China quietly saved the world last month

0:00 So you remember at the start of the Iran war,

0:02 everyone said there was this oil shock coming

0:04 that was going to basically blow up the whole world.

0:06 World fears an oil shock.

0:08 Oil shock.

0:09 Oil shock.

0:09 Global oil shock is raising alarm.

0:11 This has the potential to be the biggest oil shock in history.

0:15 All the flights were going to get grounded.

0:17 Airlines are saying expect flight cancellation.

0:20 They are canceling flights.

0:21 13,000 flights have been canceled.

0:24 Cities were going to go dark.

0:25 The final vessel carrying jet fuel into the United Kingdom's going

0:29 to get here in 48 hours and there's no more after that.

0:32 Gas was going to triple in price if you could get any at all.

0:35 Situation's looking pretty dire.

0:36 Gas prices are expected to go up again.

0:38 It would take months to recover it.

0:40 This is just hard math.

0:41 The world's oil was going to dry up and that would be that.

0:44 How we emerge from this crisis will define us for a generation.

0:49 And then it just kind of never happened.

0:51 Oil futures, they're telling you in August actually prices are coming down.

0:55 Markets seem to be showing far less alarm

0:57 than they did at the start of the conflict.

0:59 And it's not like the predictions turned out to be based on some mistake.

1:01 You can go back and check their math.

1:03 It's right.

1:03 The world should have ended like four weeks ago.

1:06 No, something happened that no one expected,

1:09 that no one though was even possible.

1:11 The world got a savior and it was the last person that you would guess.

1:15 Yes, it was the general secretary himself,

1:18 the party chairman, Chinese President Xi Jinping.

1:23 And if you're thinking, "Okay, why didn't I hear about this?" It's

1:27 because China pulled it off basically in secret,

1:29 which is kind of a weird way for an aspiring superpower to save the world.

1:33 And it gets even weirder because the country they saved

1:35 most of all is their chief rival, the United States.

1:39 Well, today we are going to pull back the curtain

1:42 on how China saved the world from the Iran oil shock.

1:46 We're going to start by piecing together what China

1:48 did that saved the world since it happened in secret.

1:51 We're going to unravel how China did it because

1:53 this should simply not have been possible to pull off,

1:55 which will help us to answer why China did it,

1:58 the theories for what was behind all this.

2:00 And finally, we are going to look

2:02 at what this changes in our global economic order.

2:05 This is a crazy one, guys.

2:07 This story is crazy.

2:09 So let's get into it.

2:15 Okay, so to understand what China did,

2:17 we're going to use the board to map out the global oil economy,

2:21 what happened to it from the Iran War,

2:23 and then what China did to save it from completely imploding.

2:26 Good?

2:27 So the main thing about oil is it's traded in one unified global market.

2:32 That means all the world's producers sell into the same

2:35 big supply of oil which the world's consumers all buy from.

2:39 And this is why when something happens in any part of the oil world,

2:42 like say a war in the Middle East, it affects everyone.

2:45 And on any given day,

2:47 there are about a hundred million barrels moving through this system.

2:52 100 million barrels produced every day,

2:55 and that is also 100 million barrels that gets consumed every day.

3:04 And it's really important that these two numbers are the same.

3:07 Every drop of oil that gets produced every day gets sold and consumed every day.

3:11 There is zero slack in the system and that is why it is such

3:15 a big deal when the Iran war starts and Iran shuts down the Strait of Hormuz.

3:22 And doing this, shutting down the Strait of Hormuz blocks

3:25 20 million barrels of oil per day from reaching the world.

3:32 So now we've only got 80 million barrels a day

3:35 in output to meet 100 million barrels a day in demand, right?

3:39 This equation no longer balances.

3:42 We now have a 20 million barrel a day deficit.

3:48 And this deficit means that pretty soon 20%

3:52 of the oil consuming world was going to power down.

3:55 That's one in five flights, one in five factories, power plants.

3:58 It's a global calamity.

4:00 Still the world is ready with a couple of defenses, including this.

4:04 Oil pipelines that go around Hormuz.

4:06 This is the East West pipeline known as Petroline.

4:10 [Max] That big one is controlled by Saudi Arabia

4:12 and then the United Arab Emirates controls the other main one.

4:15 This is the Abu Dhabi crude oil pipeline.

