The Great Simplification with Nate Hagens - A World-Changing Event: We're Not Going Back to January 2026 with Art Berman

Episode Date: October 7, 2026

Four months after the Iran war first rattled global energy markets, the global system has proven surprisingly adaptable, even as prices continue to rise and product shortages become more common. But as those buffers run dry and diesel prices climb to the equivalent of over $200 a barrel, the slack in our system is starting to disappear. How much longer can our hyper-connected economic system stagger along, and where is it already breaking?    In this episode, Nate welcomes back petroleum geologist Art Berman for a follow-up to their May conversation, to take stock of what's changed since the war upended Middle East energy flows. Art explains why the adaptations that have kept prices from spiraling have unaccounted-for costs for the larger system, and why 5 to 20 percent of shut-in production may never return to prior levels, even once wells are reopened. The conversation traces the parallels between this moment and the 1970s and 1980s oil shocks, but also the key differences that will create a bigger (potentially insurmountable) barrier to recovery this time. Ultimately, Nate and Art consider whether we are witnessing the rise of a fragmenting, multipolar world of resource nationalism that will replace the postwar security architecture, which has underwritten cheap oil and globalization for decades.   How are underlying refinery risks intensifying an already precarious situation? How are global powers positioning themselves amid this pivotal point for geopolitical relationships? And even if the multiple global conflicts were to stabilize today, what are the locked-in repercussions for global energy supplies, and how will they ripple out to affect everything around us?    About Art Berman:    Art Berman is a petroleum geologist with over 40 years of oil and gas industry experience. He is an expert on U.S. shale plays and is currently consulting for several E&P companies and capital groups in the energy sector.   Show Notes and More   Watch this video episode on YouTube   Want to learn the broad overview of The Great Simplification in 30 minutes? Watch our Animated Movie.   ---   Support The Institute for the Study of Energy and Our Future   Join our Substack newsletter   Join our Hylo channel and connect with other listeners  

This is a world-changing event, whether it's oil, whether it's LNG, whether it's fertilizer, food, geopolitics, currency, finance. We don't have an infinite pot of resources, and the winner are the ones that have the most access to it. And by the way, World Wars 1 and 2 were won and lost on the basis of availability of oil. We are not going back to January 26. and at some point we're going to see a version of what happened after the first oil shocks. This is not going to play like that movie did. You're listening to The Great Simplification. I'm Nate Higgins.

On this show, we describe how energy, the economy, the environment, and human behavior all fit together and what it might mean for our future. By sharing insights from global thinkers, we hope to inform and inspire more humans to play emergent roles in the coming great simplification. Today I'm joined by longtime TGS guest Art Berman for a wide boundary update on the geopolitical and energy situation surrounding the Middle East and the Strait of Hormuz, looking beyond the chaos of the day-to-day events towards the longer-term impacts for the supply and circulation of oil, gas, and other critical materials.

Art Berman is a petroleum geologist with over 40 years of oil and gas industry experience. He is an expert on U.S. shale plays and is currently consulting for many E&P companies and capital groups in the energy sector. In this conversation, Art and I dig into the buffers that have kept some parts of the system afloat, even while others have already begun to feel the pain of expensive oil and natural gas prices. More importantly, Art explains that while these buffers prevented some of the most immediate consequences that many analysts warned about, the resilience in the system is now quickly wearing thin, leaving us on the precipice of the largest energy shock we've ever seen with almost no slack left unless things change. all the while the power lines of geopolitics are rearranging as countries realign themselves with the materials and resources and protection they'll need amidst an uncertain and rapidly changing world.

These are interesting but serious times that we live in and no one human can carry it all. I appreciate each of you continuing to tune in and learn what's happening in our world. alongside me and my guests. With that, please welcome Art Berman. Arthur Berman, welcome back to the Great Simplification. How are you? I'm well, Nate. Good to see you again. Good to see you. It's been a minute.

So last you were on in May, I believe, and now we are timestamp. This is Saturday, September 19th. Lots to discuss, lots going on in the world. lots of things you speculated about that are coming true in our last conversation. Let's start super broad. What is the U.S.-Israel-Iran war revealing about the condition of our larger global economic system? What this is revealing is that we cannot run and we cannot hide from a system which is completely dependent on increasing flows and increasing rate of growth in energy supply,

and yet has had a decreasing rate of growth in energy supply since the late 1960s. So the world has been using all sorts of very clever means of adapting to that underlying, underlying fundamental problem now for more than 50 years and pretending or hoping that it'll all be okay. And what the Iran war has done is kind of rip the band-aid off of that and just show how fundamentally dependent we are on ever-increasing energy growth. And you suddenly remove, you know, let's just say 10 million barrels a day, like almost overnight. And it just reveals, you know, just how incredibly unprepared we are for a blow like that, much less just the ongoing status quo.

You said that energy, the amount of energy we have continues to grow year by year, with the exception of 2008 and 2020, but that the rate of growth peaked in the 60s, late 60s and 70s and has been in decline ever since, which I think is an important thing to note. Is that coincidence that the same thing is true with population and population growth rates? Yeah, so there's so many things here. First of all, we have a global system, a civilization that requires enormous stocks and flows of energy. And whether we like it or not or prefer it, 80% of that is still fossil fuels. And oil is by far the most important component of the fossil fuel category. And so all of our

ingenuity and innovation and technology, it looks like we're, you know, we're getting farther and farther ahead, but that's the part that's unseen is that every technology and every innovation requires increasingly more energy to support it. And I guess the part that is not clear to most people is just how much energy is required as overhead, just to support the system we have, not grow it, just to keep it up and running. That is an absolutely enormous thing to have at the scale of 8.2 billion people. And that's why increasing the rate of energy growth is so important to all of the stories that we tell ourselves about ourselves and about our wish for a better future. It's not something that is known by most people or understood.

