Russia’s Grip on Oil is Dwindling, Says Daniel Yergin

CHRISTIANE AMANPOUR: President Zelenskyy is renewing his calls for an embargo on Russian oil, as the West continues to sanction Russia. Author of “The New Map,” Daniel Yergin, is a leading authority on energy and the global economy. And he joins Walter Isaacson to analyze how this war has impacted everyone’s reliance on Russian energy.

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WALTER ISAACSON, CORRESPONDENT: Thank you, Christiane. And, Dan Yergin, welcome back to the show.

DANIEL YERGIN, AUTHOR, “THE NEW MAP: ENERGY, CLIMATE, AND THE CLASH OF NATIONS”: Thank you, Walter. I’m glad to join you again.

ISAACSON: It’s been two months since this war has been going on. You wrote a great book called “The New Map” about energy and world politics. How has this war changed forever the energy map of the world?

YERGIN: The big change is the change it’s going to make the role of Russia. Russia has been an energy superpower. Putin said he didn’t like the term, but he liked the money and the political clout. But I think Russia’s days as an energy superpower are now receding.

ISAACSON: Do you think that Europe can wean itself from Russian oil?

YERGIN: I think it can. I think it will take time to do that. I think the pressure of since what’s happened the last two weeks has really added to the momentum, not for sanctions that will play out in two years from now, but sanctions much more quickly, because Putin is earning a lot of money from oil and gas right now.

ISAACSON: How much is he earning each day?

YERGIN: Well, I can tell you, I was just looking at the numbers. From Europe alone, if you annualized from where he is today, it’d be like $250 billion just Europe, and Europe’s only about half of his oil sales.

ISAACSON: So if Europe cut off oil sales from Russia, how big of a dent would that put in Russia’s economy?

YERGIN: Oh, it’s a big deal, because oil and gas together are around 40 percent of the total Russian budget, and also obviously foreign trade. So it would be a big hit. And I think that’s why you see right now the Ukrainian government is really leading the campaign to get people to self- sanction, and ultimately to get to sanctions. And we see — we see that working. We see dockworkers refusing to unload Russian oil, banks not writing letters of credit. So it’s going to get more and more difficult for Russian oil anyway. And I think the E.U. is getting closer to some outright ban.

ISAACSON: But isn’t an oil a commodity. And if the Russian oil isn’t sold to Europe, it’ll just be shipped to China or somewhere else?

YERGIN: I think that’s certainly partly true. And we can already see India’s saying, we want to buy Russian oil, particularly because we can get it at a big discount, and we can pay in rupees, and not in dollars. But I think that only some of that oil will get sold. I think it will be — there will be physical logistical issues. There will be issues about being able to get insurance for tankers and a host of other things that will impede it. So some of it will get sold. But some of it won’t. And, by the way, it will be sold at a big discount.

ISAACSON: Is there any way to get India and China to try to stop importing Russian oil, or are they totally dependent on it?

YERGIN: Well, I think China’s not totally dependent. It gets a lot of oil from Russia. It gets a lot of oil from the Middle East. I think there’s very little influence on China to get them to buy less oil. I think there’s going to be a lot of diplomacy with India, because, of course, India has also gotten closer to the United States on this group of countries that are sort of around China, with Australia and Japan. So I think there’s going to be a big focus. And Biden just had a phone call with Modi, where you can be sure that this would have been one of the topics.

ISAACSON: So when Biden talked to Prime Minister Modi of India, what would be his ask?

YERGIN: Well, his ask would be on the energy front, which is not to pick up the slack on Russian oil, and to talk about all the areas where the U.S. and India can collaborate. India, of course, has a long historic relationship with Russia. And unlike its relationship with China, which is fraught with tension, it’s been a partnership, and a substantial part of the Indian army is equipped with Russian armaments. So I — what I hear from Indians is, they say, well, the U.S. is some — is a fickle friend, and Russia has been our long-term friend. So I think India is still trying to find its — is trying to balance between the two.

ISAACSON: One of the things President Biden did was open up the strategic oil reserve. In fact, he opened up the spigots pretty wide. Explain that to me and what he can be doing in that regard.

