Is China the Winner of the Iran War?

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From conflict and great power competition to energy and supply chain disruption, the Center helps clients anticipate what comes next. Read the latest insights at jpmorganchase.com slash Center for Geopolitics. Today, thinking about the long-term consequences of the Iran War. What do the following things have in common? The death of the Soviet Union, the rise of the modern Republican Party, and Nintendo. The answer is an energy crisis. In October 1973, Arab members of OPEC launched an oil embargo against the U.S. and its allies. Within months, the price of a barrel of crude quadrupled. In the U.S., the immediate effects that you surely know from looking at photographs or having lived through it were gas lines and a national speed limit. A second, a second shock followed during the Iranian Revolution of 1979, and gas prices surged again. The combined effect of these two energy crises was the toxic union of stagflation and inflation, two things that economists had previously suggested were practically incapable of coexisting. Those immediate effects, gas lines, recession, were actually the least interesting consequences of this historical moment. The arms of the 1970s oil crisis truly reached around the world. In the USSR, oil shocks were a windfall for the Soviet petro-economy, and oil money allowed Moscow to paper over the dysfunction of its planned economy for years. But in the 1980s, oil prices fell, and Gorbachev's petro-economy collapsed, contributing significantly to the demise of the Soviet empire. In Japan, heavy industry relying on cheap oil had powered that economy in the 1960s, but expensive oil threatened that model of growth. In the 1970s, industrial policy was rerouted towards smaller manufactured goods that required less energy, things like computer chips, circuits, robotics. The famous consumer electronics revolution of the 1980s in Japan, the Walkman, the VCR, Nintendo, was an echo of the 1970s oil crisis. In the US, the historian Gary Gerstle has described how stagflation shattered the New Deal consensus that had ruled American politics since the 1930s. Americans lost faith in the sort of activist government associated with Roosevelt, Truman, and Lyndon Baines Johnson. The political order that emerged from the 1970s prized individualism, celebrated markets, and even outwardly mocked the idea of effective governance. The election of Ronald Reagan, and thus the rise of the modern Republican Party, is very hard to imagine in a world where the economy of the 1970s was as copacetic as the economy of the 1950s. So there you go. The fall of the Soviet empire, Nintendo, Reagan. None of those things were entirely caused by the energy crises of the 1970s. I'm not saying that. But in each case, the oil shocks of the 70s reshaped the political and economic environment in a way that increased the odds of these world historical developments. The vast and sprawling tentacles of past energy crises have been on my mind recently during this Iran war, which has already shut down most commerce passing through the thin Strait of Hormuz, through which passed more than 20% of global oil transits, 20% of seaborne liquefied natural gas, 30% of seaborne fertilizer, and a growing amount of global container traffic. The Strait of Hormuz, as I've said, is a little bit like the global economy's ACL, a small and vulnerable connective tendon that you don't have to think about when it's working perfectly, but causes very loud anguish when normal functioning is ruptured. By some measures, this Iran war is already the largest sudden disruption of oil supply in modern history, and the aftershocks of its closure are truly global. Governments around the world are telling their citizens to use less. In Australia, the prime minister gave a rare national address to ask his citizens to stay out of their cars. Please, he said, take public transit, bikes, trains. In Europe, the EU's energy commissioner called on governments to encourage remote work and cut highway speed limits. In Thailand, the prime minister wore short sleeves to work and asked others to do the same to avoid using air conditioning. In Egypt, shopping hours have been cut to five days a week. In the Philippines, civil servants were asked to stop using the elevator. In Sri Lanka, Wednesday is now a public holiday. In Laos, the school week is now three days. Each one of these measures is at bottom the same measure. Use less. Because there is less to use. Demand is being destroyed. And those are just the first-order consequences. As the 1970s taught us, energy crises are notable not only for their effects, but for the effects of their effects. Today's show is all about trying to understand these second-order consequences, which are now billowing throughout the world. Today's guest is the financial analyst and writer Alex Turnbull. We talk about how the Iran war is already remaking the planet, and in particular, we talk about how this war is reshaping America's showdown with its number one geopolitical adversary. One way to see this war is that the U.S. decapitated Iran's leadership. But that bullet passed through the Iranian theocracy and hit the Gulf energy producers in the arm, ricocheted off, and struck the Pacific islands in the