Transcript: What’s Truly Baffling About the Strait of Hormuz Energy Crisis

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Robinson Meyer:

[0:47] Hello, it’s Wednesday, May 13, and the Strait of Hormuz is still closed. But oil is only trading at $107 a barrel, at least in the global Brent crude benchmark. So what is happening? This has been the question lately. We’ve lost more than 10 million barrels a day of a 100 million barrel a day market. That’s 10% of supply. And while prices are higher than they were in February when the Iran war started, they’re lower than they were after Russia invaded Ukraine in 2022 and there was no supply disruption.

Robinson Meyer:

[1:20] So what’s happening? Why has oil not yet responded to the extreme deficit that we see in the physical market? This is the question I asked John Arnold on a recent episode of Shift Key. It’s frankly the question I find myself getting asked more and more. And this is the question I’m going to pose today to someone who has been one of the most recognizable and important voices on energy, environment, and national security policy for a long time. Why isn’t oil higher? I was excited to sit down a few days ago with Jason Bordoff. He’s the founding director of the Center for Global Energy Policy at Columbia University’s School of International and Public Affairs. He’s also a co-founding dean of the Columbia Climate School. He previously served as special assistant to President Barack Obama and senior director for energy and climate change on the staff of the White House National Security Council. And before that, he was in senior policy roles on the White House’s National Economic Council and Council on Environmental Quality. We talk about oil today. Of course, we talk about Iran and the Strait of Hormuz. We talk about what we’ve learned from this crisis, what could still happen. But we wound up having a broader conversation about the future of climate and energy policy in the United States, what we each learned from the Biden era, and whether there’s a new consensus emerging around energy affordability and national security. It’s a great discussion. I found it so interesting. I’m Robinson Meyer, the founding executive editor of Heatmap News, and it’s all coming up on this episode of Shift Key.

Robinson Meyer:

[2:43] Jason Bordoff, welcome to Shift Key.

Jason Bordoff:

[2:46] So great to be on for the first time. And congrats on all the success with Heatmap. It’s been a really valuable resource and great.

Robinson Meyer:

[2:53] Well, thank you. Thank you so much. So I wanted to begin with like my sense of bafflement or befuddlement, which surrounds the entire mess around the Strait of Hormuz and Iran at this point. So we are recording this. I’m kind of now duty bound to say because the erratic nature of events on the afternoon of Monday, May 11. We’ll release this in the next few days. The Strait of Hormuz, at the time we’re talking, remains closed. The Iranian government seems, if not completely intact, then as strong as ever. The path to some kind of resolution, actually, as John Arnold suggested on our recent show, seems like it runs through some kind of diplomatic deal. And yet, you know, if the S&P 500 isn’t at an all-time high as we’re talking. It has touched one in the past week. It seems like it plausible could touch one in the next few days. The market is acting like this is over. And yet the current physical situation is completely unworkable. And so I just wonder to start off almost, how are you thinking about this now? And how are you playing out various scenarios in your head for where this could go?

Jason Bordoff:

[4:02] Yeah, it’s a great question. I’m sure people will study the question you’re asking long after this conflict comes to some resolution. The question of whether it really ends or is in a perpetual state of insecurity and tense status quo ceasefire is to be determined.

Jason Bordoff:

[4:20] You know, when I served in government on the staff of the National Security Council, like lots of other people, there were many efforts at scenario planning where you tried to think through what worst-case scenarios might come about from an energy security standpoint. And the closure of the Strait of Hormuz was the mother of all nightmare scenarios that would send oil prices hurtling toward $200 a barrel. And I’ve been saying since this started, there is no policy tool in the toolkit large enough to cope with the loss of something like 15 million barrels a day of global supply. You can do a little strategic petroleum reserve release and you have some floating inventories and the rest. But in the end, the physical reality of a supply shock that large has to catch up with the market eventually. And I’m going to stand by that statement. I will admit it is taking longer to catch up with the reality than one might have thought. There are a number of reasons potentially for that. We were in an oversupplied market situation before this all started. Estimates range from two to four million barrels a day for how much supply was going to exceed demand this year. Inventories were at a...

Jason Bordoff:

[5:28] Relatively healthy level. We did have a lot of oil on water, so-called floating storage, including from Russia and Iran. And then they got sanctions waivers to sell that oil into the market. We got maybe two or three million barrels a day of strategic stocks. So there were kind of workarounds that one could do. But still, we did see oil prices, we should say, go from $70 to $120 a barrel. They’ve eased off since then, although they’re still above $100.

Jason Bordoff:

[5:55] In Europe and Asia, you saw the physical — the price for a physical barrel of oil tomorrow shoot up way above the sort of so-called traded paper price that people look at on our trading screen, which is what we tend to think of as the oil price. And so the physical shortages were really starting to manifest themselves. And of course we saw that more distinctly in parts of the world that were more vulnerable in Southeast Asia, Pakistan, Bangladesh, Vietnam, Sri Lanka.