4:19 And these pipelines add about seven million barrels of oil back into the system.

4:23 It's a lot.

4:25 Okay, so now just to make sure we're keeping score,

4:27 we're at a negative 13 million barrel a day deficit.

4:33 Right, we removed 20 million barrels from the system,

4:35 we add seven million back in, 13 million deficit.

4:38 It's better, but it's still really bad.

4:40 Okay, so you guys are still with me?

4:42 The other big defense that the world has is strategic petroleum reserves,

4:46 emergency stockpiles of oil.

4:50 These tanks are all full of oil.

4:52 America and other countries keep huge stockpiles like this for emergencies.

4:55 And they're even bigger US stocks.

4:56 I can't show you because they're kept

4:58 in huge salt caves thousands of feet underground.

5:00 Tons of countries have these reserves.

5:01 Here's Japan's, one of the world's largest.

5:03 A week into the war, 32 of these countries got together and all

5:07 opened up their reserves to the world.

5:08 This was the largest release of reserve oil in history.

5:12 Hundreds of millions of barrels from dozens of countries.

5:14 It was a huge deal, but the war dragged

5:16 on and on and it was stretching out these releases.

5:19 So in the end, they added up to an average

5:22 two and a half million barrels per day.

5:26 So these were the world's big defenses for a mass

5:30 oil shock like what happened in the Iran War.

5:32 And together, these bring our deficit down

5:35 to 10 and a half million barrels a day.

5:39 This is still a calamity,

5:41 more than a 10th of global energy usage, and it gets worse.

5:44 Those 32 emergency stockpiles from all over the world, they are running out.

5:50 Here's America's reserve.

5:53 It's dropping hard and fast towards zero.

5:56 But here's Japan.

5:58 It's same thing, absolutely plunging.

6:00 So not only are these reserves tiny relative to the hole they have to fill,

6:04 but they're only good for a few months and then they are gone, man.

6:07 Which is exactly why everyone looked at all this and said, "Yeah,

6:11 the world is ending." Until a few weeks

6:14 in, people started to notice something weird happening.

6:17 Good afternoon everyone or good morning or good evening or wherever you are.

6:22 [Max] This is from a conference call,

6:23 a business intelligence firm called Kpler held back in April,

6:26 walking its clients through what was going on in the oil market.

6:29 And they focused on one thing in particular.

6:31 What's happening with China, right?

6:32 So I just want to look at China monthly imports right now.

6:35 [Max] China's oil imports, that's those bars in the chart,

6:38 had suddenly dropped to half.

6:40 Half.

6:41 See, and how much longer, how long could that carry on?

6:43 I know those guys did not seem

6:45 super emotive about this, you know, market analysts.

6:47 But trust me when I say this discovery made people lose their minds.

6:52 And let me give you some context for why.

6:58 This shows China's oil imports since 1980,

7:00 and that rise is one of the biggest stories in the history of oil.

7:04 This is where China surpassed the US

7:06 as the world's biggest oil importer and just kept going.

7:09 Oil has powered China's rise from the start.

7:11 Fuels their factories, latest their cities.

7:13 It's the engine of their economy.

7:15 Yes, China has been building lots of solar and wind,

7:17 but renewables like that still produce just a fraction

7:19 of the power that they get from coal, gas,

7:22 and especially oil, which is why it seemed

7:26 impossible that right after the Iran War started,

7:28 China's imports that have been rising for decades dropped overnight by half.

7:32 This decline here, five and a half million barrels a day

7:35 is equivalent to more than all of India's oil imports.

7:40 More than Europe's five biggest economies combined.

7:43 This was the thing that saved the world, China.

7:46 China took its imports and magically cut it

7:51 by five and a half million barrels a day.

7:56 Which means that what started as a 20 million barrel a day

8:00 deficit from Hormuz closing is now after all those alternate pipelines,

8:03 plus emergency stockpiles, plus China doing whatever it's doing,

8:07 means that deficit is now down to just five million barrels a day.

8:13 And look, that's not great.

8:14 That's still pretty serious,

8:16 but everybody shaving 5% off of their oil usage instead

8:19 of 20% is the difference between mass blackouts and economic collapse,

8:23 which is what we though we'd get, and a few months of higher gas prices,

8:26 localized flight cancellations, and some gas lines in Southeast Asia,

8:30 which is what we got instead.