foot, bounced up into Japan and ripped through their plastic manufacturing industry, and then swung around the world until it landed on an American gas station, turning the three in three-dollar gas into a four. This is a war with very few winners. But one of those winners might be China. I'm Derek Thompson. This is Plain English. ♪ ♪ Alex Turnbull, welcome to the show. Thank you very much, Derek. Good to be on. So if an American television viewer or a newspaper reader or podcast listener tunes into the Iran war, they're overwhelmingly likely to hear about the price of gas, the price of gas, the price of gas. What they're very unlikely to hear about are the Pacific Islands. And that's precisely why I want to begin with the Pacific Islands. Alex, what's happening in the Pacific Islands? Well, to most Americans, they're random dots on the part of the globe they don't really look at. And understandable. However, they are places where if, for example, China were to establish a permanent military presence, it would severely undermine the U.S.'s ability to do much with regards to Taiwan or other countries in the Pacific, which are a higher priority. And so if these islands cannot get diesel and they. run on diesel for their power, for their transport, because there's a lot of its shipping, then they can potentially collapse. And they will face the choice of either collapse or sourcing diesel from, say, China, and China will have an ask there. And if China were to ask them, hey, guys, I'd like to build a deep water port and put some stuff there, just don't ask too many questions about it, they're probably going to say yes, at the point at which they're facing complete economic collapse. And that would severely undermine the U.S.'s ability to project power, to defend its allies, to secure its supply of critical inputs from countries like Korea, Taiwan, and others. So they look like small dots on a map, but they absolutely matter if they go to the other side and things get hot. And how severe is the diesel crisis in these islands today? Already quite acute. There is an overall shortage in Asia. These are not the wealthiest places in the world. So where, you know, people have to pay up for a smaller supply of diesel. that are going to be able to afford it are Korea, Japan, Singapore, Taiwan. These places will not be able to pay that, and they will get desperate. And I think there will be consequences to that. And just to be clear, what islands are we talking about here? Fiji, Tonga, numerous others around that area, Vanuatu, and New Caledonia. I mean that they could vote for full separation from France and become a quasi-Chinese client state. They're also a big producer of nickel, which is quite important for batteries. So there's a lot of things that could go wrong here, even if these places look like they're in the middle of nowhere. And Derek, I just want to say, Asia's a long way away. It's a lot of Americans, it's easy to ignore, but I don't think people realize how acute the crunch is getting and how quickly it is here. Korea is already going towards language and savings on fuel that we last saw in the 1970s. There is a horrific crunch in the poorer countries in the region, some of which host the US military, like the Philippines. There is an acute level of pain in the Pacific Islands. I think if this goes on for a month or two, politics here will change in a way that will be very hard to change back. And for the US's strategic interests, I think things will go away that no other administration would have let go away in their right mind. And it's quite scary, but I'm watching it happen day by day. So if you're the American State Department or the Pan-American Party or the Pentagon, why is this concerning? Because particularly in the case of some sort of Taiwan or any other security contingency, China could essentially put a blocking presence between Australia and the US, and I'm Australian, I care about that. They could also prevent US force projection or resupply to Taiwan in some sort of conflict there. They would essentially be able to prevent the US having free or unmolested operations anywhere in the Pacific, pretty much all the way to Hawaii. So the idea is that the US wants a presence in the Pacific, a military presence in the Pacific, to protect its interests, in particular to protect Taiwan. And we're going to get to Taiwan in just a second. And one thing that makes a lot of sense is for the US to help out these Pacific Islands so that they allow the US to keep bases, keep a military presence on their land. But in a world where the US is creating an enormous pain point, a crisis for these countries, suddenly China can come in looking like the good guy. And are we foreseeing a world in which the US military presence essentially gets booted out because China proposes a kind of quid pro quo? We will give you islands energy in exchange for you being more favorable to Chinese military interests rather than American military interests. It's entirely possible. This crunch is now getting very severe in Asia. You are seeing China allow select cargoes of diesel fuel oil to places like the Philippines and Vietnam. I'd be shocked if there wasn't an ask on the other side of that. Turn to Taiwan. Taiwan is going into the summer, the summer cooling season. They have