Jason Bordoff:

[6:23] You saw people limiting cooling, shortening work weeks, banning travel. In Pakistan, the cricket teams were reportedly playing to empty stadiums because they told people to stay at home. Airlines are canceling flights. So that physical shortage is there. And eventually it starts to make its way. In oil crisis now, because of changes in the market, including the shale revolution, I think we are seeing starts east of the Suez, to use colonial language, and gradually works its way west. And so that means that the United States didn’t face that same differential between physical and paper barrels. We had relatively healthy supplies here. But that sort of gave us, I would say, like a head start. We had a maybe two or three month runway before we felt pain as acutely as the rest of the world. But we are now seeing tankers load up and make their way to the Gulf Coast and U.S. exports are rising. The other dimension to this, I’ll just say, is that the data that’s available and it’s uncertain does show Chinese oil imports falling quite a bit, presumably because they’re using their very healthy, more than a billion barrels of commercial and government inventories. And so that also freed up some supply for the world. Yeah. The point you make is still correct, which is it is surprising. It’s taken this long to see a real price shock, but it is going to get much worse if the strait remains closed.

Robinson Meyer:

[7:40] The number of that price shock, as it were, has slightly moved out in that I think after one month of the strait being closed, there was a sense of, okay, well, we had policies that could get us four weeks and it had to do with placing the waivers on Russian and Iranian sanctions, on depleting existing storage, on the combined release from the Strategic Petroleum Reserves around the world. But it seemed like we had hit that moment a month ago. But we continued to sail through April without seeing the kind of price shocks that I think we expected to see. I don’t know if you’ve done the barrel math, and maybe it all makes sense if you do the barrel math. If you had been told that we were going to be, you know, eight weeks into this without seeing the kind of huge run-up, without seeing, say, oil at $150 or oil at $175, would you have been surprised? And does this tell us anything about where prices are going in the near term? Or have we just basically delayed the damage and it’s going to hit very quickly when it does hit?

Jason Bordoff:

[8:42] Yeah, I think there’s two parts answer to your question. One is kind of where I started, which is the physical, the math of the global oil market. And we can count 15 million barrels a day of disruption. We’ve shut in something like 12 million barrels a day of Gulf oil supply. We started with historic high surplus in inventories.

Jason Bordoff:

[9:01] Refinery runs have been cut. We released the SPR. There’s floating oil on water in storage.

Jason Bordoff:

[9:07] China has paused its SPR builds and probably used its inventory. So you kind of do the math and you can make up a lot of that. And still, we’re drawing inventories down and estimates are you maybe have another several weeks to go before global inventories really reach critical levels. And then I do expect oil prices would shoot up in a nonlinear fashion from there. But the other part of this, which affects your stock market comment also, is the uncertainty in the trading community. So you’re part of this oil. There’s a physical price today. And then the question about a futures price one month out or the curve even beyond that comes to what people expect. And it has been clear since this started, including because President Trump said so. You said we thought we had four weeks. He said this will be over in four to six weeks. So from day one, it is a pretty masterful display of verbal intervention in the market where something very bullish happens like all bets are off on a Friday and then right before the markets open on Sunday, there’s some resolution. We’ve been trying to temper how the market reacts to this and I think generally there has been a sense from people in the market, energy and otherwise, that this is going to be over relatively soon.

Jason Bordoff:

[10:16] And, of course, that hasn’t happened yet and indications vary by the day about whether it is going to happen. But remember, we started in a place where the fundamentals of the market were that prices would be soft this year. And so you don’t want to get caught on the wrong side of that trade if suddenly the straight opens up tomorrow and tankers move through in the next two weeks. So I think that’s part of what’s keeping prices in check as well as the sentiment and the uncertainty.

Robinson Meyer:

[10:40] You mentioned that the president has been very skilled at keeping prices down. And I think this is like a huge part of the story is that partially because of what happened around Liberation Day last year, partially because of this taco meme, there’s a reticence to fully invest in a catastrophic scenario among traders. And I think that’s like part of what’s happening. Do you think that the president has developed, though, any tools or I think, as I actually was saying to John Arnold a week or two ago, oil was higher after the Ukraine invasion when there was no supply shock than it is today when there is a manifest supply shock. And there has been one for eight weeks. And some of that does seem like it’s up to the president’s how the president has handled this. Has the president either inadvertently or intentionally developed any tools here that could be used by a future administration to kind of keep these things in check? Or does all of this come down to the unpredictability and to some degree kind of irrationality or unconstrained nature of Donald Trump specifically? And it would be very hard to duplicate without depleting a future president’s credibility.

Jason Bordoff:

[11:52] It’s a good question. I mean, again, there were some fundamental differences between 2022 in the energy crisis and today, a tighter market, and you didn’t have the same cushions that I just talked about. Europe particularly felt pain because of the loss of natural gas supply. And we haven’t seen that same effect today at all, in part because, you know, French nuclear was offline back then, and there was a drought from hydropower, and there’s more solar today. And so there’s a bunch of things that make us in a better position today than back then. Trump is a unique unique figure in a lot of respects, I think it’s fair to say. And one of those is the unpredictability. I mean, I don’t know, go back and read the art of the deal. I’m not an expert on Trump psychology, but it does seem like part of his approach to these things is to be unpredictable.

Jason Bordoff:

[12:35] And that obviously is having the effect we’ve been describing on markets. I do think that whether someone is particularly skilled at it and can do more of that than I know another president, a future president can, you can only do it so many times. And maybe I’ll regret saying this because I probably would have thought we’re past that number of times already. But in the end, there’s a physical reality to how many barrels are available to buy and supply and put in your car or, you know, make sure that if you fly an airplane from JFK to Asia, it can refill and it can get back. There actually needs to be a physical supply of molecules there to do that. And when that fails to show up, prices have to respond. And prices have to rise high enough eventually to destroy 15 million barrels a day of demand or somehow find it through additional strategic stock releases or something else. And so that reality, that’s an inescapable reality in my view, even though it is taking us longer to get there than, frankly, I would have thought.

