How the Hormuz Crisis Is Redefining Energy Resilience

What does it mean to be resilient in an era of energy supply chain disruption? Host and TAG Senior Advisor Mira Rapp-Hooper speaks with TAG Partner Jenny Schuch-Page about how the Hormuz crisis is broadening the definition of energy security beyond oil and gas. They discuss why access to critical commodities, electricity infrastructure, stockpiling, and diversified sourcing are becoming matters of national security; how companies are reassessing hidden vulnerabilities in their supply chains; and why governments across Asia are weighing near-term energy needs against long-term transition goals. 

What Comes Next with Mira Rapp-Hooper is produced by Rivan Dwiastono, executive produced by Lauren Dueck, with editorial input from Prashant Jha. It contains music by Cody Martin via Soundstripe. 

What Comes Next is a production of The Asia Group, and is powered by TAG AI, TAG's geopolitical decision engine for businesses.

Transcript

SPEAKER_01 0:00

You know, the disruption itself ran for over a hundred days. That's a long enough period for companies to take, you know, significant steps, such as signing alternative contracts, qualifying new suppliers, um, making capital commitments that they're not going to unwind easily. And those are steps that once you make that step, you know, it could take longer to go back to previous behaviors. Um, so I think this combination of dynamics definitely points to a more significant inflection point that we're seeing right now.

SPEAKER_00 0:37

With the United States and Iran still very much in a conflict in the Middle East and the ceasefire seeming to have collapsed, the world is grappling with questions, including how businesses and governments will adapt to prolonged closures and disruptions in the Strait of Hormuz. The question of how global energy and commodities markets will respond is no longer one of just a one-off shock, but a question of how they might be restructured over the medium and long terms to grapple with this new reality. Our next guest is here to help us dig in with some of those questions. Jenny Shock Page last joined the program in April when she helped us to understand the first months of this crisis in the making. Jenny is a partner here at the Asia Group, where she also oversees the firm's energy and sustainability practice. She's also been a diplomat in the energy space, and she and I had the privilege of working together in government when she served as a senior advisor to Special Envoy for Climate, John Kerry, at the State Department. Let's give a lesson. Jenny, it's wonderful to have you back on what comes next.

SPEAKER_01 1:45

Thanks, Mirror. It's nice to be back with you.

SPEAKER_00 1:48

I've been looking forward to this conversation and really looking forward to picking your brain. Uh, because of course, over the course of the last couple of weeks, we have seen uh the situation deteriorate once again in the Middle East. And the ceasefire, the MOU that we were all so hopeful would hold and provide a pathway out of conflict seems not to be doing that. And indeed, uh significant conflict between the United States and Iran is still raging. With this conflict backdrop, of course, all of us here at the Asia Group and in many corners are grappling with questions around how continued conflict and continued disruption in a critical waterway like the Strait of Hormuz may actually produce long-term changes and structural reorientations, both for governments and for businesses, not just short-term shocks. Jenny, I know you've been thinking through how these questions will continue to change energy flows, energy markets, energy politics. So I'm looking forward to diving in today. And with that, let's get right to it. Shipping traffic through the Strait of Hormuz has been disrupted since the very start of this war between the United States and Israel against Iran. And this marks the biggest oil supply disruption we have ever seen. You've watched the energy security debate evolve over many years. And my main question on my mind for you has been: is this a genuine inflection point? Are we going to look back on this conflict as a time when the geopolitics of energy transformed fundamentally? And if so, how thanks, Mira.