a gas dependent grid. They have really heavy exposure to the Middle East. Paint the picture now of what kind of a crisis is facing Taiwan in the next few months. So Taiwan's grid relies very heavily on gas-fired power, all supplied by LNG. Summer is when it's really hot and humid in Asia, and that's when the household and non-industrial demand is very high. The other large sources of power demand in Taiwan, of course, are things like petrochemicals, and that goes into things like the semiconductor sector. So we're very quickly going to get into a not-so-much-guns-and-butter but air-con or chips type scenario in Taiwan. And that's going to lead to some very hard choices in a democratically elected government as to whether you support your voters who want air-con or support U.S. interests to do a massive AI build-out. Just to be clear for listeners, air-con here is air conditioning, right? Air conditioning. Sorry, sorry. And chips is computer chips. So I just want to make sure. No, no, no. That's right. Finance lingo is totally fine here. But I mean, you're saying that there's only so much energy to go around, and the energy, if it is scarce, can either give you full air conditioning when it's 95, 100 degrees, I don't know, in Taiwan and also quite humid, or you can use that same scarce energy to not cool people's apartments, but rather to make the most valuable computer chips, some of the most valuable inputs in the global economy. So just unpack that a little bit, because I do think that this is one of the more important aspects of the global energy crisis that people in America aren't quite talking about. Sure. So you get into the summer and you essentially have to cut your energy demand by 15%, maybe. And you will have to essentially choose between running your industries for the export sector, so producing silicon chips from the likes of TSMC and others, you know, memory. And of course, AI is very memory intensive, because it is currently designed. And you'd have to somehow go into a massive crunch in household energy demand and commercial energy demand. Or you can somehow curtail the output of chips. And frankly, the supply of chips might be curtailed anyway, because if you have a lack of petrochemical supply because of a lack of oil supply, then you might not be able to make the chips, whether you're restricted on helium or other compounds that are required in the manufacturing of semiconductors. And that's where it would hit the U.S. quite hard in terms of the AI buildup, for sure. One thing I'm not sure I understand is that if Taiwan is facing an imminent crunch, where the country, a democracy, has to choose between keeping our people comfortably chilled and running the industry. I'm not sure that's the case. I don't think that's the case. And other countries, like Korea, that are making chips might also be facing similar choices. Why aren't we hearing these countries scream publicly at American leadership, end this war right now? You don't realize what you're doing to your allies. Why aren't we hearing about this screaming in public news? It is generally uncommon in most countries. To conduct your diplomacy over truth social. So maybe they've been very forceful. I've heard they've been very forceful, but they're doing it behind closed doors or on private lines or sources of manners of communication. So let's connect a few dots here. One of the most exposed parts of the world are the Pacific Islands that rely on diesel fuel. Diesel fuel prices are skyrocketing because of a war that America chose to start with Israel in the Middle East. That could tip leadership in the Pacific Islands from thinking of the U.S. as an ally to thinking of the U.S. as a kind of rogue superpower that they can no longer trust. And as that balance shifts toward maybe we should, in exchange for receiving diesel or energy from China, allow China to have a larger military presence in these Pacific Islands, that allows China to build a kind of military shell in the Pacific. At the same time, you have this dual, dual sided crisis in Taiwan, where essentially they're having to choose between using scarce energy for air conditioning or chip manufacturing. I mean, let's allow ourselves to get a little bit speculative here. To what extent do you think what we're seeing right now in the news of April 2026 is the beginning of a shifting balance of power in the Pacific that could end with China essentially just taking the Pacific and Taiwan in particular as a kind of military vassal? It's possible. I mean, this can go on for a short period of time, but not a long period of time without incurring serious pain and suffering on the man in the street in a lot of these countries. And the democracies, these things will not be ignored or easy to forget. So we're starting to go through a process which may not be reversible easily or perhaps ever. So I would say the longer this goes on, that becomes a possibility. You're saying the longer this goes on, the larger the possibility, essentially, that China is the declarative winner of this contest in the Pacific? For sure. I want to turn to Europe because, what's happening in Europe, also really interests me in terms of its long-term effects. You've seen the EU end energy commissioner announced that they're encouraging people to not drive. They're