8:31 So yeah, I would call that basically saving the world really thanks to this guy.

8:37 And before we go further,

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10:07 So now let's get back to our story.

10:09 But China has not said a thing,

10:12 hasn't acknowledged they're doing this, hasn't said how or why,

10:15 just stopped importing oil by the largest

10:18 amount any country has ever stopped importing oil.

10:21 Poof!

10:22 Overnight, cold turkeyed this substance

10:24 that the entire industrialized world in China

10:27 especially have made essential to their daily functioning for a hundred years.

10:32 And since China won't tell us how they did this, we

10:34 are just going to have to piece it together ourselves,

10:37 starting with a quiet change China made right at the start of the war.

10:41 This article from two weeks into the war revealed

10:43 that China had ordered a total ban on fuel exports.

10:47 The context here is China has a huge refinery industry and what it

10:51 does is it turns raw crude oil into stuff like jet fuel and gasoline.

10:55 And most of those fuels stay within China, but because they're good at it,

10:58 they export a bunch of it to all over Asia.

11:01 Until March when China banned those refiners from exporting a drop of fuel.

11:05 And at the time, everyone assumed this was to preempt

11:07 a potential fuel shortage within China by building up stockpiles.

11:11 One reason I say assume is that this ban was imposed, that's right, in secret.

11:14 That's why the story is credited to four sources with knowledge of the matter.

11:17 That means off the record.

11:18 But that assumption about why China was doing this was wrong.

11:21 Turns out it wasn't a stockpile jet fuel or gasoline.

11:23 It was because China was about to stop importing half of its

11:26 oil so those refineries were about to do a lot less refining.

11:33 So rough math, I'm going to say that accounts for cutting about half a million

11:37 barrels in daily demand out of the five

11:39 and a half million that China cut overall.

11:43 Okay, next big move.

11:45 And if you care about climate change or air quality,

11:47 you're going to want to cover your ears here.

11:49 Coal.

11:53 This is from a few weeks before the war,

11:55 why China is building so many coal plants.

11:58 And it found that China commissioned more

11:59 than 50 large scale plants last year alone.

12:01 So once the war started, China spun a bunch of those plants online

12:05 or pushed its existing plants into overdrive or probably both.

12:09 But by April, it was burning a record amount of coal.

12:12 China also figured out a way to use coal instead of oil to make plastics,

12:15 which usually is a petroleum product.

12:17 They also found a way to use coal to make fertilizer,

12:21 which usually also is an oil byproduct,

12:23 all of which allowed them to, stay it with me, import less oil.

12:28 And we're not sure the exact amount, but let's just say,

12:30 and this is a guess, another half a million barrels.

12:35 Now, by all accounts, life remained completely normal within China,

12:39 like even more so than it did in the United States where gas prices were crazy.

12:43 But China did find some ways to nudge people to use less fossil fuels.

12:47 According to this Wall Street Journal story, for example,

12:50 after Chinese airlines canceled a bunch of internal

12:52 flights and air passenger traffic declined about 6%,

12:55 there was also a 5% rise in rail passenger traffic,

12:59 meaning people just took the train.

13:00 And by May, electric cars accounted for about

13:03 a quarter of all vehicles on the road, up 33% from a year earlier.

13:06 Now, China can't make and distribute 50 million new EVs overnight,

13:10 but if you already got a large fleet in people's hands from years of subsidies,

13:13 then when gas prices spike because stay with me, China stopped importing oil,

13:18 people with gas cars will start carpooling in their friend's Xiaomi SU7 EV.

13:22 They'll start taking the train and gas consumption will go down.

13:27 The effect of this one is hard to measure,

13:29 but let's just call it another half a million barrels.

13:34 Remember, that is more than half of all the oil that France imports.

13:37 It is a lot.

13:37 But we're still not really close to explaining

13:40 all 5.5 million in China's disappearing demand.

13:43 And that's because we've got one big thing left.

13:45 This is China's real secret weapon and it's something that we,

13:49 the world did not know about until now.

13:51 It's in silos just like this.

13:55 This is a chart of the world's largest oil reserves

13:57 at the start of the war before they got used up,

13:59 but there's one country missing here, China.

14:03 And the size of China's oil reserve is, you guessed it, a state secret.

