Hill Vaden (00:07):
All right. Welcome to EnergyCents. The new S&P Global podcast that looks at the intersection of energy and financial markets and works to make sense of it all with S&P Global experts for our listeners. I'm Hill Vaden and I'm co-hosting this week with my friend and colleague, Rachel Beaver, who joins us out of London. Hey! Rachel.

Rachel Beaver (00:25):
Hi, Hill, delighted to join you. And it's a very interesting topic that we have to discuss today with two of our esteemed guests, Roger Diwan, S&P Global vice-president of financial services, and Carlos Pascual, S&P Global senior vice-president of global energy. Welcome to you both, gentlemen.

Carlos Pascual (00:43):
It's a pleasure-

Roger Diwan (00:44):

Carlos Pascual (00:44):
... to be with you. Thank you.

Hill Vaden (00:46):
Welcome guys. So as you know, we discussed the topic a little bit before we get here, but the 1970s are back. I think there's maybe ... Peter Tosh's album Equal Rights is as topical as it ever was. And, just yesterday, as another example, my eight year old daughter prompted a discussion with me on my favorite songs on David Bowie's album, Diamond Dogs. But, increasingly, maybe more relevant to this podcast, media and forecasters are making past is prologue comparisons between the 'Seventies and the coming 2020s, flagging parallels that include Asia born flu-like pandemics, street protests in Western democracies and law and order presidential Republicans. Of course, there's some obvious reasons why this time is different, and the 2020s aren't going to be a complete repeat of the 1970s. Floppy disks, I don't think, anybody expects to make a comeback. The Stones won't be making any new records as good as Exile on Main Street was. And, Rachel, I trust you're not going to be breaking out your Space Hopper again in the next 10 years?

Rachel Beaver (01:49):
No, I think it'll be quite a sight to behold. But sticking with the past is prologue theme, it's an interesting theme, and applying it, particularly to energy markets, observations from the 1970s could apply to our expectations for the 'Twenties perhaps. For example, in the 'Seventies there were two oil shocks that limited global supply and spiked prices: In 1973 associated with the Yom Kippur war; again, in 1979 tied to the Iraq revolution; and queuing for gasoline and no gas signs are memorable for Americans as images of the 1970s. Interestingly, growing US production, I think, was associated in both eras. So you had growing oil production from Prudhoe Bay in the 'Seventies and, lately, from the Permian Basin.

Rachel Beaver (02:35):
So, Roger, I'm interested. Do you think that the oversupply we've seen in the last few years will continue to be a major focus for the oil markets in the decade ahead? Or do you think we'll see oil prices back from production restraint in OPEC and elsewhere?

Roger Diwan (02:51):
Yeah. So I think this Seventies' prologues to the 'Twenties in oil doesn't really work. You had two supply shocks. Here we have the biggest demand shock ever. So in many ways we're at a time of extreme abundance and, as we speak right now, we have about 16 million barrels per day of spare capacity, which is exactly contrary to what we had in the 'Seventies, no spare capacity and prices rising. So I think we're in a different moment. The question that you're asking here is, "Is this moment where we create so much pain that we have not enough investment in the industry to meet demand two, three, four years down the road in a post-COVID recovery golden age?" Not '75 as you're on, but more like the early 'Sixties and the 'Fifties where everybody goes out and starts spending money and you had a big boom, an inflationary boom, if you want.

Roger Diwan (03:47):
I don't see that, and I think the industry right now and the abundance of resources that we have, means that oil prices in the medium to long term are capped, actually, because at $60/$70 we can deliver a lot of resources. So oil is not likely to be the source of inflation and energy in general. Actually, I think, it might be a source of deflation.

Hill Vaden (04:12):
Carlos, what do you think about that?

Carlos Pascual (04:13):
Well, I would say that the story of the 2020s is going to be the story of demand, as opposed to what it was in the 1970s, which was the shortages of supply. And I think, Roger, that our views coincide one another, but the critical issues that we're going to see ... What we see right now with the pandemic is that you've had a massive contraction of demand because of the inability to drive, to move, for the economy to function, to people being engaged economically. And, as a result of that, it's had a huge contraction on GDP. It's had a huge impact on oil demand. And the recovery is going to depend on how we get out of that pandemic and how demand in the world resuscitates itself again.

