Is Biden eyeing Venezuela to ease the global energy crisis?

Hosted by Christina Ruffini and Sir Richard Dearlove

Guest

Episode Summary

Will the Biden Administration dial back sanctions against Venezuela, a country with the largest oil reserves in the world, in an effort to address the global energy crisis? That's the question we ask two leading experts on the country's energy industry. They discuss how crumbling infrastructure to export crude may slow or stymie any immediate impact. Nicolas Maduro and the Chavistas have ignored the results of past elections and have one of the worst human rights records in the hemisphere, which will make any concessions challenging for the American president at home and abroad, especially after a widely criticized trip to Saudi Arabia. Plus, the former head of MI6, Sir Richard Dearlove, analyzes the impact a warming of relations between Washington and Caracas could have on Venezuela's ties to Beijing, Tehran, and Moscow.

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Transcript

INTRODUCTION

Mcfarlane: I'm Julia McFarlane, cohost of the One Decision Podcast. We're coming up on a significant milestone. It's our one year anniversary of bringing you in-depth analysis of the critical decisions shaping our world. To celebrate the occasion, cohost and former head of MI6, Sir Richard Dearlove, and myself, will answer questions submitted by you, the listeners. Spies are usually pretty tight lipped, so don't miss the chance to write in. Your question might even make it onto the podcast. For more information, head over to 1decisionpodcast.com. You're listening to One Decision, the podcast that looks at the key choices facing our world today. This week, we consider the Biden administration's efforts to negotiate with a country America has long been at odds with, Venezuela. The nation with the world's biggest reserves of oil, more so even than Saudi Arabia. And yet, nearly 80% of Venezuelans live on less than $2 a day. The country has been tightly bound in sanctions dating back to Hugo Chavez. But today, as the war in Ukraine has put a stranglehold on the world's oil markets, there could be a golden opportunity for Caracas and the West to recalibrate. We spoke to two experts to learn more.

INTERVIEW

Mcfarlane: With me today are our guests, David Voort. He is the managing director of energy consultancy firm IPD Latin America and he's a leading expert on Venezuela's energy industry having lived there for the past twenty years. We also have joining us from Houston, Doctor Francisco Monaldi, who's director of the Latin America Energy Programme at the Center for Energy Studies. Welcome to you both.

Monaldi: Hi, Julia. Thank you.

Mcfarlane: We're now hearing reports of the Biden administration announcing an easing of restrictions on the only US oil company currently operating in Venezuela, that's Chevron. And they're speculated to go even further. There were reports that in March, three senior Biden officials traveled to Caracas to meet with president Nicolas Maduro to try and lure him back to negotiations with the US-backed opposition and release several Americans who've been imprisoned in Venezuela for years. And in exchange for that, the US would possibly look at easing some of these sanctions that they imposed on the Maduro regime several years ago in 2019. David, what have you heard about how these talks are going? And what does Caracas need to do to take the best advantage of the situation?

Voort: So I think the talks are moving along. I think that the Biden administration took some time to really try to understand what the implication of any sort of flexibility or recalibration of sanctions would be. And I think one thing that we have to be very clear about is the internal optics of sanctions within the United States and the political pressures both on the Biden administration and via the congress that have to date limited activity in this area. I think that when we take a look at sanctions, we have to ask, have they achieved their goal? And originally, the goal was to essentially force a democratic transition in Venezuela. And that didn't happen. And it doesn't look like it's going to happen anytime soon. And there are a few things that I think are really important. One of them is the maintenance of infrastructure. I think that we really need to preserve the foreign companies position in Venezuela in order to maintain infrastructure for future generations, in order to guarantee that Venezuela has an economy when an eventual political resolution happens. So that's important. The discussions between the Venezuelan government and some of the foreign companies in Venezuela have been moving along. And it does look imminent that there's going to be some adjustments to the sanctions regime that will allow for increased private sector participation in the country. I think there's a few kinks to work out, but I think it's imminent. Just one thing though, I think the United States is also really expecting some concessions from the Maduro regime, and we're not seeing enough messaging from Maduro himself yet that those concessions are going to happen.