I would have thought, and you would have thought, and we both did think that the February shot across the bow, as it were, would have woken people up to this. Now we're in September. Some people are waking up to it. Certainly countries outside of the United States, countries in Asia and the Middle East are really suffering and having rationing and shutting down industries and other things. They're well aware of it. But here, it seems like there is a delay

in the recognition of our dependence on energy, the recognition that technology is but a passenger in a physical car run on energy and materials, why haven't things been more catastrophic than one would have originally thought losing 10 million barrels out of 100 million per day? So that is among the core questions and a difficult one. And the simple answer is, as you alluded,

First of all, it depends on where you are. But you and I are both in the United States, and so let's just talk about that for a moment. And here in the United States, my life has not changed very noticeably as far as the things that are available to me. Now, the price of some things is higher. But, I mean, it's not like the bottom has fallen out.

And so why is that? And part of the answer is that the United States has a tremendous endowment of all natural resources, but particularly oil and natural gas and coal. So we are in a much better place than, say, the parts of the world that are hurting, which are predominantly Asia and parts of Africa that essentially have no indigenous energy resources of their own. And Europe as well. I would include Europe in that list. Fair enough. Europe used to have a fair amount of energy resources, and they've pretty much blown through them. I think the second part, though, is just how remarkably and impressively adaptable the energy system has shown itself to be. It surprised me, Nate. I mean, when we talked about Iran a couple of months ago, you're right, I got, you know, I got the diesel prices and some of the product prices right. But there were some things that I didn't get right. And I thought that, you know, that this Hormuz restriction was going to be an immediate heart attack for the world.

Most of the analysts that I respect were pretty much in the same. boat. So we were all wrong to some extent. And what we were wrong about is just how amazingly, cleverly, the system adapted and adjusted. And so instead of losing 20 million barrels a day, we ended up only losing maybe 10 million barrels a day because there were all sorts of clever things. They were bypass pipelines. There were strategic petroleum reserves that we could draw on. And then there's this mystery of China deciding to stop importing four and a half million barrels of crude oil a day. So all of those things just kind of stacked up. And what should have been or seemed like it should have been, you know, a trip to the emergency room turned out to be, you know, a trip to the drugstore for, you know, some Tylenol.

Is the trip to the emergency room on the horizon? We're getting the car warmed up right now, I think, Nate. Okay. I want to cover two things. First of all, you mentioned the Strategic Petroleum Reserve. I mean, there's different ones in different countries. Let's talk about the United States. My understanding is we're at 40, 50-year lows,

and there's not so much more lower we can go before those caverns start to not be able to function. Can you give us an overview of that situation? Right. and there's a lot of controversy. Let me just say, first of all, everything you just said is 100% right. What I'm going to say next is not to, in any way, discount it.

It's to say that because we've never been at these levels, no one, including the Department of Energy, really knows, well, what is the level at which we run into big trouble? And so the Energy Information Administration, about three or four weeks ago, suddenly pulled down all of the data that had had on strategic petroleum reserves and posted a notice and said, okay, we're kind of revising what we think about this. And the revision did not

particularly satisfy me, but what I feel like I can say with a fair amount of confidence is that we are, if we continued to draw on our strategic petroleum reserve the way we did in the first few months of this crisis, we would be somewhere near that critical level. Now, the rate of withdrawal, and again, this is a theme that I'm going to emphasize throughout everything I talk about here, there is the absolute amount of oil that you're either adding or using or drawing, and then there's the rate at which you draw it. And the rates are always more important, certainly for, well, for me, also for markets. And the rate of withdrawal from that SPR has reversed. Okay, so June was the maximum rate of withdrawal. So we're still drawing every week, but we're only drawing a couple of

hundred thousand barrels a day per week, whereas before it was millions. Now, that's not good news. Don't get me wrong. I don't want to, you know, I don't want to give the wrong impression. Is that because they're trying to save it for a rainy day or because they can't find the pairing type of oil to make product from? Honestly, Nate, I don't know except to say that for as many questions and doubts I have about the judgment of some of the people in the United States government, the United States government is not dumb. Well, I mean, as a citizen, I would assume. that that is a last resort safety valve, that if we're in a depression and we can't get product to businesses and farmers, let's tap the Strategic Petroleum Reserve. I don't think it ever was intended to make a political statement that gas prices are too

high in a time when the stock market is near all-time highs and the economy's growing. anyways. But what happens when global inventories are drawn thin and we can't rely on the SPR much, and there's still 10 million plus barrels missing from the Middle East, we are then either much higher prices or demand destruction, meaning someone goes without or both? Yes? And it's both. It's absolutely both. And these are difficult volumes to measure with reliability in real time. And so if you look at the International Energy Agency's latest oil market report, they're talking about numbers in April and May because those are the numbers about which they have confidence. Well, April and May, well, April and May, was, you know, might as well have been, you know, in another lifetime compared to what's going on today. So let me ask you this. You, you point out the resilience of what we refer to as the economic superorganism that we adapted to this shock. When does that resilience become a full-out