Carlos Pascual (04:58):
But that's going to translate to transition and other issues: When is peak demand going to occur? Is energy transition going to be accelerated as a result of this process? Are people going to begin to see that there is an inevitability of change and start to embrace it? How is ESG going to play into these questions? And so I think that the story that we're seeing evolve right now is a story of what is the demand for energy going to be in the future? What is the mix of that energy going to be? And at what point do we start to embrace change? Do we recognize that this change is inevitable and you embrace it and then, potentially, accelerate that transition process even further?

Rachel Beaver (05:46):
That's really interesting to hear you say that, Carlos, because I wonder whether ... I mean, obviously, environmentalism is an issue that was around in both decades, in both eras. In the 'Seventies the US observed Earth Day for the first time in April 1970. Nixon created the Environmental Protection Agency later that year and, as you've highlighted, ESG concerns continues to be high on the agenda in the 2020s and continues to be influencing policy. But I think, importantly, do you think investors in traditional energy companies share the same environmental priorities?

Carlos Pascual (06:23):
Well, the first thing I would do is question the wording "traditional energy company" because that's one of the things that's fundamentally changing. If you look at the international oil companies: Repsol, BP, Shell, Total, have all made commitments to net zero carbon emissions by the year 2050. That's going to mean that they're not going to look traditional after some period of time. Oil and gas is going to be part of their future for some period of time but new things are going to come into it, and then Equinor and Eni have also made extensive commitments. The US oil and gas companies are not in exactly the same space. So I think that's one piece.

Carlos Pascual (07:09):
The second piece of it, when you come back to the point of investors, and here I want Roger to jump in, what struck me is that investors in the end are thinking about the return that they get, but they're also thinking about volatility. And one of issues that we've seen in the past decade and we see a major concern right now, is the concern about price volatility. They want dependability. And so I think there's also going to be pressure out of investors, out of concerns that they traditionally have, that this price volatility is not good for what they're trying to do with their investment funds. And so I think we're going to see changes from both sides. Companies are going to change, investment patterns are going to change, and the interesting question that we come back to is this point that I've been thinking about a lot, is when does it get to the point where you just start hugging this, right? Because this change seems so inevitable that you feel like you have to embrace it and go with it.

Roger Diwan (08:10):
Well, we are at the moment of embrace, correct? I mean, major oil companies talking about, "Net zero." This is the embrace. And I think the embrace is coming, not only out of... This is what their shareholders are asking, et cetera, I mean, this is where the future is. Technology is shifting. They're there in the energy business at the end of the day. They're not on the oil business. They need to think that they're here to deliver energy whatever form it is. The question is can they transform their portfolios to go there?

Roger Diwan (08:42):
In terms of returns, as you said, Carlos, it's not clear over the last five, six years, even with the ... Particularly with the share revolution, that the returns in the oil business has been better than any other aspect of the energy chain even with lower returns like certain renewables, et cetera. But even that now, I think, would be debatable, which is what we just saw. So I think from delivering values to their shareholders they're going to need to find new business models, and oil is not the slam dunk that they had to make an arbitrage between, "Let's make money with oil or be green." That bargain doesn't exist any more. Shale has transformed that, the peak in demand, all of these issues, technology and bringing oil to the surface at $35/$40 in the United States, et cetera, et cetera, changed that debate.

Roger Diwan (09:38):
But, at the same time, I think, you can't have these companies too unmoored from their societies, correct? I mean, their shareholders are pensioneers at the end of the day, and pensioneers also have values, and I think what we're seeing, with the rise of the ESG investing, how these companies present themselves, how they present their carbon footprint, how they appeal to new generation. I mean, talking to my kids about these companies, when you say, "Oil," it's a dirty word, correct? So that has to also evolve with society.

Roger Diwan (10:18):
So I think it's both an issue of values and value that they will have to transition, and it's happening. The important transition for me is really happening on the capital markets, correct? I mean, this is where the pressure is coming from. It's not coming from the government in the United States. It's coming from the financial side of the business putting pressure on oil companies, saying, "Look, you don't see the criteria that are for companies that we want to invest in, in terms of returns, but also in terms of your ESG footprint." So that changes then that capital transition is actually happening probably faster than the transition in the energy mix that already exists within these companies.