Mcfarlane: You say it doesn't look like the US sanctions have worked in order to force a democratic transition in Venezuela. Why have they not worked, and how has Maduro managed to dig in and solidify his position?

Voort: Well, I think, certainly this is an area where Francisco really excels. I think maybe Francisco has some really good ideas on this front, Julia.

Mcfarlane: Yeah. Francisco, may I direct that question to you? How has Maduro managed to withstand the economic pressure of being branded an economic pariah by the United States?

Monaldi: Yeah. I mean, it is actually pretty remarkable that he has survived, and not only survived, but has, you know, become more entrenched, more powerful today, at least relative to the Venezuelan opposition despite a decline of 80% in the Venezuela's GDP and a collapse of the oil industry. Just to give you an idea, I think it's interesting to look at counterfactuals of what could be Venezuela today in terms of, for example, oil production. Venezuela produces around 700,000 barrels today. Without sanctions, probably it would have been able to produce about 1,300,000 barrels of oil with everything else. Without the Chavismo policies, I estimate that Venezuela could have been producing 4,000,000 barrels if it had had the sort of the previous kinds of regime. If Venezuela was run like the best Latin American country, it could be producing much more, like five to 6,000,000 barrels, and if Venezuela was Texas, it would be producing 10,000,000 barrels. Right? So that gives you an idea of the layers of this sort of underperformance of the Venezuelan oil industry and of the Venezuelan economy. So having said that, so how come the guy survives? Well, I think we have to first realize that in general, sanctions are pretty poor in terms of regime change. They didn't do it in Iran. They didn't do it in Cuba. They are not gonna do it in Russia, and, you know, there are actually very few instances in which they have worked for regime change. You have the example of South Africa perhaps. Second, I think it's important to understand that Maduro is not like a regular autocratic regime in Latin America, like, say, the military regimes of the 1980s, but it's much more like Cuba, a regime that has sort of a totalitarian control over the country. Not as much as the Cuban regime for sure, but, you know, it controls the armed forces, it controls all the institutions in the country. And of course, you know, it also it's true that by the US imposing sanctions, it gave Maduro a sort of an excuse for the terrible performance of the economy. And even though Venezuelans mostly blame Maduro for the situation, and Maduro is still one of the most unpopular presidents in Latin America, a lot of people do think that sanctions had also part of their responsibility. So I think for those reasons, he's there. But he's very importantly supported by the military, by Cuba, by Russia, to some extent, China and Iran.

Mcfarlane: His autocratic grip and ability to spin the situation and play the victim is, I think, the first of many parallels we're going to see with Vladimir Putin and the situation in Russia. Francisco, you wrote a fascinating piece recently where you argued that even if sanctions were to be lifted or eased or restricted or recalibrated, however you'd like to put it, on the Maduro regime and the Venezuelans began to rapidly increase their oil output as a result, it would still be unlikely to offer any meaningful relief to the global oil markets. Can you explain to our listeners why that might be the case?

Monaldi: Yeah. I mean that, of course, in the short and medium run, because at the very beginning, you know, when the visit of Juan Gonzalez and the American delegation to Maduro, there was wider speculation that Venezuela could play a major role in supplying the barrels that Russia was not going to supply. And of course there was a lot of misinformation because it's true that Venezuela redirecting the exports that go to China, say, 400 to 500,000 barrels to the US, it could provide some of the barrels that Russia provided to the US, but that's not the relevant point. Right? Because it's a world market. What you care about are new barrels that are supplied to the market. And Venezuela, if there is some sanctions relief as the one that David mentioned potentially with Chevron and others, we are talking about maybe Chevron producing twice as much as it produces today in one year and a half or so. We're talking about adding between 200, 250,000 in a year to a year and a half. So that's a drop in the bucket of the 100,000,000 barrel per day world market, and much lower than what Russia could get out of the market. By the way, so far for us, oil has not gone out of the market that much. We can talk about that later because, in part because it has given such significant discounts in Asia that is competing among others between Venezuelan oil and taking some of the Venezuelan market. But bottom line, Venezuela will not be a significant player. Having said that, as I mentioned, there are very few countries outside of the Gulf in the Middle East and Russia that could add a significant amount of barrels in the next decade or so, and that's why Venezuela, if you don't focus in the next year, or if you focus in the next decade, then it's a very different matter. Then you're talking about a country that only along Brazil and maybe Guyana could be adding a very substantial number of barrels in the Western Hemisphere. Of course, outside of the US and Canada.