SPEAKER_01 3:25

You know, there is a case to say that this is cyclical, and there's some temptation to say that there could be a return to some sort of normal. You know, markets have absorbed other crises in the past, 1979, the Gulf War. Um, during those instances, prices spiked, buyers um adapted tactically, and then energy flows, you know, eventually normalized. But I think that there are a few features this time that make it different enough, um, that we've seen um a shift in risk perception that is significant enough to have a structural impact. So the first feature, I think, you know, it's the moment that this arrived is at a time when resilience, the issue of resilience, is already a dominant theme among corporate conversations. During this post-COVID era, um uh companies have already been thinking about supply chains and their resilience measures. And so the crisis has confirmed behaviors that they've already been acting on. I also think that the scale is just completely different. As you noted, it's unprecedented. The IEA has called this the largest supply disruption in history of global oil markets. Um, and that's just hard to get around. Um, it's not just a price uh crisis, but it is an access crisis. And then I think the final issue, which has really kind of had a behavioral impact, is how sustained the crisis has been. You know, the disruption itself ran for over 100 days. That's a long enough period for companies to take, you know, significant steps, such as signing alternative contracts, qualifying new suppliers, um, making capital commitments that they're not going to unwind easily. And those are steps that once you make that step, you know, it it could take longer to go back to previous behaviors. And at least you've opened the door to a range of different approaches. Um, so I think this combination of dynamics definitely points to a more significant inflection point that we're seeing right now.

SPEAKER_00 5:27

And Jenny, in your estimation, obviously, you know, you that was a great answer. And you pointed to some really important factors, like the fact that the hundred-day closure was a significant enough period of time for businesses to take really fundamental decisions. In your mind, and based on what you're seeing out in the world, is it the case that this continuation of resumed conflict, this sort of reinjection of volatility, is serving in the minds of money, whether governments or businesses, to only confirm the impetus to want to diversify, find new suppliers, et cetera?

SPEAKER_01 6:02

Yeah, I think that's definitely the thing that we're watching right now. Um, energy suppliers and energy buyers are thinking, you know, they thought maybe it was going to go back to a new period of stability. And folks were, you know, quite optimistic, you know, hopefully, um, you know, wishful optimism. Um, but this I think really points to the fact that, you know, it kind of reinforces that behavior and those decisions that resilience means diversification of many of your sourcing strategies, and you can't um really count on uh what happened before will happen again.

SPEAKER_00 6:40

Yeah, that that makes good sense. I also wanted to pick your brain on the sort of question of how this has continued to disrupt on an ongoing basis non-oil commodities. Of course, you know, one of the things we've been watching at the Asia Group is a disruption of a wide range of commodities. We've talked on this program about the signature report that the Asia Group released, which of course covered energy markets, but also covered commodities like helium, aluminum, sulfur, graphite, um, and others. So, how do you see these other markets being affected? And in particular, if you are a business and you're now planning for a future in which you could see continued interruptions or disruptions uh to these types of commodities, what do you think you're re-examining at this point in time, given the sort of diversity of inputs that have been affected?

SPEAKER_01 7:35

Yeah, that's a good point. It's so true that the crisis has brought to our attention a much broader range of products beyond what we typically think of, oil and gas, liquid fuels going through straits and shipping and arriving at our shores. Um, you know, a lot of folks were not as familiar with, you know, how important helium is for a range of really critical products, um, how important sulfur is for um cobalt and nickel processing, and that the you know, disruption of that supply chain like really grounds EV battery manufacturing to a halt, and that that has an impact on like Latin American um copper production. So it's um it's had a much broader impact. Um, I think you know the it aluminum is also an interesting case where the reason that it is the uh the Gulf region is a production hub is because of cheap power. And, you know, that will improve, you know, this current dynamic, you know, with the um supply being cut off there, uh, will improve the competitiveness of other locations for investment for um for aluminum. So I think it is, you know, what we have found is that the some of these were products that everyone just took for granted that they would flow reliably. So they didn't appear appear on a company's critical commodity list. They just were not taken seriously. And I think also a lot of the energy risk modeling has been more dominant in the fossil fuel sector and the clean energy um sector had not been modeling uh products like sulfur as a risk. Um, and so that's been, I think, uh a bit of a wake-up call. Um, and I was just at a solar manufacturing plant in India last week, and they also mentioned that they were getting silver from UAE, not because it is like from there, but the UAE is actually a hub, a trading hub for silver. Um and they're now grappling with just higher uh input prices as a result. Uh, so just the the broad implications are kind of astounding. Um, and so I think what does this mean for companies? Um, you know, I think the question that they need to be asking now is doing a you know a really thorough review of what, like which of our input materials did we assume were immune to geopolitical disruption because they're not oil and gas and they're not named on a sanctions list already. Um, and so companies that need to think about a new set of questions and risk frameworks and then go through rechecking their supply chain audit list to see where else um they're vulnerable. And it could be um, it could really open up their eyes to a broader, uh broader set of um fundamental implications for their business model.