Carlos Pascual (11:00):
And just one thing I would add to that just on the national oil companies, I mean, one of the fascinating things is that, look at the Middle East. The intent has been to use oil to reduce dependence on oil, right? To create the financial resources to facilitate diversification. And one thing I would say is watch sovereign wealth funds from the oil producing States. Watch how many of them are going to be investing in oil related activities. I bet you, even in those sovereign wealth funds, what you're going to see is a real change in their investment patterns.

Hill Vaden (11:36):
Well, we saw, I guess, coming out of the back of the March market collapse, the Saudi investment fund was pretty active and bought a mix of things from the Carnival cruise line to, I think, Eni,-

Roger Diwan (11:52):
[crosstalk 00:11:52].

Hill Vaden (11:52):
... BP, and a handful of the IOCs, right? So that, in a sense, gave it more optionality but increased its exposure to oil in a way.

Roger Diwan (12:01):
Well, but in a very minor way. They're both for five billion dollars of oil assets. Now, they're probably worth eight billion, so it's time to, probably, to move on. But that was really day trading almost from the sovereign wealth fund, which borrowed from the State to be able to buy cheap stocks for 20 billion dollars. So I think it was more a short term play, more than what we're seeing in the market right now, than really a longterm strategy.

Hill Vaden (12:29):
Okay. Well, you both mentioned that the values of societies and of individuals, whether putting pressure on investors, putting pressure on NOCs or putting pressure on the IOCs. And, Carlos, you and I talked about this a little bit offline today and yesterday, but the 1970s was referred to by Tom Wolfe as the "Me Decade," right? And if people are going to start prioritizing some of this environmental consciousness that requires a degree of shared good or public good, one could argue that we are increasingly, as this is focused on "me", if we look at Instagram, if we look at selfies and some of the more distance from social distancing, remote learning, can we balance some of these social good efforts with a focus on "me" and will society's fascination with self help to shape energy markets in the 2020s?

Carlos Pascual (13:25):
Well, the first thing is I have to chastise you on your focus on the 1970s and the "Me Decade". And, as I told you before, Tom Wolfe then achieved greater clarity when he wrote Bonfires of the Vanities criticizing the 1980s as the, "Ultimate error of decadence that put the 1970s into a greater perspective of selflessness," which I'm not self-conscious about that at all since I went to high school and university during that period, and so think of myself as a relatively selfless person. So just a minor pushback on those issues.

Carlos Pascual (14:01):
But, look, all I think one has to do is turn on the television, look at any newspaper in the United States, look at any newsfeed that you see today and what is happening. And there is an unprecedented historic movement that we're seeing from a grassroots level protesting the death of George Floyd, the issues related to racism, to rule of law, to police brutality, to inequalities in our society. And it's brought people together in ways that we just haven't seen in decades. Where people, regardless of race, regardless of the kind of economic activity that they've been involved in, are coming out in the middle of the pandemic and are willing to say, "This has become so significant, so important, that we need to stand up and we need to say something about it."

Carlos Pascual (15:07):
So whatever that "me" focus may be of the 2020s, whatever the focus may be of the fascination of the selfie and being able to reflect on and convey what's happening in one's personal life, there's also a sensation there that something's been wrong, that there's been a polarization of society, which is not right, which is not just, which is not the right thing, for a better future. And so I think the fascinating thing that we're facing right now is that people are coming together and standing up and saying, "There needs to be a change," and that change is certainly related to civil rights and race and social justice in the United States. But the big question is going to be, does it extend itself further? And if we look at the energy area, to what extent is it going to underpin the way that we look at issues, such as sustainability and climate change and the importance of global participation in these movements?

Roger Diwan (16:11):
Yeah, again, I have to say I am in agreement with Carlos on this one. I think, again, the 'Seventies and 'Eighties where you had boomers coming in was a very selfish culture in a way. This is a very different culture than what we have right now. And I think, yes, there is the "me" but there is also the "we", and it's very strong, I think, in terms of common good. I mean, the environmental conscience of the younger generation, of the people in their teens, twenties and thirties, I think, is much stronger than what we had in the 'Seventies. I think in the 'Seventies the environments or movements were almost a fringe movement. Here, it's not a fringe movement, not only in the United States but in Europe. I mean, green parties are in coalition everywhere in the world, all the greens are part of every party. The only place where that debate is held behind is in the United States but I think that is just a temporary issue and the US will rejoin that debate in it's right place.