Mcfarlane: So you've poured very cold water on any hopes that the country with the world's largest oil reserves might come to our rescue. I don't know if you guys have seen some pretty grim headlines coming out of the UK at the moment. Average energy bills for January in this country are gonna be £100 more than my brother's rent in London, which is a pretty depressing state of affairs to be in. David, if a deal, humor me. If a deal were to be negotiated and announced between the US government and the Maduro regime, what do you think it would look like? What do you think it would cover? And how much oil production would you think would be involved in it?

Voort: So I think that a deal between the Maduro regime and the private sector, which is where really the deal would happen and then be effectively approved by the US government, will do a few things. First of all, it will likely give operational control to the foreign partners of PDVSA. That should improve transparency in the operations of these oil projects, and it should help improve transparency with regard to exports as well. We'll see some marginal production lifts. But I think there's more to it than just getting new barrels into the market. I think it's making Venezuela more accountable within the international market. Right? I think that we're talking about trying to remove some of these barrels from these phantom traders that are using unregistered tankers with their AIS transponders turned off, creating maritime risk, creating environmental risk to send crude to China, and redirect some of those barrels into more transparent activity. I think that's equally as important. I think it's important to look at what could come down the road as sanctions prove to work with some level of flexibility, and we could take a look, for example, at natural gas. So Julia, you're here in Europe, and I think you and I are both sitting around saying, well, what's our electric bill gonna look like next month? There are people in Northern Europe and Eastern Europe thinking about a new mortgage payment to pay their power bills. And one of the things that I think Venezuela can contribute, and we're talking to start three years. Okay? And it's not an immediate issue, but I think they can contribute gas to the market, and I think they can do that, for example, through Trinidad and Tobago. Trinidad and Tobago has had a gas deficit. They sit 11 kilometers off the coast of Venezuela, and they have a mothballed LNG train that can process about 450,000,000 cubic feet a day of gas. I think it makes sense to look at the optionality around exporting Venezuelan gas to Trinidad. And one of the things that I think is so important, and it's important from a climate change policy. I know we're gonna get into energy transition and climate change maybe a little bit later, but now might be a really good time to understand that Venezuela is flaring 2.3 to 2,500,000,000 cubic feet a day of natural gas. Just collecting 20% of that gas would feed—

Mcfarlane: Sorry. Can you just clarify what does flaring mean?

Voort: Basically, there is a whole bunch of gas that is produced together with oil. Okay? It's a gas that's associated with oil production. And there's no way to manage this volume of gas that's associated with Venezuelan oil production. So they burn it. They burn it. Part of it's burned, part of it is vented. It's lost in the process. And that's methane going into the atmosphere, which is actually worse than burning the gas. There are investors who are interested in collecting this gas and trying to do something with it. One of the most viable things we think is that it could be piped to Trinidad and Tobago converted to LNG, or in the case of Trinidad and Tobago, has petrochemical facilities currently offline because of a gas deficit could be used to reactivate those petrochemical facilities. So I think we need to look at Venezuela as a piece of a broader global energy security prospect.

Mcfarlane: And Francisco, before I come to you, just the reason Venezuela cannot export its gas to Trinidad and Tobago is because of US sanctions. Its gas sale exports are also sanctioned by the US?

Voort: That's not necessarily the case.