YERGIN: Well, the Strategic Petroleum Reserve was basically created after the 1970s oil crises, so that you were prepared for an emergency, a disruption. And we are looking at a disruption in world energy right now, particularly as this war goes on. And it could be more serious than that of the 1970s, because involves not only oil, natural gas and coal. It also involves the two nuclear superpowers. So using the Strategic Petroleum Reserve, I think, was a really smart idea, and use it at scale, because it got — it gets a lot of oil into the market, helps reduce the potential shortage, because it was a very tight market anyway going into the crisis. So it’s a big development. Walter, the other big development that’s affecting the oil market right now is the resurgence of COVID in China, which is taking Chinese oil demand down, and you see the oil price inching downward because of COVID in China, as well as the release of the Strategic Petroleum Reserve.

ISAACSON: Should Biden be doing more to promote U.S. domestic production of oil and shale oil and natural gas and liquefied natural gas? It goes against his climate policy instincts, but isn’t this a time where we need to balance those?

YERGIN: Well, we have certainly seen that change starting around November, when the Biden administration actually started calling for more oil and gas production, because, right now, if it was not for the shale revolution in the United States, were it not for the fact that the U.S. is the world’s — going to be the world’s largest exporter of LNG, Europe would be in a much worse situation. And so I think there’s been a grudging recognition that this is a great strategic asset for the United States and a great strategic asset for Europe and increasing production. I think, Walter, if I can add just one thing that would be helpful is to put away those old slogans like price gouging, which really don’t connect to what’s happening in a global oil market.

ISAACSON: In other words, Biden is accusing the oil companies of price gouging. And you say he should stop.

YERGIN: No. And it’s not — this is a global market where you have basically a shortage situation. And what — I think the lessons of history show that, when you’re in a crisis, when you’re in a wartime — and this is a wartime right now — you need close collaboration between government and the companies in order to manage the complex logistics and supply chains that keep 100 million barrels a day of oil flowing around the world. And so kind of political rhetoric is not what you need. What you need is cooperation.

ISAACSON: You run the most influential energy conference in the world, CERAWeek, which happens in Houston each year. And this year, you had John Kerry, the envoy for climate. And I think he was pushed quite a bit on, shouldn’t we balance our desire to fight climate change with a need right now to increase oil and gas production? How did he play that out?

YERGIN: He did see that this is a grave international crisis, and that part of the solution to it does involve U.S. oil and gas production, because, otherwise, you could see what happened in the election in France, the first round with Marine Le Pen. If you have turmoil and shortage and prices shooting up, then this coalition to deal with Putin’s war in Ukraine can really erode. And so you need to balance your climate objectives, your long-term objectives with the realities that we’re now in a crisis.

ISAACSON: But if you create more pipelines, if you allow more export of liquefied natural gas, if you allow more oil production, would that have any impact within the next couple of years?

YERGIN: Well, I think so. I mean, this year, U.S. oil production could increase by a million barrels a day, which is more than the entire increase in all the rest of the world. That would be a significant factor. And I think that Europe, as well as other countries, now regard us LNG as a source of stability and security. And — now, but you can’t build these things overnight. Pipelines take time. LNG facilities take time. Germany has said — Chancellor Scholz has talked in his Zeitenwende, his change of era, that Germany is now going to build receiving terminals for LNG. But it’ll take two or three years to get those built. But that’s to — so that they have to cut down on imports of Russian gas and be able to import LNG, some of which will come from the United States.

ISAACSON: How is this new policy in Germany going to play out? Is this really going to be a shift in Germany’s role vis-a-vis Russia?

YERGIN: Well, the Zeitenwende means a change of eras. And I think is a change of eras. Germany has pursued a sense of interdependence with Russia. And I think the trade that Germany had with Russia and had built up with Russia actually helped to erode and, with the Soviet Union, helped to bring down the Iron Curtain. But I think Germany has now said, we’re through. We don’t want to be dependent upon Russia anymore. It’s not a reliable supplier. It’s an unwanted supplier. And I think that is more broadly affecting the overall economic relations, because, remember, Germany is much more connected to Russia, as are other European countries, than the United States, because of proximity. But they’re saying, we’re going to change and we’re going to go in a different direction. We’re going to increase our defense spending. We’re going to strengthen NATO. This is all a big change. And one of the many miscalculations Putin has made, he wanted to undermine NATO. What he’s done is reinvigorated NATO, and he’s turned Germany in a very different direction.

ISAACSON: You say NATO has been reinvigorated, but are you worried about the elections happening in France and that there may be a populist backlash, especially with the prices going up?