Hill Vaden (17:11):
When, Roger, you talked a few minutes ago about the investors putting pressure on these companies to, in a sense, become more green or show a little bit more environmental consciousness, I guess, the true skeptics would say, "A lot of that is green washing," as clients maintain more of a focus on profit. Do you see a way for ... Or in the 2020s do we see these companies and investors prioritizing some of the social good, perhaps at the expense of profit when it comes to energy?

Roger Diwan (17:46):
Oh, I think, absolutely. I mean, I don't know "at the expense of profit," but I think you can bring both things together if your pricing the environmental impact, and this is what we're starting to see that through, basically, you're putting a penalty on energy. I mean, you start to see green bonds cheaper than normal bonds, correct? So you start to see that movement that doing good will allow you to do good. So there is that. And that financial transition, for me, is really the crux of the issue and how quickly are we going to de-capitalize one industry and recapitalize another one to allow this transition over the next 10-15 years? It's going to be interesting.

Roger Diwan (18:29):
If you think about the ... Look what happened now. The notion that you had to subsidize a green technology or green energy to get the type of returns. I don't think it's true any more, and I think because of COVID-19 and what it's doing in terms of economic intervention by governments all over the world, it will change that debate. What can governments initiate and invest and where the private sector is going to be and how you bring these two things together? That debate is changing very quickly.

Carlos Pascual (19:10):
Two things that I would just add to that. One is interesting, a survey that S&P Global did last year of a range of investors, one of the things that we found on their attitudes toward climate change and ESG is that there are two principal concerns: Social activism and regulation. Regulation, because it creates a lack of predictability about the future and what profits may be; and social activism because that influences regulation and it influences the political environment. And the point that these investors were getting at is that companies need to take action on environmental issues and an ESG because demonstrating that social consciousness is a way to, in fact, address the concerns of social activists, it's a way to mitigate regulation, it's a way to create dependability.

Carlos Pascual (20:07):
And so the sense was that maybe ESG might not necessarily win you an investor, but if you don't have any ESG strategy, if you don't have a story to tell about the environment, you're creating a level of risk and uncertainty that's unattractive to investors to begin with. So I think that's interesting to take as a starting point and, potentially, I think, it's something, a trend that you might see evolving further into the future.

Carlos Pascual (20:33):
Second [crosstalk 00:20:34].

Roger Diwan (20:34):
And ... Oh, go ahead.

Carlos Pascual (20:37):
Let me just do this in here. And the other point which I think is important is that we're coming out of a pandemic and we have to rebuild, and there's a debate that has already started on the extent to which you can rebuild in a way which is better, right? And what is better "me?" The European Union has taken, probably, the most forward looking stance and the European Commission has essentially said that they, "Want to create the first net zero continent." Can they do that? Well, what it's challenging the political world and the policy world to do is to ask the question, "Can you create policies that are consistent with economic growth that, at the same time, reinforce investment in green technologies, renewable technologies, lower carbon emission technologies, that would, for example, in Europe, accelerate the transition from natural gas to hydrogen with the inclusion of hydrogen that would have a massive impact on the sustainability of heating in the European continent?" Right?

Carlos Pascual (21:41):
It's those kinds of questions that are being put on the agenda. And I think it may be hard to answer where the United States may go on these issues until after the election, but I think it's probably safe to say that if Joe Biden is elected president there is going to be a very serious debate there about what changes in policies are made internally within the United States, and I would expect that one of the first things that we would see on the first day of a Biden presidency is rejoining the Paris Agreement.

Roger Diwan (22:12):
I agree on these two points. Actually, I want to add a little bit. On the second point, you're absolutely right. I think that the policy could be ... A reversal could be pretty strong, and COVID-19, actually, makes for an even stronger response, not only because, "If we're going to invest, let's invest in green," but it also has removed one of the most powerful arguments, which is, "Hey! We can't afford it." But we just decided to spend 2.3 trillion dollars for a quarter to inject into the economy. In the United States we just gave 50 billion dollars to the airline industry, of which half of it is granted, no question asked, "Do what you want with the money." Which is incredible. I mean, this is four times what we did for the auto sector in 2008 and at the time it was a loan and they paid it back and we made money on it.