Mcfarlane: Okay. So why isn't it able to send that gas over to Trinidad and—

Voort: Right now, yes, there are sanctions in place, and gas is sort of a gray area. Our understanding is that gas is not a sanctionable activity in Venezuela at the moment, but PDVSA is sanctioned, and doing business with PDVSA then becomes a problem. And non-US persons, including governments, have been very careful in terms of maintaining their relationships with the United States. It's also fair to say that Venezuela is a high risk proposition for investment, and therefore, you need to develop some clear rules of the game in order to make a project like this happen. We do see investor interest. The logistics are actually not that complex, and we think it's a pretty smart idea. I would just add that when we're looking at Venezuela, again, moving the needle in the global oil market, maybe not so much. But when we're looking at it as a weak point of democracy in the region, creating these commercial ties with other countries, whether it be Trinidad and Tobago, or maybe Colombia, which is also going to be facing a gas deficit in the coming years, creating a commercial relationship with these democratic countries, I think, would only influence things for the better. And so the US is aware of this potential. I think that the Trinidad government has been trying to make inroads in looking at the options, and this is one of those projects that I hope will come to fruition.

Mcfarlane: That's very interesting. It's not just about direct actions and consequences between Western nations and Venezuela. It's also about potentially reconfiguring some of the regional pieces on the global chessboard. Francisco, I saw you put your hand up as David was talking. Did you have something that you wanted to jump in with?

Monaldi: Yeah. Just two bits. I mean, one on the Trinidadian side, I completely agree. There is a potential, as he said, it's something that could be starting, you know, sending gas to the European markets in three years if everything goes well. But also I think it's important to notice that the Trinidadian government is really interested in this and is basically asking the US government for a license in this area, and I think other Caribbean countries are also looking at this issue. And of course, this is an important piece of the story, Europe has been pressing the US to change the sanctions regime that, of course, is basically not a multilateral, it's basically a US sanctions regime. The other aspect that I think it's important, David mentioned is that it's not only that the lack of transparency and the way this oil is exported has negative consequences for the world market, but for Venezuelans too. Right? Imagine Venezuela today exports 80 to 90% of their exports go to China, not to independent refiners in China directly, but through these dark channels, you know, changing the transshipment, they are reported as Malaysian barrels or Singaporean or others, and the money flows end up with—by the way, Venezuela has to sell at very heavy discounts, much more so now that the Russians are taking away some of their market, and then the money flows used to flow through Russia and came back to Venezuela sometimes in planes full of cash. So just to give you an idea of the opacity of all that. Imagine now if instead a barrel goes to the US or goes to Europe, and part of it is used to pay debt to these companies, because of course they have to have an incentive to do it, but another part might go to humanitarian programs. And this is what I've been working for the last year and a half, you know, to try to advocate for changes in the sanctions regime that improve the life of Venezuelans. Not only improve the conditions of the oil industry, but make it so there is a big win to be made between the way that the money flows now and the way the money could flow in a different scenario, that is not necessarily just lifting sanctions as some people seem to think that this is what is on the table and I think it's not.

Mcfarlane: You beautifully set up what was going to be my next question, which was to describe some of the process of these sort of opaque phantom markets that we've briefly touched upon. And so just to go a bit more into that, I wanted to ask, is the war between Russia and Ukraine presenting an economic opportunity for Venezuela? And you've briefly mentioned the vast amounts of Russian oil now entering these opaque markets of sanctioned oil. How is it impacting Venezuelan crude at the moment? And I imagine there's a lot of difficulty in the huge cost of shipping it all the way to China, which is half a world away from Venezuela, and the difficulty that the Chinese have in refining Venezuelan crude.