Robinson Meyer:

[13:34] Staying in the region, the UAE recently announced it was pulling out of OPEC. And I wonder how you interpreted that and then also if you see that as kind of more, Is that something that would have happened no matter what? And it just happened to occur during this energy shock? Or is it related to the diplomatic and military changes that we’ve already seen or kind of series of evolving relationships we’ve seen as a result of the Iran war, where the U.S. has really been called in to defend Dubai from Iranian missiles? And in some ways, kind of the Emirati diplomatic intentions have become revealed as very different from what, say, the Saudis want.

Jason Bordoff:

[14:08] It’s probably some of both. I mean, the UAE has been talking about this for some time. And so while the exact timing may have taken some people by surprise, I think the general idea that the UAE might do this has been well known to people and kind of pay attention to the world of oil markets and oil geopolitics for a while. More than most OPEC countries, the UAE has invested an enormous amount to increase how much oil it can produce. And so a given quota, sort of a restraint on production as part of an OPEC agreement was more painful for the UAE than for some other countries that were struggling to meet their quota level in the first place. And then I do think there is, you know, there’ve been indications among people close to the UAE leadership that they have been displeased with how some of their regional allies in the Gulf have not stood by them in the way that they would have hoped for when they feel like they’ve borne a disproportionate share of the brunt of this conflict in terms of Iranian strikes, drone attacks, and the rest.

Jason Bordoff:

[15:06] So it was probably some combination of politics, geopolitics, and also oil markets. I do think that the UAE is correct when its leadership, its energy minister said, we’re doing this at a time when it has the least damaging impact to the oil market. If the UAE had done this in, say, normal times,

Jason Bordoff:

[15:23] It would have led traders and market watchers to sort of think, well, they’re going to surge production and maybe the Saudis won’t show any discipline and restraint either. And they’ll surge production and prices might have fallen quite sharply. They’re doing it at a time when OPEC countries can’t — they’re being forced to cut production whether they like it or not. They can’t increase production and put more barrels on the market whether they like it or not because the strait is closed. The UAE and Saudi are roughly about half or a little more of their pre-crisis export levels. And once this strait reopens, you’re going to need every barrel of OPEC production you can get for quite a while to rebuild the months of lost supply.

Robinson Meyer:

[16:02] I think there’s a whole school of commentary that is set on describing how unprecedented this oil crisis is, in part because there are alternatives to the oil system that there weren’t, say, even in 2022 or the 1970s or the mid-aughts. Fatih Birol, the head of the IEA, has said the kind of oil industry or the fossil

Robinson Meyer:

[16:22] fuel industry will never be the same. Now, I will note that he tends to say these things to like The Guardian and then to more financial outlets. He says things like Canada really needs to get with it and increase its production. But like, do you believe that, I guess? Do you see this physical crisis driving a deeper demand crisis and driving a kind of change in secular demand for energy? Or is this like, we’re gonna be back to normal the second the strait opens, and maybe there’s more EVs on the road in Vietnam or something. But the overall picture of 100 million barrels a day really hasn’t changed.

Jason Bordoff:

[17:00] Yeah, it’s a great question. And of course, this question is asked often when there were energy crises. And I remember Bernard Looney, then the CEO of BP saying, you know, after COVID, oil demand may have peaked because demand collapsed. And who could ever imagine going back to that level? There was something different about the 1970s energy crises and the sort of collective national trauma that that was for this country, but and some others too. It preoccupied the nation in a way that we haven’t seen since even today. And I think that a shock to the system that large has the ability to catalyze changes in policy far beyond what we saw in 2022 or other energy crises. And for someone who’s been doing this, dating myself 20 or 25 years, this feels like it has the potential. I don’t think we’re there yet, but this has the potential to be the closest to a sort of collective trauma

Jason Bordoff:

[17:54] of that scale and magnitude if this continues. And in the 1970s, you know, we were debating, there were environmental lists and industry fights, as there often are, about whether to build the Trans-Alaska pipeline. You know, this crisis is what pushed those things. So we got to increase domestic production and get that done. We had to reduce demand. And we got 20% of our electricity from oil back then. And we got rid of that. And we pushed renewables. And we pushed nuclear and coal, frankly. Carter, who was a great environmental president, pushed coal. So there were a set of policy measures that got forced because of that shock.

Jason Bordoff:

[18:29] Now, at the same time, we didn’t stop using oil, and the world did not get off of oil. And I think that’s probably true in this case, too. It is definitely the case that you could see countries respond by saying we want to be less exposed to global oil and gas markets that are inevitably vulnerable to geopolitical risk. We want to produce more at home. We want to electrify more, and they get more of that electricity from domestic sources. That’s been China’s strategy, right, for the last 20 years. And it’s in a stronger position than it would otherwise be. So I think you’ll see a lot of that coming out of this. That doesn’t mean the world gets off of oil and we’re kind of at the end of the fossil fuel era.

Robinson Meyer:

[19:08] Do we have the sense that, say, Southeast Asia is already at that point where this is an energy crisis that is affecting people’s decision making and how policymakers approach these questions in a way that, say, 2022 wasn’t?