Roger Diwan (23:05):
So the size of the intervention here makes the critique of the green new deal very hypocritical. So I think it creates a very different space for public policy if you have a different administration because the lines of that debate have changed, even on the fiscal end.

Hill Vaden (23:24):
Well, if we think about the fiscal end of it, which a lot of that would seem to be, as opposed to some of the monetary, the fiscal stimulus, would be really focused on job creation. I would think that it is a lot easier to create jobs looking backward, right? But then I know how to direct energy to somewhere about oil and gas jobs, or something like that. In some of the more emerging technologies it might be harder to create those jobs, particularly for those who need the jobs most. Is that a potential, I guess, risk here coming out of the pandemic and trying to make for a better society, is it going to be harder to direct some of those fiscal dollars to a new world, rather than preserve the old world where we can more accurately count the jobs that we lost?

Carlos Pascual (24:12):
That's a great question. We can spend an entire day, actually, debating around that issue, in part because it gets at this question of, particularly of digitalization and automation and artificial intelligence. And I think one thing that is important to just think about for a minute ... Look at the traditional energy company, the modern energy company and the trends within those companies and what they're needing to do. And consistently what you're seeing in all of them is moving toward digitalization or artificial intelligence as a way to reduce jobs, to reduce the number of people, and you're seeing it right now, even from a COVID-19 perspective of taking people off of platforms, right? And so if you can substitute that with technology, that's been a positive thing.

Carlos Pascual (25:03):
In society, more generally, I think what's happened with our nation in digitalization is part of the debate that we're not having. In effect we've got into this period of job destruction, where the gains in automation have been so great that we've lost large numbers of jobs and we don't have a clear understanding and idea of where those new jobs are going to come from. And oftentimes that issue becomes so difficult to explain or be able to resolve that what we end up saying is, "Well, let's blame it on globalization. Let's blame it on the Chinese person or the Mexican person who's going to take your job," rather than confronting the issue that the way that we work and our world of work is fundamentally changing.

Carlos Pascual (25:54):
So if we start from that perspective and acknowledge that this world of digitalization is transforming the way that we function and operate, we need to put aside for a second something which is real, which is that the nature of jobs in the future are going to change and that we're going to have to find ways to use that productivity in new areas to create new types of jobs that we haven't seen.

Carlos Pascual (26:18):
So if that's the way that we're going, does it not make sense at this point and time to be taking these resources that are being invested in fiscal stimulus and monetary programs to be able to think about, "What is that process of change that we have to undertake anyway?" Because we're in the midst of this, right? And if we need to think about jobs, we need to be thinking about jobs in a different way. Not in the traditional way of the past because so many of those jobs are going to go away. Many of the service sector jobs maybe are going to stay there where there is a direct interaction, but those jobs that can be substituted by automation are going to be jobs of the past. And what better time than right now than to be able to ask that question, "How can you facilitate and stimulate that transition?" Because how many other opportunities are we going to have where the United States is spending 15% of GDP on creating a fiscal stimulus in its economy?

Roger Diwan (27:21):
I'll give you the ... Sorry. I want to give you the political answer to that question because we've seen that debate here in the last three months in the House and Senate, and I think we need to take account of the political realities in the United States. The Trump administration tried to create a stimulus for the oil and gas industry and it failed. It's one of the only sectors which was not included in the package. And the reason for that is that the Democrats in the House said, "No, we will not subsidize the oil and gas industry because of the environmental concerns that we have." And the Republican minority put back on the table the deal that they had done two years ago, which is, "Okay, let's subsidize the oil industry and we will accept subsidies for renewable energy and we will put back tax credit on the table." And the answer was, "No, that deal doesn't exist anymore. We can't draw these equivalents anymore."

Roger Diwan (28:21):
So I think the political reality is that if you have Democrats holding, or the House, or the Senate or, even more, if they take the White House, the policy is going to be very different. It doesn't mean the end of oil but it means that that transition we're talking about will have the full force of the US Treasury behind it, and that's very different.