SPEAKER_00 10:28

That's a really useful answer, Jenny. In particular, the point that you know, folks in the clean energy sector hadn't necessarily thought about sulfur as a critical input in the same way that could be disrupted because of its seeming availability is absolutely spot on, it seems to me. Uh, and in particular, you know, one of the things that we've seen, we've talked about it before over the course of the last year, year and a half or so, is that some of these kind of geopolitical concepts that have seemed to us really salient for a long time but are rarely ever driven home, have really been brought to life. Whether you're talking about the idea of a choke point where China uses its critical mineral supplies to exert leverage in the US-China trade negotiation, or choke point in the context of the Strait of Hormuz, where Iran demonstrates that it can actually hold up the world's supplies, not just in oil and gas, but in a wide range of commodities. We're seeing that concept really driven home in real time and revealing vulnerabilities to businesses and to governments that they didn't even entirely realize that they were there, much as they understood all of these things to be choke points. At the same time, we're also seeing in real time what it means to kind of test the concept of energy security, what counts as energy security, um, what constitutes energy security, how you can feel energy secure as a business. Um, and we've observed that uh, you know, the World Economic Forum is now identifying geoeconomic confrontation as a key driver of economic and industrial policy and securing access to critical inputs is increasingly treated as a matter of economic and national security. So I wonder if you're seeing shifts in how either governments or businesses are allocating budget or allocating capital with this expanding definition of energy and commodity security that has been driven home to us the last few months.

SPEAKER_01 12:34

It is true. Um, this issue is really crossed from being an economics issue to being a security issue. And we're now seeing capital flow more to assets that provide energy supply sovereignty. And that is can be in a few forms, you know, domestic production, um, flexible logistics networks, or more stockpiling capacity, whether increasing capacity for you know oil or actually expanding the range of products that a country might um stockpile critical minerals. Japan is considering um stockpiling NAFTA. There's been a lot of talk about how to handle LNG. Um and so, you know, what this is showing is that even when cost economics are inferior, there is this new um an increasing willingness to pay a security premium. Um, and I think that's, you know, we used to talk about the green premium, but now it's really a security premium that uh countries are focused on as geopolitical competition and crisis impact the supply chains. And therefore, national security countries and companies are just more willing um to take that um uh subsidy. So there's a few places where we're seeing this manifest. Um, you know, particularly right now, just a huge um investment surge in electricity infrastructure. Um, governments are treating electricity more as a security instrument and rather than just an energy product because it is just so intertwined with um the rise of AI and data centers and the need for providing that kind of insurance um of electrification. And so um in that context, there's greater willingness to invest at less uh less competitive rates. And then we're also seeing a reshoring of strategic production because companies and governments are viewing um pricing supply reliability as a strategic premium. So we're seeing this across many sectors, everything from like semiconductor fabrication, um, fertilizer production, LNG, infrastructure investment, critical mineral mining and processing. Um, governments and companies are doing a careful, they're increasingly doing more assessment of what level of production capacity do they need to have um control over and have a capability uh to command. Um, and so I think the next question for governments and countries is gonna be you know, how much of that supply chain redundancy and resilience is necessary? Um, you know, they maybe don't need to have full capacity to take care of their entire needs, but you know, where do they need excess capacity to ensure just that sufficient level of economic security going forward?