Jason Bordoff:

[19:22] I think it is. And the question is what people do about that. They’re trying to cope with the immediate crisis. You made a comment in asking your initial question that there are more alternatives today than there were before. And that’s true. But, you know, these are alternatives that don’t always help in the immediate crisis. They help for the next one, like we should increase fuel economy standards, which it’s a mistake this administration has scrapped, or we should deploy more electrification and transport. That doesn’t help today. It helps tomorrow. And then when the immediate crisis passes, people tend to forget about tomorrow. And even if you wanted to stay the course and stay focused on tomorrow, these are capital-intensive investments and we’re at a place where advanced economies, nevertheless emerging markets, are seeing their fiscal budgets strained. High energy prices slow the pace of overall growth in the economy, hurt manufacturing exports in Europe, which is — there have been a lot of talk about whether this could accelerate a transition. They’re trying to ramp up their defense spending, which is straining a lot of government budgets.

Jason Bordoff:

[20:17] So it is true that I think countries will be eager to do this. And I haven’t been there, but reports are BYD dealerships in places like Manila are overflowing right now. But to stay the course there, it is going to require a good investment climate and depend on the cost of capital and the ability to put a lot of money into this kind of — there’s a security premium to pay for energy security. You want more redundancy. You want more strategic stockpiles. You want to shift to electrification. You want to build redundant infrastructure like the Saudi East-West pipeline. If energy security is more top of mind for people today, governments will be inclined to move in that direction. It’s just a question of once the crisis passes, how much of a security premium society is really willing to pay when fiscal budgets are already feeling some strain.

Robinson Meyer:

[21:01] What’s the risk that you’re most worried about in the current crisis that you feel like maybe isn’t getting enough play? In some ways, the lack of any progress since the ceasefire was put into place has meant that we kind of have talked about everything. But I don’t know. Is there something that in your mind, whenever you encounter it, you’re like, oh, that’s a big deal. And people don’t realize how big a deal that is.

Jason Bordoff:

[21:18] I mean, whether it’s tariffs or Greenland or Venezuela or this, and I could list other examples, too. I think global cooperation and America’s role as a trusted partner for countries around the world is a very important one. And that’s true for energy security, too. If you’re really worried about 80%, 90% of lots of the parts of particularly clean energy supply chain, say, being dominated by China or critical mineral supplies, the only way to change that reality is to work in partnership with more countries, Europe and Latin America and Africa. And I’m worried that China has a strong desire to position itself as a reliable commercial partner in the world, contrary to the U.S. And I worry that conflicts like this one don’t help us counter that argument. So that’s a broader point. When it comes to energy, I wrote a piece with my friend and frequent collaborator Meghan O’Sullivan at Harvard in the latest issue of Foreign Affairs —

Jason Bordoff:

[22:16] Where we talked about that thing I said a moment ago, if you’re more worried about energy security, and particularly you’re in oil and gas import dependent economy, say in Europe, a response to this could be energy security comes from isolating yourself, becoming self-sufficient. And it certainly makes sense to produce more energy at home where you can. But we talked about the 1970s a moment ago. And one of the responses to that crisis from my standpoint is a sense that energy security was strengthened by more cooperation and more integration into a global market, an oil market that was interconnected. So if there’s a hurricane somewhere or a tsunami somewhere or a civil war somewhere, supplies could shift around in response to higher prices, to be sure. All of that helped increase security. And it was like collective insurance policy. I think today, countries increasingly in the world of geopolitical fragmentation and our collapsing world order look around and feel like interconnection is a risk, not a source of security. And the more countries try to disconnect and kind of take a go it alone approach, I think that actually is more expensive. It’s cost inflationary. It weakens economic growth. And frankly, it makes it harder to have a clean energy transition.

Robinson Meyer:

[23:27] I mean, we were just talking about it, but the country that seems to be emerging from this crisis stronger is China. And it has pursued a relatively autarkic energy strategy, which has placed it in a very good position for this crisis. If you approach the past five years of, I don’t know, energy security development and geopolitics by focusing on an extremely, frankly, kind of paranoid energy security strategy, and you built up massive domestic oil reserves and your own world-leading electric vehicle companies and battery companies, and we’re really focused, and coal power production, and we’re really focused on developing your own energy resources, then you look great right now. And I think that’s part of what, I don’t know, both the U.S. system and the whole world to some degree is dealing with is that, China has pursued a set of strategies that weren’t supposed to work or were supposed to be more expensive than the alternatives and finds itself now in a stronger position, seemingly.

Jason Bordoff:

[24:21] Yeah, no, look, it was the first piece I wrote after the attack happened just a few days after that was with my brilliant colleague here at the Energy Center, Erica Downs, who’s a leading China expert. We were talking about exactly what you just said and sort of said there’s a lot of ways in which China could win from this. First, if it does prompt that shift to countries to say we want to electrify more and produce that electricity from domestic sources, that means more — say in Europe, more solar, more EVs, more batteries, more critical minerals and China dominates all of those markets. But it’s also a validation. And we should be clear. China is paying — they’re a big oil and gas importer and they get a lot of that from the Gulf. So they’re paying more for that to be sure. China’s April bill for crude oil imports was 13% higher this year than it was in April of last year. But their strategy to reduce their dependence on oil through electrification, to build up a huge reserve of more than a billion barrels of oil in a stockpile, while the U.S. On both sides of the aisle has been selling off our strategic stockpile because we thought we didn’t need it. Half of new automobiles sold in China are electric. More of its energy system is electrified than most other countries. And it’s been consistent across its five-year plans. Its 15th five-year plan came out just before this war started. And I think you read that five-year plan, and it is very much a stay-the-course kind of approach to what they were doing before.