Hill Vaden (28:49):
Well, and if we look, Roger, at ... So you're talking about politics, but if we think for a second about markets and transitions, again, tied to this 1970s parallel or, potentially, lack of parallel, that they were discussing, if we look at the top S&P 500 back in the 'Seventies, you saw names like Exxon, Texaco, Amoco, Gulf Oil, GE, all of whom could be classified, perhaps, as traditional energy companies. Today it's more of these technology companies, some of which Carlos has mentioned, capitalizing off remote work, artificial intelligence, Microsoft and Google. As this fiscal play comes into focus and as the 2020s move on, are we going to see "traditional energy companies" back in the top 10? Will it be more the technology companies that lead energy? I imagine a lot of this is an open question, but how does energy come back? And, what is it now? 2% of the S&P 500?

Roger Diwan (29:47):
I don't know. I mean, I think it can come back when we are in a world where you have the math, correct? So I think it will reflect also the strength of the man. The oil and gas side is really very weak. So can you create an energy giant, if you want, with a very large market cap? Maybe you can, and this is what we're seeing right now when you look at the portfolios of all the IOCs. Each one of them is trying something different, right? We're in the phase where these companies have to transition, and each of them is choosing a different path. And you can see it very clearly in their portfolio, correct? What the Europeans are doing between oil, gas, energy, wind, renewables, hydrogen, et cetera, I mean, the fusion of the strategies is remarkable. So you can pick very different bets now when you are going after investing into these companies.

Roger Diwan (30:41):
But it doesn't mean they're going to be the winner. I mean, what's the market capitalization of Tesla today? It's an energy company. It's not a manufacturing company. It just manufactures batteries and puts a small kit on top of it, correct? This is what it's doing. Look at the state of the day, correct? Nikola. I mean, you guys explain to me what that company was yesterday. Yesterday it's market cap was 25 billion dollars-

Roger Diwan (31:05):
... which is zero revenue, correct?

Carlos Pascual (31:07):
Bigger than Ford.

Roger Diwan (31:08):
Bigger than Ford. And its literally produces nothing and it's an energy company. And this is what it is. It's a battery leasing company, if I understand what it is, correct? So you're starting to see value creation and there's a race about who is going to be that. And this is a global race, correct? I mean, the big question we need to ask ourselves is, "Is China wedded to oil and gas?" And the answer is, "No." It's wedded to energy. It needs energy. It needs cheap energy and it's discovering it's going to need green, clean energy. And there is a race going on who's going to control these technologies? So I think the pendulum is swinging. The question is how far and how quick?

Rachel Beaver (31:50):
Roger, that's very interesting what you said, but I'm interested in hearing how perhaps Russia and OPEC, Russia and Saudi Arabia, are going to feed into this new world, particularly over the next decade?

Roger Diwan (32:07):
Yeah.

Carlos Pascual (32:07):
Can I just one thing additionally about China, though, because one thing that's important to think about in China is that they've always looked at energy from three different perspectives: One is pollution, and it's a matter of survivability. And China being an authoritarian State, the one area that consistently has an impact on politics are perceptions of pollution and the pressures that come from the bottom up, and that's pushed partly for the transition to lower carbon solutions. It's moved coal fired power plants out of urban centers. The big factor that's supporting the process of transition.

Carlos Pascual (32:44):
A second issue is energy security and the dependence that they've had on imports, particularly of oil, have been a major concern for China. And so one of the issues on looking at renewable energy, connecting that with power systems, is fundamentally related to a security issue for them because this is something that can't be controlled by the outside. The wind is theirs and the sun is theirs to be able to have and the technology to build solar panels is absolutely there. And, hence, it's a way of enhancing their energy security as well.

Carlos Pascual (33:21):
And the third is competitiveness. And in the past oil and gas were part of the competitiveness story, but the interesting thing right now is that with technological change there's not so much of a negative aspect on renewable technologies as there were in the past. And so if you look at the country, which is potentially going to have one of the highest increases in demand for energy in the world, that's going to be driving ways in which the rest of the energy system is adapting itself in order to feed that demand, all three of those aspects, you can really see how new technology, renewable energy, are going to be part of the transitional process that's going to be pulled along by China as well. I think we need to keep that in mind.

Roger Diwan (34:13):
Totally agree. To come back to your question about Saudi Arabia and Russia, I would not address the Russia part unless Carlos addresses it. He is way more competent than me. He was ambassador to Ukraine so he knows the region a little bit better than me, who has been only once.