Monaldi: Yeah. That's a very interesting question because first, of course, Venezuela is benefiting from the dramatic increase in the price of oil that happened last year and then the first part of this year. We have to remind ourselves that the price today is almost the same as it was when the war started, but that was after a very significant run up. So all things equal, Venezuela benefits tremendously from that, and that could be three times or more potential revenues for Venezuela in terms of prices. But as you point out, Venezuela exports heavy crude to these independent refiners of China that are not particularly good at refining that type of oil, that only buy Venezuelan oil because it has very significant discounts that could be as high, you know, in the past as $30 and they have reached sometimes as high as $50 to the Brent. Right? And so the thing, of course, is now Russia's oil is looking for the same places. Most of the Russian oil that used to go to Europe and the US is going to India now. Venezuela, so far, is not exporting to India since secondary sanctions were implemented, and the Indians have been very careful, except for oil coke that they are recently buying some, they have not bought any Venezuelan oil. The bottom line is that so far Maduro has benefited much less than you would have imagined just from the fact that the war is increasing the price because he's having trouble selling the oil. You can see today that Venezuela is exporting at the rate that they are exporting today. If this continues, they will have to close some production because they are accumulating tons of inventory. Second, the discounts are so severe, and that's also what opens a lot of opportunities for changes here. Right? Imagine if Venezuela could export a barrel to the Caribbean, for example, the Caribbean countries. They could sell it for less than the market price if authorized by the US and still receive much more than the discounted oil in China, for example. So there are plenty of things that could be happening here with these differences. But bottom line, Maduro is benefiting, but much less than you would have imagined from just the fact that prices are so high.

Mcfarlane: Fascinating. David, we've skirted around an issue here, which is that Venezuela's oil is described as super heavy. Refiners can't refine it. They have to dilute it with lighter oil and this is where Iran comes in. Now this summer both Iran and Venezuela signed this twenty year energy cooperation deal which sees Iran exporting gasoline, crude, and refinery parts and assistance in exchange for Venezuelan oil. Can you explain what both sides get out of this arrangement? And then can you walk us through what Venezuela's refining issue is and its proximity to the states could mean for any deal. I mean, could US refiners take on Venezuelan heavy crude and cut Iran out of the equation?

Voort: Okay. So let's maybe clarify some myths here. Venezuelan heavy oil is actually a segregation that has a lot of demand on the global markets. It has high yields in refineries. You can produce gasoline and diesel from it. You can also get asphalt from it. And so this is one of the reasons why I think China likes it a lot. India likes it a lot also, and the US Gulf Coast refineries were actually designed to process Venezuelan extra heavy oil. Basically, it's the blend. It's called Merey 16. It's a blend of lighter crude with the heavy Orinoco oil belt crude. So there is a real market for Venezuelan heavy oil. There does need to be some processing in Venezuela. And previously, you were processing through these massive upgraders that the private sector built to essentially create a synthetic crude out of this heavy crude. Those upgraders have not been well maintained over the years. Two of them are down, they're simply not operational, and two of them are operating sort of at quasi capacity. I think that it's important also to look at—Francisco made a very good point. India has been taking most of the Russian crude. China really hasn't picked up that much. I think I've seen maybe 200,000 barrels a day of additional crude. That's not replacing the 450, 500,000 barrels that Venezuela has been exporting to China. What's important is, and I think that a sanctions adjustment could even benefit PDVSA and the Maduro regime because they have all of their eggs in one basket right now. My numbers are 91 to 95% of Venezuelan exports have been going to China. Over the last four months, China demand has fallen dramatically. Now that could be—and it's really confusing as to why. Okay. So anybody who says I know, I'm not so sure about that.

Mcfarlane: I guess, first of all—

Voort: Well, they've had a massive manufacturing slowdown. You've had a slowdown because of COVID. You've had an economic slowdown. You have the Russian crude coming in, which is undoubtedly an issue. You have Chinese independents under tax scrutiny right now and potentially being closed in the near future due to tax violations. You have quotas that the independents are subject to that are constantly adjusted. So right now, China is taking less Venezuelan crude. What I find is that every time Venezuela has a cargo of Merey 16, China will take that. But there's another segregation called DCO, which is essentially a combination of this Iranian condensate and Venezuelan heavy crude that is not appealing to the Chinese independents. We found that they can't process that segregation. And there's a lot more of that because of operational issues in Venezuela, so you have this sort of bottleneck in exports to China. So Venezuela is putting all of its export eggs in the China basket, and it's currently putting more and more of its operational eggs in the Iran basket. So Venezuela has imported since July of last year, 20,000,000 barrels of Iranian light crude, whether that be condensate or a lighter sort of 30 degree API crude. They're using it for refining purposes because particularly in Western Venezuela, the fields that have traditionally produced feedstock for their refineries are no longer producing. So Venezuela is becoming more and more dependent on Iran for its refining processes. And lately, they've been importing a segregation called Iranian heavy, which is actually a light crude. It's a 30 degree API, perfect for blending in the Orinoco oil Belt. And therefore, again, greater independence on Iran. If the United States builds some flexibility into its sanctions regime, Venezuela could be importing diluent and light crude from the US Gulf Coast.