encouraging people to work remotely. Those are the first order effects, right? That's just Europe essentially saying, we don't have enough energy coming in. We're going to do sort of government induced demand destruction, right? We're going to like ask people to demand less energy. Why don't you describe the situation there as you see it? And then there's sort of some second order effects in Europe that I want to talk to you about. Sure. I mean, well, in power markets, it depends on the country. So Spain has a lot of renewables. Kip didn't shut down its nuclear. Their power prices have been pretty orderly so far. France, also plenty of nuclear, also a lot of renewables, very orderly. Places like Germany, which still prices on the margin on gas, and Italy, which is very gas heavy, are, you know, back in the bad place for all intents and purposes. And then on terms of liquid fuels for driving, for diesel, it's not quite as apocalyptic as Asia, but it's quite bad already. And it's already starting to hit certain parts of the barrel. For example, aviation fuel is already getting very tight and very expensive there, though it's not quite as dire as Asia just yet. Just to give me the clearest picture, who in Europe is getting hurt the most right now? People who got brought up, people who use a lot of gas in their power brids. So Italy is getting hit very hard. Germany, because they don't have enough storage, and they shut down their nuclear. Scandinavia is fine, lots of nuclear, lots of hydro. Spain, mostly fine. Portugal, fine. France, mostly fine so far. So there's a handful of countries that are really, really struggling, and there's others that are more resilient, either because they have nuclear or because they have renewables, which is solar, batteries, wind, hydro. One thing I wondered is whether, you know, you talked about one possibility of China winning in the Pacific. In a world where more European countries realize that the global fossil fuel economy has this very weak ACL in the Strait of Hormuz that can crack, that can rupture, they might think, we need to accelerate the rate at which we are adding renewables, adding solar and batteries in particular. And you look around the world and you think, okay, who's making the most solar panels? Who's really the number one global manufacturer of solar technology? It's China. Is there a way in which one outcome of this war could be a reacceleration of renewable consumption that is buying up solar panels in a way that also helps China? Because they're the biggest guy in town when it comes to selling this stuff. I think that, yeah, I mean, you'll almost certainly see that everywhere. I think in the short run, to attenuate this shock, you install, you know, solar and batteries with your ears pinned back. And in Asia in particular, they're now restarting a lot of nuclear. So in Korea, Japan's got an enormous amount of nuclear they can restart. They've already been doing that for a few years, but I think they're starting to do that. I think they're starting to do that. I think that will accelerate. Taiwan is finally taking that seriously. So I think there'll be a massive response there. But yeah, I mean, this will lead to more demand for Chinese products. The interesting question for Europe is, past the immediate crisis, do you then want to ensure you have the industrial capacity to produce these goods? Because otherwise you've traded one dependency for another. And I would think it would be wise to not leak from the frying pan into the they will go bananas. Yeah. Alex, I want to hold on this topic of the way that the Iran war could ironically shift the global energy picture toward renewables. That is solar and batteries, wind, hydro, nuclear, which is not renewable, but, you know, low carb. It seems to me like one lesson of this war has to be the degree to which seaborne, fossil fuels in particular are incredibly fragile, not just because of the initial bombardment of this war, but maybe also because of the fact that we're seeing Iran and the Houthis like launch drones that can fly hundreds of miles away from that country and threaten the ships that are carrying these fossil fuels. So before we continue to tell the story of how this war could accelerate the shift toward renewables, I want to ask you a question. What do you think? Can we just talk a little bit about the possibility that this war has revealed an enormous vulnerability of the global fossil fuel market? Certainly. I think the underlying assumption of what made fossil fuels work was that they were the cheapest thing going for the longest time. And you could assume away the security in the open ocean, either by dint of the U.S. Navy or by dint of there was no such thing as drones and they couldn't travel 500 miles readily and hit a ship at that distance. And they didn't cost, you know, like the price of a mid-sized car. All those assumptions are wrong now. And so one thing that I think we've underappreciated is how seeing what has happened in the Ukraine war with Ukraine, a mid-sized power, under assault, being able to hit Russian tankers all over the place, that capacity can be developed by America's people, by non-state actors, by other threats. And this should change how one considers the overall price versus risk calculus of fossil supply