YERGIN: Absolutely, because we’re looking not only at an energy crisis, but a food crisis. And Marine Le Pen has very cleverly pursued a campaign based on economic issues, less on immigration. And, of course, she’s touched people’s pocketbooks. And so I think that goes back, Walter, to what we’re talking about, the need to really manage where we are today to avoid really big price spikes that will lead to the kind of political reaction that will undermine this unity. I mean, she said that she’s against NATO. So that’s why you have to take a holistic view to this crisis, and not look at it in different pieces.

ISAACSON: Well, you talk about price spikes. Gasoline at the pump is like $6 some places in the United States. How long is that sustainable? And is that going to cause political problems? I heard President Obama once say that the correlation between his popularity and gas prices at the pump was the strongest political correlation there was.

YERGIN: I think it’s very much on the minds of both Democrats and Republicans looking at the November election, these prices. If you’re a nurse or a teacher, and you’re driving 25 miles a day to work, these costs really hurt. And so they are very politically significant. It gets you back again to the question to manage this in a sensible way. Obviously, in Europe, the prices, because of tax, are actually a lot higher. And that is a very political — very big political factor there. So I think, around the world, we’re going to see the politics of nations roiled by energy prices, and, by the way that other crisis, food prices.

ISAACSON: Well, let’s start with energy prices. What could be done to bring down the price of oil at the — of gasoline at the pump?

YERGIN: Well, you have to add up a lot of different things. You use the Strategic Petroleum Reserve. You get this kind of cooperation I have talked about between government and industry to manage the logistics. Obviously, some more oil from the Middle East would be helpful. And then you do have whether we will have some kind of demand restraint or people just changing behavior. But all of those things come together as we — this is a very tight spot that we’re in right now.

ISAACSON: You talk about the possible rise in food prices. What would be driving that, and how could that be ameliorated?

YERGIN: Thirty percent of world wheat comes — exports come from Ukraine and Russia. And a lot of that has just stopped. The Ukrainians can’t use their ports. The crops will rot out. And egg — they’re a major exporter of eggs. You go down the list. You have all those things. And something else that people don’t realize, but if you look at all the costs of food, about 70 percent of the costs of food actually is energy, from fertilizer, from tractors, from trucks to move it. And so all those energy costs also feed into the price of food. And the Middle East is particularly dependent upon wheat from Russia and Ukraine. And, of course, it was high food prices that set off the Arab Spring in 2011, very much on the minds of leaders in that part of the world.

ISAACSON: We’re in this struggle with Russia, and it especially involves your specialty, energy. And yet we’re trying to engage in this struggle while also having a bad relationship with China, a bad relationship with the Saudis, and up until recently a bad relationship with Venezuela. Is it possible…

YERGIN: It’s still a pretty bad relationship with Venezuela.

ISAACSON: So, shouldn’t we have to repair our relationships with China and Venezuela pretty quickly?

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YERGIN: Well, I’m not sure Venezuela — I — obviously, some people from Washington went down to Caracas to see more oil. I think they ought to also go to Calgary in Canada and get some more oil, because I think the Canadians can help us out too, but they have been sort of forgotten. But I think China — Walter that, of course, is that China is the big — that’s the big question. That’s a huge geopolitical question for the 21st century is U.S.-Chinese relations. And, generally, they’re going in the wrong direction. And that’s really the real threat. So, how to manage those relations. And given that the politics of the U.S. is increasingly antagonistic towards China, and China’s certainly increasingly antagonistic to the United States, that is a — it’s a subject for another conversation, because it’s so big and complex, and the risks are so obvious.

ISAACSON: Does this crisis increase the role that nuclear power can and should play? And should European countries be not shutting down nuclear plants? And should we in the United States be more willing to open nuclear power plants?

YERGIN: That’s a very sensitive question, because particularly the Germans made the decision over a weekend to shut down their nuclear power, which provided I think about 20 percent of the electricity. So they’re using more gas, including Russian gas, to produce electricity, and they’re shutting down at the end of the year their last three nuclear power plants. But I think we’re seeing — we have seen a real turnaround on nuclear power. President Macron came into office saying that he was going to cut back and French nuclear, which provides about 80 percent of electricity. He’s now said they’re going to build six new reactors and maybe another eight. Britain has just come out with a new energy security doctrine that also includes more nuclear. And going back to our CERAWeek conference, Walter, I heard a number of CEOs talking about small nuclear reactors as though these are going to be reality by the end of the decade. So, I think there is a turn on nuclear power going on right now, seeing it as part of the mix, both for security and also for energy transition issues.

ISAACSON: Dan Yergin, thank you so much for joining us.

YERGIN: Thank you, Walter, and good to be with you again.