How the Iran energy shock could bring lasting geopolitical change

• Oil soared past $100 per barrel on Sunday night. The spreading conflict is "by far the largest oil disruption in history," Rapidan Energy Group said in a note.

Here are three big effects to track going forward ...

1. China's risks and rewards. In the near term, China faces plenty of jeopardy as a major buyer of Mideast oil and Qatari LNG. Longer term? Different story.

• "Crises often reorder energy geopolitics in unexpected ways. This one may ultimately strengthen, rather than weaken, China's strategic position," Jason Bordoff, founding director of Columbia's Center on Global Energy Policy, writes in Foreign Policy.

State of play: His piece explores several reasons. One of them: Being the top dog in clean electricity supply chains looks even better if today's crisis hastens global shifts from risky oil and gas commodities.

• That's hardly the only geopolitical upside for China that Bordoff and other analysts are exploring.
• Atlantic Council scholars, in a wide-ranging post, note that gas is a rather small share of China's overall energy pie, and it has pipeline import options, and already relies less on LNG than several neighbors and rivals.
• So... LNG outages in Qatar stand to benefit U.S. producers, fueling claims that Washington is getting a windfall.

"Beijing may therefore judge that another LNG-tinged crisis would impose little economic cost on it while potentially further antagonizing Washington's already-fraught ties with its allies," it states.

2. The case for stocking up. China has built up very large onshore crude oil stockpiles in recent years, reaching 1.2 billion to 1.4 billion barrels by varying estimates.

• Other countries could begin bolstering their strategic inventories after the crisis that has shown the fragility of global flows.
• "Irrespective of how this plays out, we are going to move to 'just-in-case' inventories from what had been 'just-in-time,'" Veriten partner Arjun Murti said on the firm's latest podcast over the weekend.

3. The case for diversifying. On Friday, we explored how a crisis laying bare risks to ocean-going commodities may drive nations' faster moves toward homegrown electrons — especially the renewable sort.

• But any moves toward a wider energy menu — and higher natural gas costs from the conflict — could also bolster the case for nuclear, coal and countries' development of their domestic oil and gas.

• Murti notes the lesson for Europe is "especially stark" after it was overexposed to Russian gas, then pivoted to LNG, and now that market is hit by the loss of Qatar's output.
• "This idea that you want to be diversified — and not just in any one 'solution' — is a real lesson I think everyone needs to remember," he said.

The bottom line: Yes, it's easy to overstate how much a crisis will change things.

• During COVID, there was a minority-but-not-crazy view that oil consumption might never return to pre-pandemic highs. It did, and it's still growing.
• But don't bet against the aftershocks of today's upheaval being profound.

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