SPEAKER_00 15:35

And presumably the definition for every country is different and is partially determined by what they can afford to provide for themselves.

SPEAKER_01 15:42

Yes. I think there's interesting um collaboration in Asia on this topic. Um, you know, in Southeast Asia is a region that didn't have crude stock, a lot of countries didn't have crude stockpiling. And so they're looking at how can they, you know, through collective demand um and collective bargaining um and collective infrastructure and like uh stockpiling mechanisms, um, you know, work on this together because they've also found themselves very vulnerable in this situation and with less, you know, fewer tools to improve their security.

SPEAKER_00 16:15

Yeah, significantly shorter reserves, um, you know, a priori uh to this crisis, as we discussed the last time uh we had you on to chat with us. That also brings me to another question that I wanted to revisit with you, Jenny, that we talked about the last time you were here. And that is the question of what diversification patterns are looking like for some of the countries that you're watching. The last time we spoke, you talked about the fact that the energy mix sort of post-Tormuz crisis was going to look a little bit different for every country. And of course, affordability is a huge factor there too. Um, you know, we had seen uh that certainly some countries, many countries are looking to diversify the sources of their fossil fuel sourcing. Um, some are moving more heavily back to fossils, while others are looking at renewables and electrifications. I wonder if you could kind of give us your latest on what this diversification picture looks like and any big trends that you've seen emerge over the course of the months that we've been grappling with this crisis.

SPEAKER_01 17:23

Yeah, um, grapple is the right word. Um, so the there is a bit of a tension right now, I would say, between sort of like near-term um strategies and longer-term strategies. Um, you know, countries were prior to the crisis, countries were already grappling with the you know challenges of the energy transition related to cost and technology advancement. And then you have this crisis, which is expensive and complicating um uh on many fronts. Um, and so in the in the short run, what we have seen is that in Asia, you know, countries have really like we we had started to see this, and we've really seen now that countries have pivoted to coal and we're gonna see really a surge in uh coal usage for 2026. Um we've also seen global LNG investment increase um because of the supply vulnerability uh from the Gulf. Um, countries across Asia are taking another look at um and accelerating upstream um uh oil and gas projects because they want to have that energy sovereignty. Um I think just today we saw the news that Indonesia is moving forward on a project that has been wait, you know, kind of been waited on for quite a while. Um, and I, you know, a crisis breeds action in um a country like Indonesia. So um we're we're seeing that. Um and then so the tension then is that you know this uh and new energy infrastructure has a long lifespan, you know, 20, 30 years for new LNG infrastructure, um, you know, longer for a coal plant. Um uh and that is, you know, that those are expensive investments, they're long-term investments, and it's a trade-off then for governments against future energy transition progress, um, that they're you know, they're calculating and they're um figuring out what is the right balance. And we're seeing that this crisis combined with a lot of the you know really rapid growing energy demand, um, especially in countries like um Korea, which you know, the government there wants to be an electro state. Um, but they're seeing that they're going to, even with their very ambitious renewable energy deployment targets, they're planning to have more gas in their energy mix to meet these many like demands on a system. Um, in the long run, though, I think the logic does converge more than diverge for certain sectors. Um, I think the crisis, we're still seeing um a big push towards electrification for the power systems in Asia. Renewable energy, you know, from what I'm hearing from governments, that is still viewed as the long-term security hedge for sovereign energy. Um, and so it's easier to see the transition pathway in the power sector more and also um in the road transport and transition to electric vehicles. Countries are they're moving in that direction. They are talking about renewable energy as energy security in this moment. But then, you know, for heavy industry um like steel, cement, and petrochemicals that are pretty dominant in Asia, those are going to be harder to shift um away from hydrocarbons. And so in that context, the crisis is really accelerating more of the resilience strategies. So, um, you know, diversification of sourcing for products like, you know, oil and oil derivatives, as well as stockpiling, rather than um pushing more aggressive transition strategies for those technologies. Um, though we are seeing, you know, some governments are still making efforts in that way, but this is going to um, you know, just present more competition for re uh resources uh for various pathways.