Robinson Meyer:

[25:43] Do we have a sense of why, or do you have any theories on why their strategy has succeeded? I think along these autarkic or kind of energy security focused dimensions, when it maybe hasn’t succeeded in other countries, and maybe it’s just that they’ve leaned into a set of technologies that both worked particularly well for their, you know, political economy and also were truly at the frontier of what everyone was trying to develop. And it so happened that the U.S. pulled back and Europe maybe didn’t have the culture or approach and China was able to take the lead on, you know, solar and wind and EVs and all that.

Jason Bordoff:

[26:18] That’s a complicated question. And, you know, I had Dan Wang on my podcast recently who talked about the Engineering Society and the Lawyerly Society and the U.S. files lawsuits and makes it hard to build things. And China’s got a bunch of engineers who can build things really fast. And there’s some truth to that. They have stability in policy with five-year plans. When U.S. politicians or even administrations sort of put policy platforms together, you don’t necessarily think those things are going to happen in our system. It’s almost impossible to get anything done through Congress these days. If something’s in a Chinese five-year plan, there’s a pretty good chance it’s going to get implemented. Now, there’s a bunch of downsides to that in an authoritarian regime and lack of engagement and respect for human rights and a host of other things. So like maybe some benefits of top-down planning. I’m not saying that’s the direction we want to go in, but there are — it does make it easier to execute when you have a plan. Yeah.

Robinson Meyer:

[27:11] This crisis is singular in the voluntary nature of this crisis. There was no debate in the United States about bombing Iran. There was no effort to seek an authorization from Congress. There was no sense of why this operation needed to happen now as opposed to in three months or six months or never. It was entirely self. We chose it and the Trump administration chose it. Thinking back over the history of energy policy, like, is there any other moment like this where a country has kind of bumbled or, you know, elected an energy crisis or elected into a series of events that then created an energy crisis where, of such size and scale, but also that was so uniquely voluntary.

Jason Bordoff:

[28:00] Yeah, I’m trying to think about how to answer your question in the phrase uniquely voluntary, obviously the choice to impose an oil embargo or to invade Iraq or to attack Pearl Harbor or there’s a bunch of things, you know, when oil has been critical to the success in World War I and World War II. So I don’t know, I guess those aren’t voluntary because you’re in the middle of war, but many of these crises result from some choice like that to engage, or obviously Russia’s invasion of Ukraine. So I don’t know if it’s completely unique, but...

Robinson Meyer:

[28:33] When you start to look at countries that have taken drastic actions that then create energy crises that wind up harming themselves, I think you do want... It’s a relatively short list.

Jason Bordoff:

[28:42] Yeah. Well, and your point about harming...

Robinson Meyer:

[28:44] Imperial Japan might be on it.

Jason Bordoff:

[28:45] Your point about harming yourself is interesting, because I wrote an op-ed in the Financial Times and the motivation for it was just I was sort of struck that reporting in The New York Times about how Prime Minister Netanyahu came to Washington, went into the Situation Room, showed the slides about and tried to persuade the Trump administration to attack. And it sort of — I was reminded of how when I served in the White House in the first Obama term, Prime Minister Netanyahu came to the White House and tried to persuade the Obama administration not to undertake a physical military attack but to get much tougher on Iran and that was financial, oil sanctions. And a big part of the struggle at the time was how do you take two and a half million barrels a day, which was the level of exports at the time of Iranian oil off the market without cratering the U.S. economy in the process. And it is striking that the idea that you could disrupt 15 million barrels a day of supply was not a constraint or seemingly to the same extent this time around. Now, I’m not comparing the two. It’s not that — it’s not like if we were an exporter at the time, Obama would have attacked Iran. For sure, that’s not the case.

Jason Bordoff:

[29:49] It is a global market, and U.S. consumers are feeling pain at the pump. But there is a way in which the shale revolution has put the U.S. In a better position than it had been in before. That $30 or $40 gap between the physical and the paper price I mentioned before, the fact that the macroeconomic impact today is smaller because consumers are spending more, but that money is circulating within the U.S. Economy rather than flowing overseas. Again, we’re not insulated, and we’re seeing the politics of this now as people call for waiving the gasoline tax or something. It’s kind of coming home to roost. But it does seem to me like it gave the U.S. a bit more freedom to undertake risky geopolitical and military actions that had the potential to disrupt markets than would have been the case when we’re importing 60 percent of our oil, you know, 15 years ago.

Robinson Meyer:

[30:33] As you were just saying, you worked on energy policy during the Obama administration. And I think the past few weeks have seen, and honestly, even just the past few days have seen a discussion of kind of democratic energy and climate policy research. And there’s a piece yesterday in The New York Times by Matthew Huber at Syracuse University, basically saying Democrats have stopped talking about climate change in a number of important races and kind of at the national level. And that’s good because it really never mattered to the working class. And they should do climate policy, but they shouldn’t talk about it anymore. I wonder, you could have watched the Biden era after viewing this huge arc of coming out of Paris, this whole second wave of climate policy, and it built during Trump. And then it was part of the story that President Biden told when he was elected. He named it one of the four crises that was facing the country. And then ultimately, it resulted or helped result in the Inflation Reduction Act. What are your reflections on climate policy in the Biden era? Because I think everyone right now is kind of trying to figure out how they think about what just happened and what Trump’s second victory means for it and what they should do going forward. I wonder how you’re approaching this.