depletion of the buffers that made the resilience possible? Do you have any forecasts of that? I think we're there. I mean, I think we've probably been there. I mean, I think we've probably been there for for weeks but you mentioned in the beginning of of our discussion this latest attack on the Saudi Aramco pipeline that bypasses the the Persian Gulf and I think that was that that was certainly not the trigger for a realization that were pretty much at the end of our buffers but I think it tied a bow around that fact, that if suddenly, you know, five million or four million barrels a day of our supply is no longer available, that pushes you over the edge. That pushes you to saying, okay, you know, now we've got a serious problem. So there's a narrow boundary

perspective on what you just said and a wide boundary one. The narrow boundary one is our buffers, the SPR and China's extra stocks and the floating amount of oil. that's on ships. But in a way, civilizations buffers of low entropy, high quality, liquid hydrocarbons are also known as the Middle East. Maybe the world shouldn't be considering those as, well, we're going to eventually use that oil. I think this not only has an economic, where are the barrels going, how much can we produce, how damaged are the fields in the Middle East because they were shut in and all those questions. But as we talked about, I think, in our May conversation, where are the longer-term alliances

and contracts and is the oil going to flow northward and westward the way it once was when we had unipolar military superiority and all our bases and status quo, and now that's all up in the air. So this gets back to what we were talking about 20 years ago, about the carbon pulse and the eventual peaking of oil might likely be more about above ground factors, some of which I just mentioned, than strict geological depletion. What do you think of all that? There are so many layers to what you just said. I know. And so the first layer is up until now in this conversation, we've been talking about flows. And flows are very important.

But stocks are ultimately much more important. In other words, where do the flows come from? And the flows come from fields. And the best information that we have today is that 14 million barrels a day of Persian Gulf production is shut in. 14 million barrels. Not sitting in storage and missing from the world, but actually shut in. The fields are shut in.

Has that ever happened in the world before that much? No. So this is an n-equals-one experiment. We don't know what's going to result from that. Right. So we have had other oil shocks. And right away, I mean, a shock implies that it's something temporary and it'll go away. Economists invent these terms because, well, because.

But the historical oil shocks in the 1970s and the early 1980s, those were comparable in size to what's happening right now as a percentage of total supply. In other words, the world uses a lot more oil today than it did in, say, 1980. So the amount of oil that we're losing right now is actually more, but as a percentage, it's about equal. Now, we have to step back just to understand what happened then, not that it will be repeated. But that shock, and let's just talk about 1979, 1980, 81, that was the Iran-Iraq War, that was the beginning of the Islamic Republic of Iran. The effects of that on the global economy and on oil prices and on oil production lasted 15 years.

Okay? So call it whatever you want, call it a shock, call it a, you know, long. COVID, but the world did not get over that shock very quickly. And we had lots of oil in the ground after that. We don't have as much as both absolute and relative than we did then. Well, so in my view, there are probably more reasons why things were easier to recover than now. One of them was that higher prices led to a flurry of oil exploration, which paid off in a big way, principally with deep water production. I could go into some others. You know, the Soviet Union fell

right after that, and a lot of oil was suddenly available for international development. And so we had a much bigger base of proved reserves and undiscovered potential than we do right now. And that's just simply a question of scale and timing. We've had, you know, 45 years and a population increase of, you know, let's just say a doubling. And so the fact that we don't have nearly as much to go back and try to, you know, replace or, or discover shouldn't be surprising, but people don't ordinarily think this way. So that's a problem. The second problem, though, is that back then, I mean, oil was pretty much it. I mean, fossil fuels were pretty much it. We didn't have, you know, wind and solar. We didn't have a climate change problem

that we knew about. And so you got to have energy, so you're going to go for the energy that, You have and you know. We have had a big change in our investment mindset. And so we've just been through 20 years of, well, we don't like fossil fuels anymore. I'm not saying I don't or that I do. I'm just saying this is kind of the investment mindset that we're going to have a green revolution. You know, we're going to go to electricity. And so the future is in other energy. It's in new energy. It's not in old energy. Okay. and the investment market has been quite convinced about peak oil demand for some time. So you have, okay, we think this industry is a twilight industry. It's basically what the markets have been hearing consistently for 20 years from political leaders and from experts. So who the hell wants to invest in deep water exploration or Arctic exploration or more relevantly to building new. oil refineries to making more diesel. Nobody wants to do that. These are high capital upfront expenses that are, you know, 30, 40 year life. Who wants to put their money into something like that? No one does.

So it's a completely different investment environment than it was in the early 1980s. But if you look at an aerial view of society and you started this conversation by saying, need not only flat, but increasing energy availability every year, what are the people choosing not to invest in drilling and refining? How do they think we're going to increase our total amount of energy with solar and wind? Well, again, this gets back to what might seem like a subtle point to, you know, to many people, but increasing our supply of energy. while that is important, is not what matters. It's the rate of increase.