14:06 But we can get a decent idea.

14:08 These are some of China's crude oil silos and the two

14:11 main things to know about them are that they're really,

14:13 really big and that the domes on them go up and down based on how full they are,

14:17 all of which is fully visible from space.

14:20 There are people whose whole job is to count those silos and how

14:24 full they are to track how much oil China has saved up.

14:27 They have more sophisticated ways to check those numbers too,

14:29 but the silo counting works pretty well.

14:31 And those silos alone suggest China has 1.4 billion barrels saved up.

14:36 That's more than every other country stockpile added together.

14:39 It would be enough to fill a 12-foot tank the size of Manhattan.

14:42 And this is just the oil we know about.

14:44 China also has oil stashed at factories and refineries around the country,

14:47 and it's been building huge underground caverns to store

14:50 oil away where no one can count it up.

14:52 So actually, China might have way more than

14:54 even the 1.4 billion barrels that we can see, which means China could use up,

14:58 let's say, four million barrels a day from those reserves

15:01 and it would still take more than a year to run out.

15:06 And maybe even a lot more depending on how many of those caves it has.

15:09 Now I cannot tell you how crazy this is.

15:12 India, for example, could live off of its stockpile for about four days.

15:15 Europe stockpile could serve it for maybe 10 or 20 days.

15:18 And the US stockpile, which took decades to build up and is the envy

15:22 of the world would be good for 60 days,

15:24 which is why even with the US still importing

15:26 from all sorts of sources outside the Middle East,

15:29 Trump cried uncle three months to the war.

15:30 So you can understand these shock waves it sent when it turned out China,

15:34 the world's biggest oil consumer, had saved up so much it could cut itself

15:38 off in the world like this without breaking a sweat.

15:40 But this raises a whole other question.

15:42 How did China stow away this secret and impossibly

15:45 huge universe of oil, a Manhattan of oil?

15:48 Where did it all come from?

15:50 And there are basically two answers to this.

15:52 Incident number one is Iran, and incident number two is Russia.

15:57 Let me explain.

15:58 Iran and Libya sanctions bill I signed today will help

16:01 to deny those countries the money they need to finance international terrorism.

16:06 [Max] 1996, President Bill Clinton signs a law,

16:09 cutting off the world from buying Iranian oil.

16:11 We'll get to how in a second.

16:12 2022, Russia invades Ukraine and the head

16:15 of the European Union makes a big announcement.

16:17 So today we will propose to ban all Russian oil from Europe.

16:23 [Max] Which the US and other big countries joined, all of which did.

16:26 You know, it's easier actually if I show you on the board.

16:30 So two of the world's biggest oil producers, Russian and Iran,

16:33 were mostly cut off from this global oil market.

16:36 All that oil sloshing around stuck with nowhere to go, nobody to buy it.

16:40 But when you know it, bit by bit, actually,

16:43 let me show you this too on the board.

16:48 China found a way to get all that forbidden Iranian and Russian oil.

16:52 This is a report by a think tank called the Atlantic Council,

16:54 tracking China's secret oil trade with Iran and Russia.

16:58 And they did it by using dark fleet tankers

17:00 that operate outside of maritime laws and obscure the operations.

17:04 They rebrand the oil as Malaysian,

17:06 funnel it through small independent refineries called Teapots,

17:09 and then route the money via smaller back

17:11 alley financial institutions with names like Bank of Kunlun.

17:14 But okay, if the world knows China is doing this and all of this oil

17:18 is supposedly under global economic sanctions that make it forbidden to buy it,

17:22 then how does China get away with it?

17:23 Well, it's by using their other secret weapon.

17:27 This, China's currency, the renminbi, the yuan.

17:34 And the reason that this works that it's a magic hack is because

17:37 of something I didn't tell you about earlier about this global oil market.

17:41 All of it, all of this oil is traded in this, US dollars.

17:47 A couple of fine fellas we got up here on the board.

17:50 All of the sales, all of the purchases, it's all in US dollars.

17:54 And the reason for this is that oil trades remember happened between countries,

17:58 but it would be chaos if every country

18:00 paid every other country in a different currency.

18:02 Nobody would know what the real price was.

18:04 And oil exporters would be stuck with this grab bag

18:06 of a hundred foreign currencies that they wouldn't be able to use.