everywhere. If you move a very large crude carrier, you assume the insurance is cheap, that it's going to turn up on time, and that it can be unmolested in the open ocean. And now the problem we have is that you are under threat through certain bodies of order due to current geopolitical conflicts. You could be longer term under threat from non-state actors. And the result of that is that that's a very risky source of supply. And so you need to consider the risk associated with depending on having signing an offtake from a place where that supply could get shut down for an extended period of time. And the problem with geopolitical shocks is they tend to drag on. I mean, wars tend to not last a week. If you have a storm in the Gulf Coast or Australia, okay, not great, but life goes on. It's over in a week. You fix things. But with these sorts of shocks, they are persistent and can do extraordinary long-term harm. And this changes the calculus of, is that really a stable source of supply? Many people say, okay, solar's not good when the sun's not shining or the wind's not blowing, but the sun rises again the next day, right? Um, if you have a war kickoff over critical straits, whether it's, um, in the Red Sea or in the Persian Gulf, those problems tend not to go away the next morning. And I, and I think this is something which is a, a deep change, which people need to internalize and think about. Tell me if I'm summarizing what you just said accurately, that the Iran war did not just it also illuminated risks that might last longer than the war itself because it's created the situation where now you've got drones flying around attacking ships. And now everybody knows that everybody knows that drones have the capacity to do this. And so even if the war ends tomorrow in a week, in a month, in the months and years that follow, you know, maybe people in the global energy community are going to think, you know, we're going to have to do this. We're going to do this. We just learned how incredibly vulnerable global fossil fuels are to drone attacks. Maybe we should price insurance higher. Maybe the cost of this overall source of energy is just going to be higher. And that is going to on balance shift energy from fossil fuels towards something that is more local, that doesn't travel on the open seas that are vulnerable to drones. And that sort of thing is going to be a big problem. And I think that's going to be a big problem. And I think is, I mean, it seems to me all things equal, renewables and nuclear. Is that a fair analysis to sort of layer onto your analysis? Absolutely. Yeah. I think that is where it will invariably have to go. You will insource energy because there are risks that have been underpriced for a long time. And if you do price them, it kind of looks like a security cost, which looks a lot like a carbon cost, but it doesn't really matter. That's just the better risk adjusted source of supply. Yeah. It's interesting. I remember talking to another Aussie, Saul Griffith, about the case for solar and making the case for solar to MAGA conservatives in America. And he said something that started in a very different place, but somewhat arrived at the same conclusion that you're reaching. He said, one thing I might tell them, MAGA conservatives who are anti-nuclear, is when you drive a car that uses gasoline or you power a car that uses gasoline, power your house with whatever, oil, natural gas. Yes, maybe that oil or natural gas came from the U.S., which is a huge energy exporter, but it's participating in a global market of oil that often enriches theocratic tyrannies in the Middle East or Russia. We don't want our energy markets to enrich our geopolitical adversaries. We should want the solar panel that powers our car to be on the roof of our neighbor who we love in our good old Republican town. And so there's a way in which solar and renewables are kind of small-c conservative. It's local, right? I think you said we're insourcing our energy. And so it's kind of funny. He was making this somewhat tendentious but clever argument for getting Republicans to see the benefits of solar as being something that didn't rely on these sort of global networks. And you're making a similar argument from another perspective. You're saying this war is teaching us that global energy markets might be riskier and therefore more expensive in the future. And a lot of countries might make the decision to say, you know what we can count on the price of and that is very unlikely to be disrupted by a war in the Strait of Hormuz is a solar farm in Arizona or, you know, hydropower in the Netherlands. And so it's kind of interesting to think. That global events might be re-accelerating this shift toward nuclear. It's an interesting second-order consequence here. I mean, I look, I used to do a lot of jujitsu and judo. You don't give someone an advantage willingly. And I think we've got to think of our energy systems in the sense of, do you want to give your enemy a vote on things like your country's inflation rate, which is a great way to kick your government out in a democracy. And so having this insecurity is something they can lever. And it is abundantly clear by all the compulsive tweeting of the Iranian government, they are trying to lever this. And they are saying, I will inflict pain on you and that's how I'll get rid of you. This episode is brought to you by Eden Red Pay. There's no doubt that AI is transforming the workplace, especially when it comes to accounts payable, helping organizations with automating invoices, fraud detection and cash flow. So Eden Red Pay surveyed financial professionals to uncover exactly how AI is being used, where they're investing next, and what challenges they're working to solve. Visit EdenRedPay.com forward slash Spotify to explore the exclusive survey insights and see how your organization compares. 