And the rate of increase is getting slower and slower and slower. But the demands that the economy is making on energy are not decreasing. And the scale of the system is so large that to maintain it now requires more than it did to supply the whole thing including growth 40 or 50 years ago. All I'm saying is that it used to be growing at 2 million barrels a day, and now it's growing at 1 million barrel a day. And of course, this year and next it will be a lot less than that. But it is that rate. We're not growing the rate of increase fast enough, and that has very important consequences. So 10 years ago or so, and I think in my book, I had a concept that I called the biophysicisic

biophysical gauntlet, which was, would prices for energy, in this case, oil, be high enough to spur investment of the next generation of supply, but too high for a debt-laden economy and strapped consumers to afford? And, you know, wartime volatility also makes it harder to commit to long-term cycles. So did this crisis widen or narrow that ban between what producers need and what consumers can pay? And what would that do to investment in the oil and refining sector going forward? Well, the honest answer is I don't know, but I will speculate because you asked an important question. What an investor has to look at is in the 1980s, we did not.

not have a fragmented energy system. We had a Soviet Union that was weakening. We had a Western block, which I guess was strengthening or kind of winning the Cold War. But energy was pretty much a globalized system. That's not the case today. We have a highly fragmented energy system. We certainly have China and Russia that are actively trying to reorganize energy flows and currency flows around their preferences. And then we have all these wars. Ukraine and Iran, to mention the two most important ones. And so we have a fragmented system. And a point that I have to make is that all.

All of this adaptation that we've discussed, it isn't free. Okay, so you can get barrels out of the Persian Gulf that a few months ago we couldn't. And so there are these special shuttle vehicles that shuttle oil from a tanker inside the Gulf to a tanker outside the Gulf. It takes, there's risk, there's liability, but that's happening. You know, they do ship to ship transfers between a tanker inside and a tanker outside. Okay, so great. Chris Wright, our energy secretary, says, hey, you know, we're getting twice as much oil per day out of the Persian Gulf as we were a few months ago.

And maybe he's right. But it isn't free. It comes with cost. Those transactions cost money and they cost time. Okay, so then you get it, you put oil in a pipeline that goes, across Saudi Arabia to the Red Sea. And you say, okay, look, look how great we are. You know, now we've got five million barrels a day that's available that wasn't before.

Brilliant. Until the next drone. Well, yeah, that too. But it goes to the Red Sea. All right? The Red Sea, first of all, it wasn't designed to take oil to Asia. But now you have the Houthis, I mean, before the pipeline explosion. And so the oil was being rerouted north through the Suez Canal.

And there are logistical problems with that, but the bottom line is, A, takes more time, B, costs more money, and with a success case, now you're in the Mediterranean. Well, that doesn't help Asia at all. That's not where Asia gets its oil from. That's where the Atlantic Basin gets its oil from. So now you've got the whole oil system in the wrong place at the wrong time. So the headline is, yay, we're getting more barrels out of the Persian Gulf. You know, read the article and the article says, yeah, but that's not so great because we're adding,

there's a lot more friction in the system and we're not getting the oil to where it needs to be. Well, it's feeling kind of Orwellian some of the comments that, senior political officials have had. I think President Trump this week said around the time or just after the election, this war will be over and the price of gasoline is going to drop like a stone. I think if a price of gasoline drops like a stone, it can mean that we're in a deep recession or depression, otherwise it's not going to drop like a stone, no matter what happens with a memorandum of understanding or a piece because there's so many parts and components of the apple cart that have been upset by this.

But let's just assume that everything is smooth sailing and there's fraternity and goodwill and the war is over. How does that really change the flows of oil and where they go and the production? And you mentioned how many million barrels are shut in? how's that going to come back online fully? Is it all going to be in the open market? What happens if we don't have the military base is there anymore? And the reason that a lot of Middle Eastern countries made deals with us is that we would protect them militarily.

To me, I think an economic depression aside, these are now the new floors for oil and refined product, not the ceiling going forward. Well, those are some very important observations. And going back to the 1980s, that's exactly what happened. That oil prices got to like $145 a barrel or something like it in today's dollars. And then from 1986 until the end of the 1990s, they were like $45 a barrel. And that was because much of the world, particularly the developing world, was in fact in an economic recession of major proportions. Okay.

Now, the United States was able to recover from that, but that's another conversation. But I think the other thing that people have to understand is that in your scenario, Peace breaks out tomorrow or after the election or whatever, okay? So, I mean, we still have months and months before anything like normalization of shipping channels in the Persian Gulf recover. I mean, these oil tankers are hundreds of millions of dollars of hardware, carrying hundreds of millions of dollars worth of oil. And they have to carry insurance and they have real people that are running these things. And in order to get the person or people in the

shipping companies to say, okay, let's go, that's a whole other decision down stream of the political leaders making an agreement. And I mean, you know, we just had a tanker hit a mine last week. And so nobody knows how many mines are in these shipping channels, probably not the Iranians either. So it's going to take a considerable amount of time after peace breaks out, assuming that that ever happens, before anyone is comfortable with the risk of moving their ships through the straight. So that's number one. But the real concern is the production. I, in my life, have worked for companies that have production. I don't own any myself and never have, but I've acted for them, and I'm going to tell you that the very last thing

that an oil producer wants to do under any circumstance is shut in an oil well. Even if it's just for maintenance for a couple of days, you don't want to do. You don't want to be. You don't want to do that if you can avoid it because you never know what is going to happen on the other side of that decision. And the reason for that is this is a plumbing system of massive complexity. Okay, we just had some people working in our neighbor's yard yesterday on his main line, water line, and they shut off my water for five minutes or ten minutes. Okay, when I turned it back on, you know, it was spitting out the sink, there was brown water, it took several minutes for the pressure to equilibrate and the water to turn back to clear. Okay, that's in a, you know, a very short-length