18:09 But everybody can use US dollars.

18:12 Everybody wants US dollars.

18:13 They're a safe way to save your country's

18:15 oil revenues because the dollar is stable.

18:17 Every other country accepts it in trade.

18:19 And trading all in one currency means there's just one price,

18:24 which is what you need for a unified global market to function.

18:27 But this gives the US a lot of power because trading in US

18:30 dollars means those transactions have to be processed by a US-based bank,

18:34 which means the US government can tell those banks

18:36 to block oil trades with any country it doesn't like.

18:39 People truly do not realize how much US

18:42 global power comes from these little green bags.

18:44 But this means China and Russia and Iran were able

18:47 to bypass this whole system by using a different currency,

18:51 China's currency, to process the sales.

18:54 This makes these oil trades basically invisible

18:56 to the US financial system and therefore,

18:59 the US government, which means the US can't block it from happening.

19:03 And if you're wondering why more countries don't do this kind of thing,

19:05 it's because they don't have a currency Iran or Russia or whoever would want.

19:10 The Renminbi can't do everything the dollar can do,

19:12 but it can buy stuff from China.

19:15 And China is the world's largest exporter of stuff.

19:18 So that currency is still useful enough

19:20 for Iran and Russia to go to the trouble.

19:22 Probably the only other currencies in the world valuable enough

19:24 to do this are the Japanese Yen and the Euro.

19:27 But Japan and the European Union are

19:29 big supporters of sanctions on Iran and Russia,

19:31 so they wouldn't want to do this.

19:32 So it is really just China that can pull this off.

19:34 And being the only willing buyer of Iran

19:37 and Russia's oil means they get a big, big discount,

19:39 which is how they were able to quietly stock

19:42 up a billion plus barrels of probably mostly Iranian

19:45 and Russian oil so they can magically stop importing

19:48 enough oil for enough time to basically save the world.

19:51 So that is how China saved you, me, the global economy,

19:55 and especially the United States and Donald

19:57 Trump from the largest oil shock in history.

20:00 But that still leaves us the question of why.

20:03 Like I'm more curious than ever.

20:04 Why?

20:05 Why would they bail us out and why would they do it in total silence?

20:08 And to answer this, we are going to need the other side of the board.

20:13 So we're going to use the board to go through four theories for why

20:17 China did this that I think all have some merit and some evidence to them.

20:21 But first I want to rule out too that I think don't scan.

20:24 Number one, probably the one you've been shouting at your screen

20:26 for the last 10 minutes because it seems so obvious, is that China did this.

20:29 China stopped importing oil just to protect themselves from high oil prices.

20:33 But you know what?

20:34 This one doesn't hold up.

20:38 Here's why and one number.

20:39 $74.

20:41 That is the average replacement price on China's

20:43 oil reserves that they have been burning up.

20:47 Here's the price of oil over the last six

20:50 months and here's where the price dropped below $74.

20:53 If China was just trying to protect itself from price shocks,

20:56 this is the point that they would've started buying again.

20:58 They would've actually made a profit by buying at this price, but they didn't.

21:01 They just kept burning reserves, which means they had some other motive, right?

21:06 So second wrong theory we need to rule out,

21:08 this was all a soft power play for global goodwill.

21:12 I'm sorry about the panda.

21:13 I know it's a total cliche.

21:15 When you Google image search Chinese soft power,

21:18 this is the first thing that comes up.

21:19 So I don't know, I went with it.

21:20 Anyway, it's also wrong.

21:23 The soft power theory does not square with China's big ban

21:26 against its refineries exporting jet fuel or gasoline because this really hurt

21:30 the neighbors in Asia who count on China for that stuff

21:33 and are the exact countries China most wants to improve its standing with.

21:37 For another thing, remember, China did all this and didn't talk about it.

21:40 If you save the world to make countries like you, wouldn't you,

21:43 I don't know, mention it at least once instead of hiding it in secrecy?

21:47 So these theories, I think these are out.

21:51 So now let's look at the theories that do make sense.

21:54 Starting with the big one, Taiwan.

21:59 Here's Asia and here's the Strait of Hormuz,

22:01 which we learned controls 20% of the world's oil flows.

22:04 And now this is the Strait of Malacca, even narrower, even easier to close.

22:08 The ships that go through here carry 80% of all China's oil.