SPEAKER_00 21:21

An incredibly comprehensive and thoughtful answer. I know we have to let you go soon, Jenny, but before we do, I have one more question on my mind. And perhaps it's an unfair one, um, because it's never really fair to ask your guests to pick winners and losers. Um, although in our No Safe Harbor report, uh, the Asia group did uh sort of identify some winners and losers. I'd love you to share with us your assessment, um, both on kind of a country level and on a business level, of uh who has fared relatively well through this crisis. You know, what characteristics made them better positioned to be resilient in the phase. Of this biggest energy crisis of the modern era and who has fared relatively less well and due to what characteristics. This is definitely not an effort to kind of put anyone on the spot, but rather to learn from those who've been more resilient and those who may have felt caught flat footed as both governments and businesses prepare to hunker down with many of these trends and constraints over the long term.

SPEAKER_01 22:27

Yeah, well, to start off, you know, I think one of the clear winners is probably U.S. oil and gas producers. They've been benefiting from higher, you know, elevated prices, more insulated supply chains. And the US is able to play that swing supplier to both Europe and Asia at this moment. And then our petrochemical producers are also able to build their market share during this moment. Other um kind of countries that have benefited would be the other non-Gulf exporters with the ability to scale production and without the Hormuz exposure. So countries like Brazil and Norway, um, you know, as other as countries look for other sources of supply. And then on the, you know, acceler in terms of acceleration of electrification, um, you know, countries and companies that are, you know, equipment manufacturers and grid infrastructure companies are are doing well right now. Um, the crisis is accelerating the procurement and permitting of those renewable energy and grid projects. And so um, as the fastest and cheapest product to deploy, it's um it's just in high demand right now. Um, in terms of countries that are in a tougher position, you know, in our region, Japan and Korea are really the most exposed. They don't have their own production, they're really large importers and they have fewer options. Um, so it's been a tough moment for them. But then on the flip side, I would say some of the region's small energy import-dependent economies are similarly um, you know, have had a tough time with it because they're import dependent and they don't have, you know, the scale, the purchase, purchasing power, scale, um, and financial capacity to um, you know, be able to procure um what they need at the the same levels. Um I would say that uh Europe is also, of course, um, you know, has been struggling in this moment. They and their diversification away from Russian gas, they in um you know took a large position with um Qatari LNG. And so that is net they're now grappling with um expensive spot markets. Um, and similar to that, you know, the Gulf producers are are for many obvious reasons uh facing challenges.

SPEAKER_00 25:06

No doubt. Jenny, this has been incredibly helpful, um, certainly eye-opening. Uh, and I trust that many of the dynamics you're identifying here are going to be with us for a very long time to come. Uh, so we will continue to watch your work, be grateful for your work uh at the Asia Group. And thank you so much for sharing your wisdom with us today.

SPEAKER_01 25:25

Thank you, Mira. It's been a pleasure.

SPEAKER_00 25:28

When I reflect on my most recent conversation with Jenny, I'm struck by the number of variables that businesses now have to be considering in this brave new world in which we're facing prolonged disruptions in the Strait of Hormuz, and indeed a status quo that never may return to what exactly it was. In particular, I find myself continuing to reflect on the sheer number of variables that companies will have to identify to understand how energy secure or how commodity secure they truly are. It seems to me that we're entering a new era, not just of geopolitical risk planning, but at the company level of energy and commodity security planning for those who are dependent on foreign sources for all of these critical inputs. Because the world that we lived in prior to March of this year may truly never return. What comes next is produced by Ruvan Duyastino and executive produced by Lauren Dewick. It contains music from Cody Martin via Soundstripe. What comes next is a production of the Asia Group and is powered by Tag AI, Tag's geopolitical decision engine for business. We'll see you on the next episode.