is serious concern with their dependence on LNG.
Allowing the Chinese to help them expand renewables and roll out the tech is unpleasant and unpalatable, but something that they can probably get their head around if they can find a way amongst themselves to negotiate and compromise something that works.
If you're talking about the rest of the world, it's a much easier sell. For the rest of the world, buying Chinese tech as a way of insulating them from the volatility in these energy markets just seems like an easier process.
I think the path for Europe is relatively clear. The process by which Europe gets there is going to be very European, and that means discourse.
And I try to emphasize this every chance I get. That is a core European value and strength — this idea that we talk and don't force our opinions through. It's messy and it's frustrating and it's exactly what people like to criticize Europe for.
But that process of negotiating and compromising and finding second-best solutions is actually a European strength. In this case, that second-best solution might be finding a way to come to terms with having a greater Chinese role in your clean tech supply stack. Hopefully the Europeans will do so with a very strategic and calculated eye on how they can leverage the Chinese tech and the Chinese skills in order to rebuild a European manufacturing base. That's how the Chinese did it. They took a lot of skill and a lot of tech from the West and they used clever processes and made it theirs. We might just have to do the same.
THE IRA AND WHAT WE HAD
Arnab Pal: Jigar, based on what James is saying, it's almost as if Congress needed to pass this really big bill to support domestic manufacturing for clean energy in the United States to help combat what's going on in geopolitics today. It's like — has that ever been done before, Jigar?
Jigar Shah: I mean, if not, someone should do it. I think we should call it the Inflation Reduction Act when we do it. And I think we should hire 450 of the smartest private sector people possible and put out $107.5 billion in loans out of the Loan Programs Office.
James Gutman: Jigar, I think that's a great idea, and I'd like to nominate you to spearhead this movement.
Jigar Shah: My God. Well, James, all of us hope that the Strait of Hormuz is open tomorrow, but unfortunately it's not open now. Thank you for sharing your wisdom and insights. Arnab, thanks for filling in for Jamie. I think you did an admirable job — if not fashionable, but admirable.
Arnab Pal: I'll take at least fashionable.
TAKEAWAYS
Jigar Shah: Wow. I have never seen James so somber. I don't know whether he's low energy or just somber. I think last time we talked to him, it was like one in the morning London time. This time it was like 7 p.m.
I mean, when you think about just how many impacts there are on the global economy and just how many of the seven billion around the world who don't have access to energy are going to be negatively impacted — it kind of brings down the energy level in the room.
Arnab Pal: Yeah, and I think the most somber part is the worst is yet to come, which was sort of his read on the bad things that will happen — that you can't get your Amazon packages. And look, these are first world problems, I understand. We haven't quite felt it yet is what James is telling us. If this thing continues, it's going to be even more deeply unpopular and it's going to hurt Americans in ways that go beyond five, six, seven dollars a gallon of gasoline.
Jigar Shah: Well, I think it's worse than that, because part of what he was saying is that America is going to feel the impacts last. And so that means we are going to have all these horrific impacts on all these other countries, and by the time the politics actually catches up with Trump, it might be another 30 days from now. Because we're the center of global finance, because we've got a lot of cheap natural gas and those costs are not going up, because of all of these long supply chains — we may not see the full impacts for another few weeks or another month. And all these other countries are starting to see the full impacts today.
Arnab Pal: Yeah, and I think what I was trying to get James to answer — and I think maybe he was hesitant to respond — was does this accelerate the process of some sort of truce or ceasefire, knowing that this is about to get a lot worse in 30 days? And I do think for all of Donald Trump's inabilities, one thing he's able to do is read the room of the American people. And I don't think he's going to want to be the one telling people why they can't get their packages from Amazon and their things from Target.
Jigar Shah: I think he's trying to get out. I think he's trying to figure out a way to get out. I just think — how do you get out when the Strait of Hormuz is not open? So I think he just needs to figure it out.
Arnab Pal: I think the part we didn't get into all the way with James — the saddest part about this, and this personally affects you and I in terms of the work we did — we had a plan in place to make sure something like this in the long term, maybe not in 2026, wouldn't affect the country in the ways that it is right now. America can build things in its country, we can be energy independent. We ripped all that apart last year, and what we've done is basically re-exposed ourselves the way we were 20 years ago.
Jigar Shah: It's brutal to watch. Especially because the entrepreneurs who really bought in to the framework, the tax credits, all that stuff — they started construction of 920 projects around the country. And a lot of those projects failed to raise equity. They failed to be able to get to the finish line because of all of the stuff that got ripped up last year. And so now restarting is pretty brutal. We'll see where it goes, but like James said, I pray that this conflict ends by the time people hear this.
Arnab Pal: Yeah, I'm with you there.
Jigar Shah: Well, thanks for joining, Arnab. It was fantastic to have you on. I would always rather have Jamie, but it's fantastic to have you on.
Arnab Pal: I can be a poor person's Jamie and acceptably pass, and I'm here to do it anytime you need me to.
Jigar Shah: Well, thanks everybody for joining us. As you know, we're backed by S2G Investments — super excited for their sponsorship. You can find us wherever you listen to your podcasts, or on YouTube these days. Subscribe if you can. And with that, thank you so much for joining us.