PVC pipe. In the case of oil production anywhere, you're talking about thousands of feet underground and thousands more feet away from that pipe in rock. Okay, this is not a PVC plumbing system. These are poor spaces in a rock. And to try to reestablish communication through all those microscopic, torturous pathways is among the riskiest things that you can imagine. And so my guess, and nobody knows, but from experience elsewhere, my guess is that probably five to 15 or 20 percent of that production, once it's turned back on, will never come back

to levels that it was before. Whatever does return will take a whole lot longer than me turning on my faucet yesterday. It's going to take, in the best case, it'll take weeks to months to reestablish those pressures. Talk to me a little bit about the importance or the different signals that crude oil markets are giving relative to the refined products like diesel fuel, jet fuel, and the like. My understanding is the diesel equivalent price of oil right now is over $200. And in China and other places, it's like $240 or something like that. Meaning if you were to buy a barrel of diesel, it would be more than two times what a barrel of oil would be. What's going on there and how's that going to unfold? So nobody that I know owns a barrel of oil. I mean, the only

people who buy oil are refineries. Right. And if I owned a barrel of oil, I don't know what I'd do with it. I mean, I can't put it in my car. I can't, you know, I can't put it in my lawnmower. I mean, so what people buy and what people need are the refined products that come out the other end of a refinery. We need the gasoline.

We need the diesel. We need the jet fuel. We need the kerosene, the petrochemical feedstocks, all of that stuff. Okay. So what's been happening? is that before this war began, we already had a restriction in refinery capacity for the reason that I described before, which is what some people would call underinvestment. The bottom line is that nobody's building new refineries. The only new refinery I know of that's been built in recent

years is Don Gote in Nigeria, and that's a big one, so that's important. But for the most part, Nobody's building refineries. What are we thinking? What's the aggregate intelligence there if no one is building refineries? We'll just invest in maintenance and let ours go a little bit longer, or someone else's problem, 2040, when we're going to need refined product? We're all going to be driving electric vehicles and living off of electricity. But even if we buy an electric car art, you're well aware that parts of the barrel of oil go to the plastics that are in the electric car and the asphalt that make

the roads and all the other things. So we're still going to need the oil to be refined. Well, now you're into complex thinking, Nate, and that's not the way that a lot of people think. And there's a narrative out there that you deal with every day and I deal with every day where people say, but, you know, we don't need the oil. You know, we're just going to, you know,

we should have started building out renewables 50 years ago and then we wouldn't have this problem. And don't get me wrong. I mean, I am, I'm not against renewables. I mean, I don't know how you can be against an energy source. They just have different capabilities than oil, natural gas, and coal. And the idea that you can run the global economy on anything other than fossil fuels in the main part for now is, is a fantasy. It can't be done. Run the current global economy. We could run an economy, perhaps.

Oh, we could absolutely run an economy, but not an economy that would support 8.2 billion people. It'd be a very different civilization, and in many ways, I think, a better one. It's just that, you know, you don't get from here to there in a single step. I mean, you're talking about a long transition. So let me ask you this. We had an energy show. in the 70s and society responded to that. We had nuclear buildouts and efficiency standards and they found oil in the North Sea. And today's options, the way things are going are faster electrification, a return to coal. Have you seen China's 2027 expected gigawatt expansion of coal? It's massive.

What else? Resource nationalism, stockpiling, and different countries are doing different things. So what do you think this 2026 Iran War energy shock could be setting in motion? And does the shock speed up or slow down the so-called energy transition story? Well, first of all, let me just say there never has been an energy. transition. This is a, this is a lovely story and it's just not true. I mean, what has existed, and I'm talking about, you know, since 10,000 years ago, have been energy additions. And so early man used human and livestock muscle, would another biomass. Okay,

the amount of biomass that is used today is pretty much the same as it was in 1800. We don't have good records back before then. So we never stop using biomass. We simply layered on coal on top of it. But as a world, we have, at the very least, over the last 20 or 30 years, we've actually kept our coal consumption flat or increased it slightly. So biomass, we never decreased it. Coal, we never decreased it.

Then we got oil, and we added that on top, and that's never decreased. Natural gas came later, that's never decreased. Hydro, nuclear, all those things, we kept adding them on top of each other. We never transitioned from anything to anything. I'm not bringing this up because it's a semantic problem. It's that the entire mindset that our investment world is in, is one of substitution. We're going to substitute renewables or EVs or whatever for our current system, and yet there's no historical precedent for ever doing that. That doesn't mean you can't do

it. It just means that the probability is quite low, and certainly the probability is low in the near term. What's this going to change? I mean, everything has changed. We just don't know it yet. And so what I think is most probable is that we'll see a run-up in prices, which we're seeing right now. We're going to see demand destruction. It'll vary from place to place, depending on the capacity of that location to get its supply chains and deal with the financial fallout. And at some point, we're going to see a version of what happened after the first oil shocks, which was in that case a decade and a half of essentially global recession and depression. That's why we had low oil prices.

And as I've said, this is not going to play like that movie did, because the scale of our economy and the complexity of our economy today is so much greater than it was in 1980. What about U.S. shale? What's happened since February? what did U.S. Shale do in response to this crisis? What didn't it do? And what does that imply about Shale for the next five years?

It's no longer viewed as having the potential to make a difference. It's part of the background. Oh, so they know that we're producing 10 million barrels or whatever, but it's not going to double and we don't have like totally new green pastures ahead. on shale. Right. But for years, every day when I get online, you know, it's, oh, there's been this great new breakthrough. We've got this new drilling technology. We've got this new chemical. You know, shale is to the moon, and it's, you know, it's a world-changing event, and there's no end to it. And for the last, well, longer than six months, for probably a year, that's gotten real quiet.