Mcfarlane: Replacing Iranian.

Voort: I would say, maybe not totally replacing Iranian, but offsetting Iranian for sure. And I think there's major benefits there for PDVSA. You have shorter transit times. You can bring smaller vessels. You can adjust the quality of the diluent in accordance with the evolution of your operations. And we know that these operations have a lot of maintenance issues. Their needs are changing every day. So it would really make sense for them to shift and pivot to the West. It's good business for PDVSA and good for politics.

Mcfarlane: Thank you both so much for joining us and staying in touch.

Monaldi: Thank you.

ANALYSIS WITH SIR RICHARD DEARLOVE

Mcfarlane: Let's bring in my co-host, Sir Richard Dearlove for his take. Sir Richard, we're talking about Venezuela because of speculation around whether the Biden administration may announce some kind of easing of sanctions on the Maduro regime that may allow it to export more of its oil or other fuels, particularly with regard to this possible granting of an extended license to the Chevron oil company that has joint ventures with the Venezuelan state owned oil company PDVSA. I mean, obviously, this is in the context of Russia's war in Ukraine and the fact that that has sent energy markets into a total tailspin due to the fact that many Western countries have put a fatwa on Russian oil. So what would you make of the speculation? I mean, do you think a deal with the Maduro regime is likely, given how much of a hot potato that must be in the American establishment?

Dearlove: Well, I think it's pretty clear we're talking about the lesser of two evils. And okay, it is rather surprising given the history of US sanctions against Venezuela, which go right back to the Chavez regime, Maduro's predecessor, that there is movement. But then on the other hand, we have a global energy crisis. What you have to remember is that Venezuela has the largest oil reserves in the world, larger than Saudi Arabia. Their industry is in a parlous state because of the sanctions, and the current oil lift is tiny in comparison to what it could be if American companies and American technology were applied to extraction. So I don't think it's surprising that there is consideration on the part of the Biden regime as to whether they can somehow reach some sort of deal or agreement which allows some Venezuelan oil onto the international market. Bearing in mind, you know, of supply and their relationship to their markets geopolitically now is an important factor in the energy market. I guess my guess would be that there are a large number of lawyers scratching their heads very hard about how they can do this without compromising their political principles in not wanting to recognize Maduro after the last presidential election as formally president of Venezuela, when in effect we have two regimes. We have a de facto regime running Venezuela, and we have a de jure regime run by Guaidó, who has been recognized as the true president by most western countries. I would have thought that probably there will be some legal trickery or legal maneuvering, which allows a private company, which does not represent officially the United States government, maybe to do some sort of a deal. I mean that would be my guess, but I think the Americans are going to tiptoe into this very carefully, because obviously the implications are huge. I mean the US strategists going back to Trump, if you look at the previous administration, they had referred to Cuba, Nicaragua, Venezuela as the triangle of tyranny in the Caribbean, and all of these countries in a way are, to an extent, beyond the pale. But we've seen movement in US policy in relation to all three, so it wouldn't be completely illogical. But it is a difficult problem.

Mcfarlane: Something that struck me throughout this conversation on Venezuela, and in fact, a conversation that we're having in a later podcast about Iran, is the increasing cooperation and independence you have between countries like Venezuela and Russia and China and Iran. And we keep coming to this sort of bifurcated worldview where you have the US and you have China. How does this progress as the years go by? It pervades so many issues, so many different sort of arenas in geopolitics. It keeps boiling down to these two great powers and their rivalry. Are we ever going to see those two sides coming closer, or are they inevitably going to become more and more hostile to each other, and are we headed for an inevitable collision between these two superpowers?