22:12 And in any worst scenario with Taiwan,

22:14 one of the very first things that happens is the US

22:17 uses its naval supremacy to close Malacca like Iran closed Hormuz,

22:21 shutting off China from outside oil and bringing China to its knees.

22:29 So yeah, pretty powerful, right?

22:30 Defeat China without ever coming within a thousand miles of it.

22:33 And this has obsessed China's leaders for decades.

22:36 They actually have a name for it.

22:37 They call it the Malacca Dilemma,

22:38 and it applies to any worst scenario with the US,

22:41 but Taiwan is probably the likeliest.

22:43 So how can you neutralize the threat of suddenly losing access to outside oil?

22:47 Well, one way is to build up renewable power sources like wind and solar,

22:50 which yeah, check, China has been doing.

22:52 Another is burning more coal.

22:53 Check.

22:54 But the best way is to stockpile so much oil in advance that you can go

22:59 without imports for a year and keep the lights on for as long as the war takes.

23:02 Under this theory, China had this whole no oil plan ready in case of war,

23:07 but they pulled it off now both because they could

23:10 and maybe as a little demonstration to the US and Taiwan

23:12 that the Malacca problem has kind of solved just to threaten

23:15 them anymore so don't expect them to hold them back.

23:18 Okay, ready for theory number two?

23:20 Leverage with Donald Trump.

23:23 Trump and Xi actually just had a big one-on-one summit in May.

23:26 And you know, watching this, it's not

23:28 hard to imagine Xi telling him, "Hey Donald,

23:30 I'm single-handedly saving your economy right now by absorbing

23:33 the oil shock so it doesn't hit the United States.

23:36 So you want me to keep this up,

23:37 you better make it worth my while." Because he knows if there's

23:40 one thing Trump has shown he's sensitive to, it's the price of oil.

23:43 Now, nobody can prove this happened.

23:45 Yeah, a few weeks beforehand, the US did withdraw a bunch of missile

23:48 defense and other weapons from China's periphery,

23:51 which China liked to use in the Middle East, but that might be a coincidence.

23:54 I would consider this the softest theory.

23:56 Still, as long as the war goes on, Xi Jinping really could nuke

23:59 the US economy anytime he wants by resuming

24:01 Chinese oil imports and exhausting global supplies.

24:04 Did he remind Trump of that fact when they met?

24:06 You know, we don't know.

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24:33 Your subscription also includes access to, among other things,

24:36 a podcast Johnny and Iz are launching this week,

24:38 as well as an exclusive video series I'm doing and been

24:41 doing for a while there that I'm really excited about,

24:43 No Dumb Questions, where I answer big questions

24:46 about the world submitted by viewers like you.

24:48 In this week's, I take on a bunch

24:50 of questions about China's rise as a world power.

24:52 Like how did China and the US become adversaries in the first place?

24:55 What is China's ultimate end game is a great power?

24:57 What does it want and a lot more.

24:59 You can check it out at newpress.com/questions

25:02 and the link is in the description.

25:03 Now, let's get back to it.

25:04 Okay, theory number three, and I'm pretty partial to this one.

25:07 Protecting China's export-based economy.

25:13 China's economy, like we said,

25:14 centers on manufacturing and exporting basically everything in the world.

25:20 Here's every country China exports to scaled by overall value.

25:26 Now let's cross out all the countries whose

25:28 economy would implode in a sustained oil shock.

25:31 This one, this one, probably these guys, definitely the Europeans.

25:36 Yep, here.

25:38 Okay, well, China just lost half of its export

25:41 market and a bunch of its economy with it.

25:46 Or that's what would've happened if China hadn't propped

25:49 everyone up for three months by absorbing the oil shock.

25:52 Now I can't prove that's why they did it,

25:53 but I do think it would make a lot of sense.

25:55 Okay, theory number four.

25:57 They did this to prove to the world

26:00 that China now controls the global price of oil.

26:04 I had to print this out of my home

26:05 printer because the photo printer stopped working.

26:07 That's why the Chinese flag is purple.

26:10 I don't know, my apologies to China.

26:13 Credit for this theory goes to a Bloomberg columnist named Javier Blas,

26:16 who argued this was China unveiling its powerful new oil price weapon.