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All right, Alex. I feel like we've talked. We've talked about two potential second-order consequences of this war, both of them quite ironic. Number one, the strengthening of China, right? Donald Trump attempts to assassinate the theocratic leadership of Iran. The bullet passes through Iran's leadership and then ricochets and somehow hits us, strengthening China. A second consequence that we've discussed is the irony of Donald Trump. Ironic. He's the economic champion of solar and batteries everywhere. That this war could increase risk premia on seaborne fossil fuels in a way that encourages many countries around the world to say, I'm not sure I want to rely on the Strait of Hormuz the way that I have for the last few years or decades. I would much rather build a local energy source. That local energy source is more likely to be solar, batteries, wind, hydro, nuclear. Let's talk about a third solution. Second-order consequence of this war that you're looking at. It seems to me that if the Middle East oil and gas producers are going to be weakened by this war, other countries that have the capacity to produce oil and gas are going to be strengthened. Who else do you think could be a winner here, an ironic winner of this war in the Middle East? I think anyone with the capacity to produce fossil who is acts, who has access to open ocean, um, doesn't have to transit any geopolitical hot zones. And so that would be Argentina, Brazil, um, uh, probably Venezuela at some point. Um, and also, uh, a lot of West African, um, countries which have offshore oil, um, developments right now. So I think that's where people will go to diversify to have uncomplicated, uh, supply lines, uh, where they don't have to, worry about drones and, um, other such things. So it could potentially strengthen some of the central South American, uh, fossil fuel producers. I, I, I want to make sure that we touch on Russia as well because in the 1970s oil crisis, Russia's petro-economy really took off and there's some geopolitical analysts who say that it was a little bit of a Pyrrhic victory because, because Russia's petro-economy took off in the 1970s but then when the price of gas fell in the 1980s that weakening of the Soviet petro-economy contributed to the collapse of the Soviet Union. They sort of went all in on this commodity that then depreciated and that contributed to the fall of the Soviet Union. Let's hold on Russia a bit because you know people following the news closely probably know that Russia has now been allowed to, sell, commodities to India which previously was, verboten as we were trying to squeeze the Russian economy to allow the Ukraine's, uh, army to, to win against Putin. But where are we right now, with Russia? Um, well they're not actually certainly the price has gone up without a doubt. The problem is is that their oil loading ports are increasingly and frequently on fire, um, because they are getting hit by Ukraine, uh, all across Russia. Even in the Baltic there have been numerous hits on Primorsk, Osloge, and so on. So they are struggling to really benefit in volume terms and they're also struggling with the internal domestic refining system due to all these hits by Ukraine which are just ongoing. And this is the central fact of all this is that the tools of warfare have changed and it changes a lot. Um, so I think we need to consider that as sort of a, paradigm shift, uh, which is gonna, has a lot of downstream impacts in geopolitics and needs to be contemplated very deeply. Well let's talk about those consequences right now. What do you think are the most important ways in which the rise of drone warfare, which is clearly a major feature of this war, is gonna change not just, you know, global fossil fuel markets, but the global economy and geopolitics in the future? Uh, there's a great book by a historian called Carol Quigley, which is about how weapons systems, uh, drive history, um, as published in the seventies actually, uh, posthumously. And I think looking at what these platforms do, it's a little bit like the emergence of the rifleman, um, and the sort of citizen army in the sense that you can have the citizen drone pilot and within that range of those drones, you can have a very functional kind of territorial army, which doesn't lean as hard on the centralization enforcement, but it's a very functional kind of military power. And so, you know, I think that's a really important point. So provided you have the industrial capacity to produce these platforms, you as a mid-sized power get a much bigger vote in geopolitics going forward. So I think this is a challenge to the US, certainly in the Middle East right now, but I think it's also going to