People are not dumb art. No. We've got five-year, our 10-year treasuries today at 5%, which is a new thing. We're $40 trillion in debt. We're not building new refineries to speak of. We've peaked in all the shale plays, except for maybe the Permian. our relationship with the fossil bank account in the Middle East is deteriorating. Our missile banks and our military bases in the Middle East that provide the security architecture

that supports those flows is waning. We are losing the carte blanche gravitas respect of the world, especially because a lot of countries in the world are having to pay through the nose for energy. gas and natural gas and oil and diesel, which are a much higher percent of their daily purchases than the United, they are in the United States. And renewables are adding to the system, not replacing it. It does not take a genius to connect those dots

to come up with quite a risk-prone outlook for our energy and economic and social situation in the next 18 months. And yet, the narrow boundary views, AI is here, stock markets are up, what's there to worry about? We'll figure out this Iran situation and oil prices will come back down. It still boggles my mind how people aren't, well, I guess the DiCaprio movie, the Titanic hit an iceberg and for the first third of the movie, the band was still playing and all the things on the human drama on the

upper decks. Anyways, what do you think about all that? I agree with you, but the, I mean, the technology myth, and when I say myth, I don't mean, I mean it in the literal sense, that it is a mythology, it is a magical story. And it has been a pretty incredible story. I mean, the technological advances that we have seen over the last couple of hundred years have been absolutely mind-boggling. It's true. With a tiny little asterisk, every one of those years, with the exception of recessions, depressions, and oil shocks, we had more energy every single year to support that technology.

The two things are part of the same process. That is exactly right. And so the popular conception, and when I say popular, I don't just mean the people, I mean among very sophisticated investment analysts and fund managers, is we've always figured out a way, surely we will find one this time. That has been our history. The technology always comes through. As an example, the green revolution in agriculture is the textbook story that, I mean, that supposedly disproved, you know, Thomas Malthus and all of these, you know, these economists that felt eventually food would be the, you know, the constraint on human population growth that fertilizers and all of the mechanized agriculture that came into being after, pretty much after World War II did tremendously increase the productivity of agriculture. But as you, but it all has a cost, and that came at a time when energy supply, energy consumption was increasing at fantastic rates.

And then there are the externalities, the pollution that comes from all that fertilizer, the depressing water tables, the salt that forms in the soil, all of these things. So everything, nothing is free. Technology has great benefits. It has an energy cost. It has an environmental and ecological cost, and it has a human cost. And eventually, you reach a point of diminishing returns with all technologies. And that's the part that I think some people don't either fully understand or would prefer not to understand. If we do another podcast in six months, I believe some of these things are going to seep into our psyches more, unless there's some miraculous stick save here in the global markets. Let me ask you this. We focus on oil because you're an oil expert, but Qatar as LNG, and a large share of the globally traded urea and ammonia and such move through these same choke points.

I'm hearing from multiple people that there's going to be a caloric shortfall in 2028, if not 2027. And part of that is due to the lag of fertilizer shortfalls being one or two growing seasons later. But also there's a massive drought in Europe where they can't even sew the fields to plant next year's crops. And we've got the super al-Nino, which has. hasn't fully reared its head yet. That's going to be next year. And Ukraine and Russia, large grain exporters, have some of their ports closed. What is the non-oil story here?

Do you have any update on that? What's happening to natural gas and LNG and fertilizer? The natural gas story is every bit as urgent as the oil story. And, I mean, there are, you know, there are not riots, but fairly strident protests going on in many parts of the world, including Syria and Bangladesh and Pakistan. Because of higher prices? Because of higher prices of natural gas, because those countries, certainly Bangladesh and Pakistan, they rely on imported LNG for. their electric power generation. And the people are feeling it, and the governments are having to promise interventions

and subsidies so that they don't have civil unrest. Europe, I mean, is paying, you know, I mean, you know, $25 per million BTUs when we in the U.S. are, you know, paying not even three. Volkswagen is shutting down production plants in Germany because of this. and other stories. I mean, the natural gas story was a big headline before the Iran War because Europe relied on natural gas supply from Russia, primarily. And, I mean, we were, you know, you were talking to guests about the deindustrialization

of Europe, partly as a result of that. None of that has stopped. Europe has now replaced its dependence on. on Russia with dependence on imported LNG from the United States, from Qatar, from other places, and it's paid a massive premium in order to do that. Now, Qatar, its LNG is not available. And so we talk about oil and we can do ship-to-ship transfers

and all of this kind of gymnastics. You can't do that with gas. Can't do that. Why not? because the gas that you ship has to be super cool to, you know, hundreds of degrees below zero to put it in a liquid form. And so you can't just move it to, you know, to some other ship. It stays where it is.

Let me ask you this. Among the unexpected new trends and outer, comes from this war. Do you think it's likely that energy producing countries and energy importing countries will both try to create energy buffers? The producers will create buffers for their own populations, and the importers will start to try to build up their own buffers in case some of this happens again. And that changes kind of the smorgas board that the markets would clear from the past into there's a new game theory going forward for high quality energy flows.

Can you speak to that? Well, you had Jeff Curry on not very long ago. And he made the comment about expect more state capitalism in the future. And I think that was an important. observation on his part, that if the private sector is unable or unwilling to put money into refineries and oil and gas exploration, and you name it, then perhaps that falls into the realm of the state. So state capitalism could be a different term, might be resource nationalism? Absolutely. And you're seeing, you know, more than hints of this from the Trump administration, right?

