The global energy order after Hormuz | FT Film

Key Takeaways

The conflict and effective closure of the Strait of Hormuz triggered panic in energy markets. Some observers initially expected a short disruption, but Iran had little incentive to relinquish control, and the conflict’s duration and outcome remained uncertain. The killing of Iran’s leadership did not bring about the regime’s immediate collapse, creating a more prolonged crisis.

Oil prices did not surge as quickly as some expected. Contributors pointed to US statements playing down the conflict and China’s sharp reduction in oil imports, both of which eased pressure on the market. They also noted that falling bond prices and rising yields were an unusual early warning: investors were concerned about inflation and the cost of government borrowing.

Economic Impact

Contributors disagreed about the severity of the economic fallout. Most did not expect a repeat of the 2022 inflation shock unless oil prices rose dramatically, but higher fuel and gas costs were already adding to inflation. Some warned that depleted reserves could lead to a sharp price spike, while others saw an economic slowdown—not necessarily a recession—as a plausible consequence.

Europe’s Energy Security

The crisis has further exposed the risks of relying on a narrow set of energy suppliers, including increased dependence on US gas. Possible responses include more domestic drilling, renewables, and nuclear power. Contributors argued that resilience requires a mix of energy sources and backup capacity, even if this raises costs.

The transition to renewables also creates dependencies, particularly on China for solar panels, wind turbines, batteries, and other components. Several contributors argued that the longer-term response must include more clean energy, while noting that building a more secure system will require substantial investment. Governments, businesses, and consumers are likely to bear those costs.

Geopolitical Implications

The conflict may deepen geopolitical divisions and weaken international institutions’ ability to respond to crises. Europe and Asia, which are bearing much of the energy and inflation impact, may remember that the disruption was largely beyond their control.

Is This the “New Normal”?

Views differed. Some contributors expect persistently higher energy prices, inflation, and borrowing costs. Others cautioned that geopolitical shocks are difficult to predict and that past crises did not lead to permanently rising oil prices. There was broad skepticism, however, that the world will quickly return to stable, cheap energy.

Presenters and Contributors

Not identified by name in the subtitles.