Jason Bordoff:

[31:37] I believe two things can both be true. Climate change is an urgent crisis that demands that the world move much faster to reduce emissions and that means using fewer oil, gas and coal resources. And it’s better for the U.S. that we’re a net exporter today rather than a huge net importer. And it’s a good thing, not a bad thing that we’ve had this change in the U.S. energy position. And it frustrates me that it seems oftentimes people on either side of these issues politically or industry and sometimes activists can only sort of acknowledge one of those things and not both at the same time. And maybe whatever people mean by words like realism or pragmatism in this whole discussion, you know, I hope it means we move in a direction where we’re talking about both of those things and doesn’t mean realism and pragmatism. You need energy to be cheap. The world’s still going to use oil and gas for a long time. So don’t worry about that climate thing.

Jason Bordoff:

[32:38] Second, as someone who’s lived a lot in the national security and geopolitical and foreign policy world, I think there’s a potential for a conversation about energy security and national security to be a powerful motivator of many, not all, but many of the steps that you would want to take to move in a low-carbon direction anyway. And I think that could give more force to some of this agenda because if an item is on the agenda of the national security advisor in the situation room, it frankly probably gets a little more attention than if it’s on the agenda of the climate advisor calling a meeting down the hall in the White House. And so that’s why at the Energy Center, we try to spend as much time at places like the Munich Security Conference or the Aspen Security Forum as we do at UN COP meetings. That’s a really important community to drive a policy agenda forward. And then the third is, in the end, sort of reality catches up to some of the promises that are made to build consensus and a coalition in support of action. I think you talked about the Green New Deal, what led to the Inflation Reduction Act, the Biden administration, and there was a broad discussion.

Jason Bordoff:

[33:47] Narrative at the time about how shifting faster to clean energy is a win-win-win. It saves everyone money. It creates jobs. It leads to sustainability and lower emissions. President Biden often said, when I think climate, I think jobs. And the problem is there’s some truth to that, but it’s not entirely true. And there’s a cost. There’s a bigger cost to not doing anything about climate change, which is why you have to do something, but there is a cost to doing something about it too. There’s some negative cost opportunities. Solar is very cheap. I know all of that is true. And so I think sometimes if you overpromise to try to move an agenda forward, if those promises don’t deliver, that sort of catches up with the political conversation eventually.

Robinson Meyer:

[34:26] Do you think the U.S. has a uniquely hard time or an unusually hard time decarbonizing or adopting some kind of climate policy? In part because, you know, you have Europe or say the U.K. I would say Europe is relatively energy poor in terms of fossil fuel resources, especially if you’re looking to burn something that isn’t coal. There’s China, which has a lot of coal and has been burning it, but does not have liquid fuels, doesn’t really have a huge natural gas resource. And so for Europe and China kind of both of which are the two other I would think of kind of two other anchors of the global economy in some ways what you were just saying a lot of the stuff they had to do for decarbonization that was stuff they had to do anyway for energy security and so and in China there were you know hundreds of millions but they.

Jason Bordoff:

[35:12] Do have a carbon tax then they were willing to put climate policy in place because there was an acknowledgement that climate was a problem and sorry not to cut you off in your question no no no I do I do think your point before about this sort of sense and, you know, recent op-ed in the New York Times and stuff like, well, Democrats just shouldn’t talk about it. I understand, although it’s not my expertise sort of polling in politics, why for a midterm or in the near term, maybe you want to talk about affordability or other things. And there are opportunities there. Solar is one of the cheapest forms of electricity. And you have to account for balancing in the grid, not just the marginal cost of solar. I get that. And you can do it quickly when there’s a long backlog for new gas turbines, which is why the fastest growing form of new power generation capacity in the U.S. this year will be solar, even though we’ve lost some of the tax credit support and permitting may be a little harder. So there are opportunities like that. We need to modernize the grid for AI. We need to bring power prices down, and that can help give momentum to, say, solar and wind or nuclear power. But in the long run, we’re not going to solve the problem of climate change if we don’t talk about it. It is a negative externality. There is a cost to society from using oil, gas, and coal, and agricultural emissions and all the rest. Greenhouse gas emissions in the long run are going to cause significant suffering.

Jason Bordoff:

[36:26] And that’s not going to go away only because we can make progress toward it. But you’re not going to solve that problem entirely unless more people acknowledge, recognize that and take it seriously and are willing to do something about it, which is probably going to mean paying some cost for it, even though the willingness to pay a green premium seems to be low right now. And you want to minimize it through efficient policy, by bringing down the cost of new technologies. you want to do all of those things.