Roger Diwan (34:27):
But on the Saudi Arabia part is important because the Saudi strategy going forward is to transform its economy and, as Carlos said, is use oil to diversify other oil. To do that it needs a fairly high price to generate the type of surplus to be able to invest, both in its economy and its private sector and new technology, et cetera, et cetera, so that transition that the Crown Prince is trying to do there, the economic transformation, which has also a social transformation aspect of it, is dependent on being able to have high oil revenue to diversify away from oil. The problem is, is what type of coalition Saudi Arabia has been able to put together to achieve that outcome in the era of shale? And the answer here is it's very difficult to put together because suddenly, in the oil business, you have a market mechanism which brings supply to the fore very quickly if prices rise, correct?

Roger Diwan (35:37):
So when people say, "This is the end of shale," obviously, they haven't understood shale in the first place. It's a big setback for shale, don't get me wrong, but if you have $70 oil, you'll see a lot of investors going to the shale company because they can deliver massive returns and growth at these higher and prices that Saudi Arabia would need. The question is can Saudi Arabia obtain these prices, even for a short term and when would the economic aspect of the business, shale, will benefit from that?

Roger Diwan (36:10):
Ad this is where Russia comes in, correct? Saudi Arabia's trying to create the broadest coalition possible and bringing Russia in was the key objective. I don't think that, strategically, they agree on what they want to do with the oil business. I don't think Russia wants $70 oil. Carlos, you tell me if I'm right or wrong. But I think that dynamic is very temporary, which has to do with COVID right now. I mean, we saw what happened in March, and March, at the OPEC meeting when they started to fight for market share, was the true, if you want, revealer of what their strategic position is. Russia fears the growth in US supply because it gives the US also a lot of political power into the business, correct? And geopolitically. So Russia, medium size power, need oil but cannot afford shale to be the force that it was.

Roger Diwan (37:14):
I'll leave it there and let Carlos debate that.

Carlos Pascual (37:17):
So I think the last thing that Russia wants is to see demand destruction in the oil sector because Russia economically is just, fundamentally, dependent on oil. It's had an opportunity after the collapse of the Soviet Union to make a transition. In the early years under Yeltsin it was just simply a matter of chaos and seeking to rebuild and it didn't happen there. Putin came in, oil prices rose in the following decade, and the focus was on how to gain a benefit out of those higher oil prices, but structural change didn't occur again. In the 2010s the opportunity for structural change really was bypassed once more. So one more time Russia finds itself in the situation where it's looked at three potential opportunities to use oil to facilitate that kind of diversification that you now see in the precepts of vision in 2030 in Saudi Arabia, the Abu Dhabi Vision 2030, that was published even a decade earlier than that. Russia hasn't gone through that process yet.

Carlos Pascual (38:32):
And, indeed, I think if there's one change that we will probably see increasingly out of Russia is that it will focus more and more into the East. The important of gas to Europe will be reduced. The important pipeline for Russia for the future are not the gas pipelines that are going in Europe, but it's going to be power of Siberia taking it into China. There are interesting geopolitical dynamics that are going to be at play here between Russia and China and how that relationship develops into the future. But in the end, I think, Russia is still going to have a difficult time of using the massive technological capacity that it has internally that could have given it a capability of being a technological giant in energy transformation. It hasn't tapped it yet. And will it do that some time in the future, and will it do that in some area outside of the nuclear realm? We still haven't seen evidence of that.

Rachel Beaver (39:35):
Interesting.

Hill Vaden (39:36):
Well, maybe, Carlos, this is a good way to wrap up the podcast. And then the idea of the focus on the East that you mentioned. A lot of the comparisons in the media right now between the 2020s and the 'Seventies are really specific to Nixon and Trump. And, of course, Nixon did focus on the East, and very much opened up diplomatic relationships between the US and China, held the Moscow summit in 1972 to improve some relationships with Russia, whereas the US appears to be now shrinking from the international stage at a time when, maybe, there's a need for increased international collaboration as the world embraces, I think you said earlier, "When you start hugging it transition."

Hill Vaden (40:24):
So what do we ... I mean, is this time it's different for the 2020s? Or another instance of this time it's different? Or will the US, as well, focus on the East and start to see more globalization on the back of this inward focus that we witnessed for the past four to five years?