I mean, so the United States is now a major shareholder or participant in, you know, some venture in Venezuela. Yeah, what's up with that? Is that going to matter much or not in the near term? It matters from a talking points perspective that if we're, you know, if we're failing on the, from the public perspective of, oh, my God, you know, my gasoline prices are going up and et cetera. Oh, well, don't worry. we're going to take care of that with Venezuela. I mean, that's ridiculous, of course, because Venezuela and crude, you can't make gasoline from it to start with.

But even if you could, I mean, you know, the time lag between whatever's happening in talk and actually getting those barrels is way beyond the timeline that most consumers care about. Well, you could make gasoline from it if you paired it with our light oil and a refinery. Yes? Well, not exactly. So, I mean, we don't want to get too deeply into refinery mechanics, but the reality is that U.S. oil is super good for making gasoline. We don't need anybody's help.

If the world ran on gasoline, the United States would be the king. Because U.S. oil has been cooked in the oven, a little bit too long by Middle East standards, which means that a lot of the heavier stuff that we use to make diesel and other things has been cooked off. It's not a mistake. It's just it's nature. So we do need Venezuelan oil to make diesel. Yes, and that's the distinction. So what the U.S. lacks are the heavy components that are needed to make diesel. And so when we import oil, from Canada, which is our major source of imports. I mean, we import four million barrels a day from Canada. Why we're picking fights with our most important supplier of anything is beyond me, but we are.

Okay. But just to keep it on the oil, what happens is we take that very heavy oil, whether it's from Canada or Venezuela or a little of its left in Mexico, and that goes into a completely different part of the refinery than what most people think about. That goes into a part of the refinery where it goes through all these catalytic converters and basically you upgrade that crappy tar, which is essentially what it is. You add a lot of hydrogen to it and you put it through a lot of, you know, chemical processes that kind of simulates the components you need for diesel jet fuel and kerosene. But no, it is not used to make gasoline. It is used to make the heavier things.

Yeah. So this is much Orwellian language. Here's a question that I wanted to ask you. And I asked Robert Pape this recently, the Petrodollar and the military technology defense kind of agreement we have with Saudi Arabia and other nations has depended on stable U.S. military bases and air and sea power and such. What happens when the security architecture supporting the flows of the spice from the Middle East falters and slows? There are a couple of important things that come from that question. The very first is that the entire global security and trade architecture, including oil, but not just oil, is founded on the U.S. being the guarantor of free maritime trade. And one of the benefits that the United States extracted from the rest of the world after World

War II in exchange for that was to be the world's reserve currency. Now, that wasn't explicit in any document, but that's kind of the way it worked. And so what has happened since this Iran war began is the United States has failed. We have failed in our responsibility and role to guarantee free maritime trade. We have abjectly failed. And nobody's talking about that. And, but everybody knows it. So the United States, it's not just a status issue, it's a power projection issue,

and it has tremendous implications for the way currency and financial transactions proceed in the future. Now, every Gulf country is being very nice and polite about this, but they're all pursuing other deals, other ways of trying to

get the security that they no longer expect from the United States. This has world-changing implications for the way the balance of power works not only in the Middle East, but everywhere else in the world. So that's piece number one. Now, the Petrodollar story is a little bit more iffy, because the Petrodoller was something that Henry Kissinger

worked out initially with the Saudis, which, you know, when the U.S. first started having to import a lot of oil, the way that that was worked out and made less uncomfortable was, okay, we'll buy the oil from you. You'll do all your deals in U.S. dollars, but you're going to turn around and take those U.S. dollars and invest in the United States. And so the story that could be told to the financial institutions and the American people was, this isn't costing you anything. This is free. Okay, the petrodollar system has not really existed for a long time, probably not for the last 20 years anyway. What does exist is the euro dollar system, and you know more about this than I do, Nate. The way that credit is created out of nothing in the world is still pretty much an American monopoly, despite a trend in the direction of other currencies coming in and replacing it. I don't want to get too far into things that I don't know enough about. But the connection is that as U.S. performance fails to meet the grand bargain that was made,

suddenly that starts to a level of uncertainty. is introduced into that arrangement. And that has at least as profound implications as does the geopolitical. But I think this all speaks to your point. We don't know. I don't know where this is going, how it's going to turn out. But when I start adding up the uncertainty factors going forward, I mean, we are not going back to January 26 in any way. way that I can imagine. I agree with that. Whether it's oil, whether it's LNG, whether it's fertilizer, food, geopolitics, currency, finance. I mean, this is a world-changing event. Now, I don't know 100% what that means right now, and I don't want to sound, you know, apocalyptic. I'm just saying that we are not going back to anywhere close to the way things were, and I don't think anybody knows

what will come after, but I doubt that very many people will like it if they liked what they had before. So what's the broader message here? What is the Iran War ultimately telling us about the future of human civilization? It's telling me that we are going to be involved in a far more intense and open competition for the critical resources that remain.

And I think that's a very unmistakable subtext of this conflict and all of the other geopolitical hot spots in the world. and I don't know what goes on inside the White House or the Pentagon, nor do I know what goes on inside of China and Russia. But I do know that the public documents and statements that are made by the Chinese and the Russians, plus their actions, give me very strong confidence that they are way ahead, of us in the United States and in the West in general on anticipating the critical and urgent nature of this competition. China has been working on gaining access to global resources, processing and refining, supply chains of everything from, you know, oil to silver to, you know, every mineral you can imagine for decades.