Robinson Meyer:

[36:50] I agree, although I do think that there’s a bit of a tension between kind of that we’re not going to solve climate change without talking about it. And I think your second point, which is that there’s a lot that we could do on climate change as a country if we worked in a bipartisan way and kind of thought about national security. And so I think, for instance, there’s a lot the U.S. could be doing. We could have a, you know, something I’ve been talking about recently informally is like we really need a CHIPS Act for battery chemistry, right? And the way you’re going to develop a coalition for a CHIPS Act for battery chemistry or EV production is not by going to Republicans, House Republicans especially, and saying, hey, look, this, we need to do this for climate change. In fact, the way you’re going to do it is by talking about climate change as little as possible.

Jason Bordoff:

[37:31] Yeah, no, I don’t dispute that. I agree with that. I’m sort of trying to just say, I think we need to be working in parallel to help people understand, and Columbia has a whole climate school it has built to try to do this, but to try to help people understand the stakes and why this is a quite serious problem. But that takes time. That’s not sort of the immediate, as you said, the things we can do, whether it’s nuclear power, which this administration is supportive of and actually taking some good steps to try to streamline nuclear permitting or the critical minerals work that it’s done or other things. As you said, we need every form of energy we can get when power prices are going up. I do think this crisis, though, for an agenda that has been about energy dominance, let’s increase oil and gas production, let’s pull back on things like fuel economy standards and support for EVs, the energy and economic security argument that, yes, we might be the largest oil producer in the world, but in a global market, we are still vulnerable when something happens halfway around the world. I hope the takeaway from that would be, while it’s a good thing, not a bad thing, if we’re a big producer rather than a big importer, to really make ourselves resilient, we want to be moving in parallel to reduce how much oil the United States uses in the first place.

Robinson Meyer:

[38:45] I think there’s a lot of criticism now. In fact, I’ve seen it tied to this exact thing, to this exact dynamic that the U.S. is a big producer of oil and gas. We’ve kind of achieved energy independence on paper, quote unquote, which was the long sought goal of so many presidential administrations. But we have not actually achieved energy independence in reality, because of course, as long as you use especially oil, which is a globally traded commodity, you can’t really be independent. And I’ve seen some people go so far as to say that, that, in fact, the Obama deal to extend the solar and wind tax credits in exchange for lifting the crude oil trade embargo was a mistake. And we should have kept oil in the country and maybe, you know, sacrificed a few years of tax credits. But that way there would actually be, you know, it would not have grown the domestic oil and gas industry in the same way. And also we would now have that oil to burn, I suppose, in this energy security moment. Is that off base?

Jason Bordoff:

[39:39] I think so. It kind of comes back to what I said a moment ago, which is energy security comes from being interconnected into a global oil market. So when Hurricane Katrina hits the U.S. Gulf Coast and takes out a bunch of production, we are more secure, not less, because we can access a global market and some supplies that might have gone from, you know, Africa or Latin America to Europe will come to the U.S. instead. I think if you were to try to isolate yourself and cut yourself off, for example, by banning exports, and remember, to even contemplate what you were talking about, you would need to ban oil exports and also refined product exports, gasoline and diesel.

Robinson Meyer:

[40:18] We were exporting refined products the whole time, basically. It was only — Well.

Jason Bordoff:

[40:21] If the price of refined products are set in the global market, oil might be very cheap, but the price at the pump is going to be set by what a refiner could get if they were to export that. If you were to put in place export restrictions, you would force more U.S. crude into a domestic market. You would force a greater discount in the U.S. price of oil, so-called WTI, relative to Brent. Unless you restricted gasoline, you wouldn’t necessarily lower pump prices instead. It would kind of require a lot of capital to remake the domestic refining system because it’s kind of optimized for crude that is not U.S. crude. And then in the end, you know, producers would cut back and domestic refiners would cut back in response to that. I think in the long run that would be harmful and it sends a signal to the rest of the world too that makes them question whether the U.S. Is a reliable supplier. And it’s easy to see sort of tit-for-tat retaliation where some people say, well, if you’re going to take care of yourself, we’re going to take care of ourselves too.

Jason Bordoff:

[41:20] And that might be okay for the time being for the U.S. But we should remember before this crisis started, U.S. oil production was projected to be roughly flat this year. And there is a question because shale is so short cycle about how long the production at this level can be sustained. The idea that 10 or 15 years from now, U.S. production could actually have fallen and demand hasn’t. You kind of want to think in the long term about — we’ve spent decades pushing back on other countries that have tried to take care of themselves, restrict exports, restrict imports, use energy in coercive ways. And I think it’s short-sighted if the U.S. were to try to adopt tools like that as well.

Robinson Meyer:

[41:59] There was one last thing I wanted to ask about. It gets at the same kind of set of questions here, which to be clear, I don’t have a good answer on either. I’m trying to think through all of them, which is that you remarked upon this question, often struggle to see both sides of this climate change is an urgent problem and it’s good that the U.S. is an oil and gas net oil and gas producer this has created many benefits for the american economy and i would add for our European allies in 2022 and more recently it is part of the reason that it’s hard for people to see that I mean it’s kind of like easy for you and I to say these two things because our job is identifying what is true at the moment and I think both things are true. I understand when people bring a more zero-sum approach to these, because frankly, what a lot of the businesses and individuals who got rich off the oil and gas boom then did was turn around and use it to block climate policy. And I think it would be hard for me to say, for instance, that the growth of the U.S. domestic fossil fuel industry hasn’t ultimately been bad for U.S. climate policy on net. Now, I think it’s had many benefits, but I think maybe, you know, domestic American climate policy has been a victim of it. Is there any way out of that trap or are these issues just kind of stuck in politics and we have to make coalitions as we can, but ultimately there is a net push pull on these things at the domestic level?