Carlos Pascual (40:44):
A couple of reflections on that, Hill, and I think it's a really critical point. If we look at the pandemic it's affected 188 countries throughout the world with millions of cases and hundreds of thousands of deaths. And one of the messages that comes out of this is that it's a global problem. Nobody can escape it. And it just underscores this inescapable inter-connectedness that we have around the world. And if that's fundamental to the world that we live in and the problems that we face, unless we're willing to look at global solutions, you fail. And if you just look at it as one nation at a time from a nationalist perspective of what happens within your borders, you also fail. And if you attempt to run diplomacy simply on a country to country basis, tackling each problem individually without the inter-connectedness of your allies and friends, you fail as well.

Carlos Pascual (41:49):
And so I think one of the challenges that we're going to face right now is that we're staring this reality right in the face. How do we translate that into a way that we think about the role of the United States in the world more broadly?

Carlos Pascual (42:04):
So a big difference with Richard Nixon was that he had Henry Kissinger, right? And Henry Kissinger understood this nature of inter-connectedness and the inter-relationships among countries. And so when you had the oil prices of the 1970s what did Kissinger do? Well, he started negotiations with the Arab producers and with Egypt and with Syria and with Israel, and he managed to get to a point where, between October of '73 and March of '74, you actually had an easing out of the oil embargo. You had, exactly as you said, the ability to think that mutually assured destruction with nuclear weapons was not a particularly useful way to think about our future, and began the process of arms control and arms reduction talks and, as you cited, the importance of this engagement with China in opening up a door.

Carlos Pascual (42:57):
And so it doesn't mean that the United States doesn't have differences with many countries throughout the world, and, my God, we all know that we're going to still have continued differences with China. But one of the things that it does point to is that diplomacy does matter and the ability to think about who your allies are and who the key players are to get to the solutions that you have to get to in this inter-connected world, matters as well because increasingly doing it on your own is harder and harder to do and probably locks you into failure. And so I think one of the critical challenges we're going to face is recognizing the global nature of the challenge, recognizing the importance of diplomacy and reaching out, and doing it in a way where we're bringing in and doing it with allies and friends and not just seeking to do it on our own.

Roger Diwan (43:52):
If I can be here on your side again, Carlos. I mean, Carlos is a diplomat, correct? So he's always going to favor diplomacy. I'm an ultimate internationalist. I own four passports and a green card. So you're going to get that answer from us. But the reality is that globalization has brought immense wealth to everybody on this planet. It has moved billions of people out of poverty. So this inter-connectedness has created immense economic wealth and inequality, and the question is how do you manage these two things going forward, fixing some aspects of it, which were very prevalent, if you want, in the Trump presidency while keeping the key benefits of it? This is what ... Can you change the supply chain in the next three years, really, and keep prices where they are? Can you increase, basically, globally, income if you stopped putting economic borders? That's a big debate but, so far, I have to say the globalists have won it economically hands down over the last 30 years.

Hill Vaden (45:14):
All right. Well, Rachel, I'm hearing from these guys that all of us, while past may be prologue, this time it's different, and in the 2020s we need not look for a total repeat of the 1970s.

Rachel Beaver (45:30):
Indeed.

Hill Vaden (45:32):
Well, thank you all for joining the broadcast today. I'd love to continue this conversation. Maybe we'll do it again on the 1980s for the 1990s. So maybe we'll be back.

Roger Diwan (45:48):
The only thing I miss about the 1970s is really my hair.

Carlos Pascual (45:55):
But Exile on Main Street, really, which I think really was a classic album. So I congratulate you on your choice of music.

Roger Diwan (46:00):
Well, thank you. Let's say, I've had an open debate of whether Some Girls is as Exile on Main Street. They're both from the 'Seventies and I don't think either one is going to repeat it but the Stones or anybody else in the 2020s.

Carlos Pascual (46:16):
Well, just remember what the other part of ... What was it? In Give Me Shelter, as the Stones were talking about the future. "It's just a shot away." So it's right in front of us.

Hill Vaden (46:28):
All right. Thank you both and we'll see you next time.

Rachel Beaver (46:32):
Indeed. Thank you very much.

Roger Diwan (46:33):
Thank you.