be a challenge to China if they were to get expansionist elsewhere, much as it has been extremely challenging for Russia and Ukraine. So I think this is kind of, to a certain extent, it's a deep flattening of the field. And I think it becomes more about, is your society resilient? you provide food, power on a distributed or more resilient basis, and then you can fight. And then it's very hard to get rolled as a country. And I think that's not a terrible thing coming from a mid-sized country myself, but it does really, I think is a very challenging thing for the U.S. to take on that this change has occurred, because it is a structural break with everything the U.S. has learned since really the 1930s. Are you suggesting that drones should therefore have a kind of deterrence effect, the way that atomic weapons clearly do? Yes. Clearly, that deterrence effect wasn't enough to stop the U.S. from bombing Tehran. But you're saying perhaps in the future, looking at the Ukraine-Russia war, looking at the Iran war, major powers in the next few years, notwithstanding some major development, superintelligence, that again changes the landscape of war, future major powers might say, this military campaign is not going to be as easy as it would be without drones, because drones allow for this flattening of, leveling of the battlefield, such that a smaller or weaker country can nonetheless do enormous damage in a way that messes up the calculation of the world. Yeah. I think currently that is the state of play. And I think it is neither good nor bad. It is simply a change in what the strategy set is and the tool set, and that will lead to new strategies. But I think at this point, the sort of paradigm in the U.S. where you could have a B-2 take off and then. Flatten stuff and then fly back and then not have to worry about your local bases being attacked in Iraq or UAE or what have you, I think that's over now. And it is what it is. I want to round things out here. In the open, I talked about how the 1970s energy crises had these enormous tendrils, these tentacles that wrapped around the world that you can attach the 1970s oil crisis. Yeah. To the rise and fall of the Soviet petro-economy that led to the downfall of the Soviet empire. You can associate it with the economy of Japan, which switched from energy-expensive heavy machinery to less expensive robotics. And so ironically, things like the Walkman, Nintendo, are part of the legacy of the 1970s oil crisis. I also talked about how the oil crisis of the 1970s might have birthed the modern Republican Party, the stagflation that resulted in the U.S. economy. In the 1970s, destroyed the New Deal order that Democrats had relied on for the previous 30 to 40 years. And in the aftermath of that destruction, the anti-New Deal order became Reaganite neoliberalism, which was the political order of the next 20, 30, 35 years. So those were the three long-term implications of the 1970s oil crises, Soviet Union, Japanese electronics, Ronald Reagan. Today, we've talked about, I think, to my recollection, at least four second-order effects of this Iran war that we're looking at. Number one, an enormous extension of China's military projection in the Pacific that could have major implications for, like, the big kahuna that everyone's thinking about in terms of geopolitics, which is, what's the future of Taiwan? Number two, Donald Trump, ironic global champion of solar power, that this war could accelerate a shift toward renewables. Number three, another shift of fossil fuel production from the Middle East. To Latin America. And number four, you just talked about the fact that this war has, again, in addition to the Ukraine war, demonstrated just how powerful drones are as a military technology of the future, and how it could level the balance between a major military superpower like the U.S. and a less major military superpower like Iran after its missile systems have been demolished. Let's think about one final, second-order effect. And here we land in the realm of policy. When, historically, the U.S. has faced inflation, it's been the role of the Federal Reserve to apply the medicine. I mean, this was the end of stagflation, early 1980s. It was the Federal Reserve that jacked up interest rates, cooled off the economy, led to a recession, and ultimately led to the boom of the 1980s. But in a world of rolling energy shocks, the Ukraine war, the Iran war, who knows what kind of drone nonsense comes next? The Houthis. It doesn't seem like the Federal Reserve, just by raising interest rates, is a very good medicine for the disease of these energy shocks. And I know that you've worked with my friend Arnab Dada on coming up with a new policy response to this new age of energy shocks. In addition to just asking the Federal Reserve to raise interest rates a little bit, what else can we do to dampen the inflation bite of these kind of conflicts? Yeah. So the Strategic Petroleum Reserve and the legislation around it was developed in the 1970s as a response to these inflation shocks. And in 2022, I started working And explain what that is. Some people might not know what the Strategic Petroleum Reserve is, but let's make sure they really understand. It's sort of right there, but I want people to understand how this works. Sure. So in the 1970s, the