Jason Bordoff:

[43:26] I think there is good reason to be skeptical about the ability to have those balanced pragmatic arguments because sometimes they are abused or used, as you said, to undermine climate policy. The idea that if one were to support however you want to characterize, keep it in the ground policy, stop production, stop pipelines, and you say, as I have in the past, well, if demand doesn’t go down and you restrict production somewhere in the U.S. Gulf Coast or wherever, one of two things is going to happen. And either prices go through the roof, and I’m not sure we have the political ability to sustain higher prices as the forcing mechanism that forces the economy to decarbonize.

Jason Bordoff:

[44:02] Or some other producer is going to jump in and pick up the slack. There’s no lack of hydrocarbons in the world. And whether it’s Brazil or the OPEC countries in the Gulf or someone else, like they’ll produce instead of us. I think all of that is true. But that means you have to do the other part. It doesn’t mean you don’t address this problem. It means you’ve got to make sure that you’re reducing demand and driving that down through electrification and fuel economy standards and new technologies and R&D and the loan program and the IRA and all the rest. And as you said, the idea that we are energy secure and energy dominant or suddenly a big producer, if we don’t need to worry so much about the urgency, as George W. Bush said in the State of the Union address, was very eloquent about saying why the U.S. needed to reduce oil use. But that was a time when we were a big importer. Again, that’s why I came back to the point about how in this crisis, the idea that even though we are an exporter, a net exporter and a big producer, we’re still vulnerable and it still makes a lot of sense to use less. Somehow you need to sort of find a way to build some common ground around those ideas.

Robinson Meyer:

[45:04] You run the Center on Global Energy Policy at Columbia University, and we’ve had a number of CGEP people on. I think we’ve had Jack Andreasen on and Noah Kaufman. If he’s not on, he will be on at some point. This is an organization that I encounter, as I’m sure many shift key listeners encounter kind of through its emissaries. But just like, what is the work of the Center on Global Energy Policy at Columbia? Like, what do you guys do there? And what should we watch out for in the months and years to come?

Jason Bordoff:

[45:31] Yeah, I appreciate the question. So it’s a big energy think tank, for lack of a better term, that sits inside Columbia University. It’s about 100 people, like some of the brilliant scholars you just mentioned, Noah Kaufman and Jack and a bunch of others, working really across the board. I think one of the things that makes it a little bit unique is, first, it’s a collection not only where we work with the faculty at the university, but also these senior research fellows, people like Jack and Noah, who have pursued nontraditional academic paths. They’ve worked in government or in the International Energy Agency or civil society or the private sector and then take their expertise and try to put it to work here, helping to advance policy-relevant research. It is pretty interdisciplinary. We have under one roof people with expertise in renewables and climate policy, nuclear, oil and gas, Russia, China, Iran, sanctions, tariffs. I think that’s kind of made for this moment where everyone realizes you can’t have a faster energy transition or guarantee energy security unless you really understand this complex, fragmenting geopolitical moment that we are in. And the idea for it was one that I had when I worked in the Obama administration.

Jason Bordoff:

[46:38] We were just talking about energy exports a moment ago, just as an example. You were asking about oil exports, but the Obama administration was the first that had to decide, should we allow the export of natural gas? It was a question that would have been unfathomable five or ten years earlier. We were a big importer. How is that even possible? And suddenly the world changes. The shale revolution comes out of nowhere, at least to people in Washington. It seemed to come out of nowhere. And it raised important policy questions like, should we allow exports? And they become a big political fight. Environmentalists might say it’ll destroy the planet and industry says it’ll create a billion jobs and our allies in other parts of the world are saying it’s important for our security. And as a policymaker, what you need is you’re bombarded a lot by advocacy information. What’s really helpful is independent, trusted expertise that doesn’t have an agenda. And the question is where does that come from? That understands all parts of energy, the geopolitical, the economic and the environmental and climate. And there just wasn’t as much of that as there should have been. Universities are pretty extraordinary in their independence, their rigor, their analytic capability. They’re not always good at being useful to the real world in the formats and timeframes that the real world needs. So the idea for the Center on Global Energy Policy was can we sort of try to solve that problem by bringing practitioner scholars together with some of the leading academics in the world on all different types of energy issues.

Robinson Meyer:

[47:57] It’s so funny because it was something that I realized I’m a great consumer of its work. I’m aware of it, of course, as an organization, but I’ve never heard the story

Robinson Meyer:

[48:04] or kind of gotten your synopsis of it. So thank you so much. We’re going to have to leave it there though. Jason Bordoff, thank you so much for joining us on Shift Key.

Jason Bordoff:

[48:11] Thanks for the invitation. It was great to be here.

Robinson Meyer:

[48:18] Thanks so much for listening. That will do it for this episode of Shift Key. You know, some weeks of Shift Key, we just have one episode for you. This week, we have three. We are a news podcast, after all. We will be back one more time this week, I think on Friday, with an episode about the Trump-Xi China Summit with two great guests. Until then, Shift Key is a production of Heatmap News. Our editors are Jillian Goodman and Nico Lauricella. Multimedia editing and audio engineering is by Jacob Lambert and by Nick Woodbury. Our music is by Adam Kromelow. Thanks so much for listening, and see you on Friday.