26:20 He compares it to the 1973 oil shock when Arab oil states

26:24 like Saudi Arabia and some others shut off oil to the US,

26:27 a power that got termed the Arab oil

26:30 weapon and made those states global player ever since.

26:33 And he argues that, yeah, on some level,

26:35 this was probably about Taiwan and Malacca.

26:37 But if China proved that it can flip 5%

26:40 of the world's oil demand on and off like a switch,

26:43 that gives them Saudi Arabia level

26:45 influence over the world's most valuable resource,

26:48 which gives them a lot of leverage over any country that buys

26:51 a lot of oil or that sells a lot of oil, which is pretty much all of them.

26:55 I think there's probably some truth to all four of these series, right?

26:59 I don't think they're mutually exclusive.

27:01 Now, we don't know enough.

27:03 We can't peer inside Xi Jinping's head and know like which one is the truest,

27:06 but I think if you look at these four together,

27:08 you have a pretty good understanding of why China did this.

27:12 Okay, so the question now is what does all this add up to?

27:16 What does it change about our world?

27:18 And we the world learned a few new things here.

27:21 One, China has neutralized the so-called Malacca Dilemma that would've

27:26 allowed the US Navy to shut down their economy.

27:28 And that makes war with the US more

27:31 bearable for China and an invasion of Taiwan, therefore more likely.

27:35 And two, China now has a lot of control over global oil prices,

27:39 although I don't think we yet know how they would use

27:42 that power except how they did here to blunt a global oil shock.

27:45 But you know, the Iran war is still a little low boil,

27:47 which means as long as Hormuz is at threat of closing or partially closed,

27:51 Xi Jinping has a lot of leverage over the United States.

27:54 He has that button on his desk that says nuke US economy.

27:57 And along those lines, the US, China's big rival,

28:00 it came out of this war weakened on the world stage

28:02 in a lot of different ways that we talked about in the last video.

28:08 Russia meanwhile is still admired in Ukraine.

28:10 That means that among the major world powers,

28:12 China is looking pretty good right now, which is part of why there is a growing

28:16 consensus that the war's real winner was China.

28:19 China won, they're the winner.

28:21 China's the big winner here.

28:23 China wins.

28:27 This is a little too clever, I think.

28:28 Iran won the Iran War, but China did win something very, very big.

28:33 And it's easy to explain if I put it on the board for you.

28:39 So forever and ever,

28:40 these have been the three world powers of oil for like the last century.

28:45 The US, Saudi Arabia, Russia.

28:47 They are the three biggest producers in the world by far.

28:50 The US guarantees free flow of oil

28:52 in the world's oceans and controls the US dollar.

28:55 Saudi Arabia is the de facto leader of OPEC,

28:57 the Alliance of Oil Producing States.

28:59 And Russia, in addition to being a world power and a huge exporter,

29:02 controls land-based oil flows across a bunch of Europe and Asia.

29:06 But this era might be over or at least starting to end.

29:10 The US proved in the Iran war that it

29:12 cannot guarantee the global free flow of oil anymore.

29:15 And Russia is under global sanction and can barely sell its own oil.

29:19 So these two powers might be out.

29:24 And who displaced them?

29:26 Well, arguably one of them is Iran,

29:29 which is not the world's biggest producer, they're ranked seventh,

29:31 but they prove that they can unilaterally turn on or off

29:35 20% of the world's oil supply and nobody can stop them.

29:43 And the other new global oil power, I think you know where this is going.

29:47 I think you can make an argument for China.

29:49 You know, they kind of control the price of oil now or at least have

29:53 huge influence over it because they can switch 5% of global demand on and off.

29:58 And because they were able to do what the United United States wasn't

30:01 in this war and secure sufficient flows of the world's most important resource,

30:05 single-handedly saving the oil burning world from disaster.

30:09 That sounds like the behavior of a global oil power to me.

30:16 Now, I don't know what China wants to do with that power.

30:19 I mean, we have some educated guesses obviously, but they're not telling us.

30:23 They might not even know.

30:24 They might have themselves just discovered how powerful they

30:27 are here right along with the rest of us.

30:29 But one thing is for sure,

30:30 now that they have this power, they've demonstrated it,

30:32 they've proven to the world that they have it,

30:34 I am certain this will not be the last time that we see it deployed.

30:39 (gentle music) (gentle music continues)