Dearlove: Well, that's an interesting question. I think the first thing you should remember when we talk about the role of China globally is the extent to which China's economy is intertwined with the West. So we do not have a situation like the Cold War, and what I mean by that is that the economies of the Soviet Union, its Warsaw Pact allies, and the economies of the West were not interconnected to the same degree. They were connected, of course, and there was trade, but that trade was heavily controlled, was subject to all sorts of technical embargoes, and it was a pretty minority feature of global trade. We're now in a completely different situation, so that the intimacy of the links between the West and China, whether it's Germany's economy, whether it's to an extent the UK's, whether it's the US, all of these economies have massively close links with China. Although in some respects those have been reduced, for example, if you take the relationship between Australia and China, China has embargoed certain Australian imports, but it hasn't embargoed strategic Australian imports like iron ore and other essential commodities for the Chinese economy. It's things like beef and dairy products. I don't actually think dairy products have been embargoed, but beef has been embargoed by the Chinese. So we're in a much more complex global situation. Having said that, I think we're going through a phase where the US and China in particular are growing apart, mainly because we've understood that Xi Jinping's regime is not a friendly one. It's a highly competitive one, and perhaps in areas which the Chinese consider areas of influence, it's even aggressive. So the South China Sea, the implementation of what's called the nine dash line, its assertion of sovereignty over islands in the Pacific and the South China Sea, its attempt to displace Australian influence in places like the Solomon Islands. I mean, all of this indicates an assertive and aggressive China building very fast the deep blue water navy, and beginning to contest and push against the edges of the West's areas of strategic influence.

Mcfarlane: But something else that's also happening is particularly after COVID and after the global supply chain crisis we're seeing is both the US and China, and in fact, a lot of other countries are becoming more protectionist. A lot of countries are trying to bring more of their own fuel security and their food security back onshore, to try and protect against extremely buffeting winds of geopolitics that we're seeing right now. And so, you say that there's a lot of money at stake, the US and China are very intertwined in an economic sense. So, as both countries try to become more self sufficient in a lot of strategic areas, such as fuel, such as manufacturing, and other things, does that make a collision more likely given that there will slowly, but bit by bit, be less at stake?

Dearlove: It may do. And, of course, you're right. I mean, issues now like energy security and food security have become more important as a consequence of Russia's invasion of Ukraine, it's accelerated a trend which was visible before, but now much much more marked. And people are very worried that an international crisis will cut off their essential lines of supply. I mean, the UK's own example in terms of gas supplies where we had sort of wound up our gas storage facilities is a very good example of that. That was a very shortsighted decision and has to be put right over time. But I think what I would say is that the global security situation clearly is in a very dynamic state. I think if one takes a longer term view, we probably should envisage, in terms of—and that's an optimistic view of global affairs for the future, that there's some sort of accommodation reached that accommodates a Chinese sphere of influence, an American sphere of influence, or let's say a Western sphere of influence, and that the two have some means of living together. That doesn't necessarily mean that there won't be points of friction. There will be. There will be points of severe competition. You know, there will be clashes. But I mean, in a way, you can already see that practice happening because the new AUKUS agreement where you've got UK, Australia, and the States, which is designed specifically to deal with the Chinese maritime threat. Well, this suggests the coming gradually of a new international order, and, of course, a key player in this is gonna be India as well, because India's position is so crucial in relation to China and the role that India will play, and it's important that India, as it were, in my view, inclines to the West, which it will do, in its attitude to China. So I think one will see a very significant shift and change over the next five to seven years in looking at these problems to predict how they're gonna play out. You know, how will China behave? I mean, the crucial issue really of judging China's behavior is whether, if it were to invade Taiwan, that would really upset the international apple cart to a very great degree, more so, in my view, than the invasion of Ukraine.

Mcfarlane: That's all we have time for for this episode of One Decision. If you enjoyed this episode, why not like and subscribe to us wherever you listen to your podcast so you never have to miss an episode? We drop new shows every Thursday. From me and the team, thank you for listening, and see you next time.