Russia, part of the, I mean, we've talked about this before. Russia happens to be, I mean, one of the biggest producers of a lot of important commodities, not the least of which is oil, but many, many others. And so my sense is that we're, you know, we're in a competition, and the competition is ahead of us. And I think a lot of the things that the Trump administration is doing, some of the positive things, recognize that and say, you know, we've got to catch up. We've got to do something more on critical minerals. We have to start being more proactive about that. Some people in the world who are running the

world recognize that we don't have an infinite pot of resources, and the winner, such as they might be, are the ones that have the most access to it. And by the way, you and I've talked about this before, World Wars 1 and 2 were won and lost on the basis of availability of oil. What would change your mind, Art? What sort of evidence in the next 12 months would tell you that the system and the United States role in it is more robust than you currently think? The very first thing that would change what I've said so far is that we enter into a, authentic talks with the opposition. Now, you know, what does authentic mean?

Well, let's just settle for talks. Yeah. I mean, as long as there's no talking, then there can be no resolution. We have already discussed that a political or a diplomatic resolution is a long way from a resolution, but it is a first step, okay? It'll be a data point that's important to me. rebuilding buffers. We spent a lot of time early in this conversation

talking about the depletion of buffers. Will anybody, will country start to refill their strategic reserves? It's hard for me to imagine where that's going to come from or what the motivation will be, but if there could somehow be an outcome where more oil starts coming out of places like Hormuz and the Red Sea without coercive security arrangements. You know, if the system somehow adapts to that level, you know, that would be another very important data point.

You know, it's hard for me to imagine how that could happen or why that would happen. But if it did, I would say, wow, okay, you know, maybe this is, maybe there's something new going on. But most important is let's get the production started again. And let's see how that works. And let's see where all these additional barrels that the IEA and the EIA and others say are coming, let's see them. In the same way that the data on the strategic petroleum reserve went down temporarily, I do sometimes wonder if the EIA and the IEA's raison debt is only on the upslope, that we're not going to be looking at the EIA forecasting for perpetual decline in U.S. oil production.

They just won't be a thing anymore. So they have an optimism bias built into their forecasts, I would say. I mean, that's just kind of a random thought, but why would they exist on the downslope for the public? Well, no, you're right. But the positive part of those agencies is that they do produce a lot of good data, which people like me and a lot of others can use in ways that perhaps, you know, they don't choose to, you know, to publicly show. No, I'm not disputing that.

I'm just saying if they really, really did believe we're going to be down 10 million barrels a day, 18 months from now, I don't think they're going to put out a report pointing out that fact. They're not. But at the same time, and this is deviating from your question a bit, but, I mean, their forecast, and it's not only theirs, it's open. PECs and IEA doesn't do that kind of forecasting. But, you know, the forecasts are that a year from now, things are going to be better than ever. Better than they were in January of 26?

Oh, yeah, just going to, yeah, we'll be at 112 million barrels a day is what EIA says. How is that possibly going to happen? I'd love to be able to raise my hand and ask that question. You know, tell me, how does that work? But my point is that you know, you asked me a question, I gave you some answers. I put a very low probability that I'm going to see any of those things. But if I did, that would change my opinion. And I started this conversation by acknowledging that, you know, I got some things wrong back six months ago.

So I'm fully capable of being wrong. You and me both. But you really haven't been wrong about, the broader swath here. Do you have any other insights or what should the viewers be taken away? What's the bottom line here, September 19th, 2026?

The bottom line for me is don't get distracted by the little stuff. Don't get distracted by, you know, are there 7 million barrels a day or 9 million barrels a day getting out of Hormuz? I mean, I'm not saying that's unimportant, but I mean, 90% of what comes across my feed is that. The more important thing is how much of the shut-in production is getting turned back on, and how well is that recovering?

How are the rest of the people in the world responding to much higher diesel prices and jet fuel prices where that affects them? The China story, you know, I mean, I just have a very difficult time believing that China made a policy decision to cut four million barrels of crude imports a day. I mean, to me, that almost has to be a big demand destruction story in there somewhere. We don't talk about that very much, but that has been an element of every one of these shocks along the way. And so to think that somehow we're going to get a pass on that this time, I think is unlikely. So my advice to people is, you know, if the small stuff interests you, and when I say small, I don't mean it's unimportant. It's just it's the narrow boundary kind of stuff.

You know, follow that if you like. But, but, you know, keep the bigger perspective. How is the world adjusting to this? that's the real question. And I think that's, you know, that's what most of both of our comments have been about. And the simple answer is, is that neither of us nor anyone else knows, but you and I share based on data a common view, which is however this turns out, we're not going back to the way things were not very long ago. And that should be, that should be very top of mind for anyone who cares about the state of the world and where it's going.

All said. Thank you for your time today and for your continued perpetual sleuthing on the energy and civilization story. We'll talk again six months or so and see what we will see. And thanks again, Art. Always a pleasure. Thank you, Nate. If you'd like to learn more about this episode, please visit The Great Simplification.com for references and show notes. From there, you can also join our Hilo community and subscribe to our Substack newsletter. This show is hosted by me, Nate Hagan's, edited by No Troublemakers Media, and produced by Misty Stinnett and Lizzie Siriani.

Our production team also includes Leslie Batlutes, Brady High. Julian, Julia Maxwell, Gabriella Slayman, and Grace Brunfield. Thank you for listening, and we'll see you on the next episode.