US developed Strategic Petroleum Reserve, which is now close to 800 million barrels of capacity of oil storage to deal with these kinds of shocks. So that in the event you had tanker wars in the Gulf or some other kind of cessation of supply, you could gradually attenuate that acute shock, very significant inflation implications, and smooth that shock out. Now, a lot of the work I did with Employee America from 2022 has, with others, led to the creation of the SECURE Act, which has been introduced to Congress on a bipartisan basis. And we've actually just passed a bill in Australia, the Strategic Reserve, where the government can enter into stockpiling, get plants up and running them caps and floors, and essentially run a, within a banking, within a banking entity like Australia's Export Finance Agency, or, for example, US Ex-In, to put these capacities of almost a commodities trading desk to act on behalf of the state, to ensure that you can ensure that supply is available in a bad state of the world, and that your enemy or some event somewhere else can blow up your economy and force your central bank into a corner. Are these policies pushing against globalization or pushing for globalization? Because I can imagine an answer to both. That on the one hand, if the US is exporting less of commodities that we produce here, well, we're trading less with the world in order to fortify our position in the event of a crisis. But also, if countries that aren't producers of that commodity want to build their own strategic reserve, well, then they have to trade more to get more of that commodity. And so I guess that is, theoretically, trade. That's globalization. Yeah. Do you, Arnab, folks at Employee America, have a view on whether these policies, the necessity of these strategic reserve policies, are fundamentally anti-globalization or pro-globalization? I think of it slightly differently. You've got totally the ideal of free trade. Everyone's a reliable supplier. You don't have to worry about anything. Right? Nothing ever happens. It's a nice world, right? And wouldn't that be nice, right? Then you've got the full-on wartime economy paradigm. And what these things do is they ensure you have mechanisms to ensure you can exist on a minimum there and adjust accordingly to the state of the world. But what's really good is if you have these tools and your enemy knows that you cannot be hurt severely by their ability to withdraw supply or block trade or block a straight or launch a thousand drones at you, then they're not going to do it because it won't work. So you want these things not just because it actually provides you security, but because it also changes the behavior of people who might try to leverage these opportunities. Alex, I'm going to let you go because I know it's late where you are. But it occurs to me that I'd be remiss to not mention that one of the most famous and commonly discussed aftershocks of this war is whether this war could decimate the artificial intelligence industry. We've already seen an enormous price shock in the manufacturing of memory chips. And I would love for you to just take this final beat to the interview to explain, as you see it, how this war exactly could raise the cost of or is already raising the cost of computer chips that are relied on by the artificial intelligence industry. Certainly. So first of all, making chips is incredibly complicated. There is a very long list of materials. the materials that go into them. One thing that is very important is helium, which is used mostly as a conductive gas. But then there's an enormous range of other, especially petrochemicals, that come from Korean refineries, which might not have crude to run in a month, or Singapore for that matter. And there is a real risk that not just on the power demand constraints, but also on the inputs, we are going to have some serious issues. And what's interesting about this war is it started during a quiet period before earnings, when a lot of companies can't tell investors what their exposures are. But if you talk to unlisted midstream chemical distributors, this is starting to become very tense. And it will become extraordinarily tense over the next couple of weeks. So we've seen a force majeure for most of petrochemicals in Taiwan. I have no doubt there are going to be more and more of them over time. And so this will cause constraints in chip production. It won't be the whole sector will come to a halt at once, but it will start to impact lower value things. Then it will eventually start to bleed through to the really high value, important stuff, NVIDIA and so forth, the longer this goes on. So it's not that this is going to be very consequential. And even if you install, even if you can produce the NVIDIA chips, if they require certain power electronics, or the cheapest stuff to construct the rack, to go in a data center, and you can't get the cheap stuff, then you can't put it in the data center. And this could very seriously slow U.S. data center expansion and A.I. development at the same time as China is probably going to source helium from Russia and will not have any of these material constraints because they have all their supply of oil and a lot of domestic petrochemical products. So that's also not helpful. Thank you so much. Thank you.