Listen: The Essential Podcast, Episode 98: Making Sense of Oil Markets with Andy Critchlow

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Nathan Hunt: This is the Essential Podcast from S&P Global. My name is Nathan Hunt. I should confess that I don't really understand oil markets. I read about oil markets all the time. I read about the latest OPEC production cuts.

I read about the gray market in Russian oil. I read about consolidation among oil majors. I read about IEA peak oil scenarios. I even read about Saudi oil ministers criticizing IEA peak oil scenarios. It's not a lack of information. It's that for whatever reason, I don't get oil markets.

Most days, this lack of understanding doesn't bother me too much. But on some days, some oil market player makes a decision that leaves me fundamentally befuddled. I reach out to someone I know who can provide an answer. That someone is Andy Critchlow.

Officially, Andy is the Head of news for the EMEA region at S&P Global Commodity Insights in the past. Andy has worked at Thomson Reuters, the Wall Street Journal and Bloomberg. He is a former guardsman in The Queen's Company, First Battalion, The Grenadier Guards, meaning that, yes, he guarded the Queen.

He is also an amateur cyclist of some note. In short, Andy is who I want to be when I grow up. Unfortunately, he is also younger than I am. So I welcome Andy to the podcast today to answer that age old question, what the hell is going on with the oil markets. Andy, welcome.

Andy Critchlow: Thanks, Nathan. I'm not sure that I can live up to that intro, but I will try.

Nathan Hunt: Okay. Well, let me start by asking, what is it about oil markets that make them so difficult to understand?

Andy Critchlow: So many moving parts. If it was just down to a barrel of oil and even just getting that barrel of oil out of the ground, that will be fine, but you've got extraction you've got investment, you've got transportation. You've got regional differences in the grades of crude. You've got refining. You've got processing.

You have all the downstream elements of this. It is multilayered. It's like a 10-layer layer cake and you have to strip it back and strip it back to really get to the kind of essence of what is ultimately driving oil markets.

And even then, it kind of befuddles many, but it's still the most important economic driver for global growth. You go and speak to bankers on Wall Street. You go and ask a guy like Jamie Dimon at JPMorgan. What's the one number that you look at in the morning before you head into the office? And he will say the price of oil.

So it's critically important for the health of the global economy and for the future of the global economy in terms of growth. It informs investment decisions. It informs so many strategic decisions that CEOs, policymakers, people make, even with energy transition.

Nathan Hunt: So let's talk about OPEC, OPEC+ for a moment. They keep cutting their production quotas and the Americans keep pumping more oil. Doesn't it feel a bit like this isn't working out the way they had originally planned it?

Andy Critchlow: It's a great question. And I think to answer this, we've got to go all the way back to 2010 and even before that 2008. In 2008, you had what was then a kind of slump in US oil production, probably the bottom of US oil production. This is pre-Permian, pre-shale. The US was pretty much written off as a global producer of any scale.

The idea of the U.S. exporting either oil or LNG was completely not on the cards. If you look at, say, LNG, for example, in gas, at that point, the US was looking to import significant volumes of LNG. You have countries like [indiscernible] investing heavily on building import facilities for their LNG on the East Coast of the US.

Those facilities now are being converted into export facilities, and they can't get enough export facilities and then that's now become really political with this ban on the construction of the new export facilities. The US is this gigantic player now in oil, 21.3 million barrels a day of production total liquids, the biggest producer now in the world, and such a turnaround.

We've gone from 2008 to now. That's like a 60% increase in total output that the US has experienced, pretty much unparalleled in actually the last 50, 60 years that we've seen this, and it's counterbalanced OPEC.

And it caused huge problems for OPEC after 2010, and you have this ramp-up that started with the development of shale and really interesting story actually. I was actually in Oman, and this was probably about 2007. And I went to one of their -- Oman is one of the oldest oil producers in the Middle East.

And so they have a lot of problems getting the oil out of the ground. They have to do a lot of technology, a lot of the enhanced oil recovery, and they were just starting to do this particular type of project called a well frac, right? And now everyone knows about fracking, right? Because that's the Permian. That's what's revolutionized US oil.

So I remember being shown around this well frac in a place called [indiscernible] on the border with Saudi Arabia by a guy from Halliburton, and I'm a young journalist and I'm interested to learn and the guy from Halliburton saying to me, "What we're doing here, it's going to revolutionize the world. It's going to change the world forever."

And I was like, "Really?" And I've often thought about this afterwards because I completely didn't believe and get the scale of actually what he was talking about because they were doing a well frac at and they essentially set up an explosion underground. It cracks the earth. They horizontally drill. It opens up more access to resources.

And what they were doing in Oman was a precursor to what was going to happen in the US. And now the 15 years down the line, US 21 million barrels per day plus of oil production now in OPEC, they've kind of gone a different route to increasing production.

So yes, the core Middle East producers in the Gulf, they're all trying to expand capacity. So you have Saudi Arabia, you've got the UAE. They've got a lot of money, they've got sovereign wealth funds, they've got the capital to invest.

But actually, outside that, you have all these peripheral OPEC nations, which they're kind of producing less than 1 million barrels a day. They're kind of -- their spit and sword is kind of producers scratching around for investment. A lot of them are in sub-Sahara and Africa. Their investment grades are not grades. So they struggle to attract capital, et cetera.

And so outside that core, Gulf group of producers, actually, production has been pretty stagnant, if not falling. If you look at countries like Nigeria, countries like Libya, a lot of political risk, et cetera. So what OPEC did to kind of counter what's happened in the US is said we've got to grow, we've got to find new allies. we've got to find new partners, and then they started talking to Russia about 2015.

And they started talking to some of these other countries that came on board after that. And so you now have what was the OPEC '10, it went to the OPEC '13. Now it's the OPEC '22. It was '23, and then Angola decided to leave.

So they've taken an opposite round to try and balance what's happened with the US because the great advantage the US has is capitalism, its liberal investment environment where the assets are not owned by a country. They're not owned by a political body.

If you've got the money, you've got the investment, you can get the license, you can drill and you can maximize the returns on your investment, and that's the great competitive advantage of the US energy industry still has.

So you have these two titans now competing against each other. And increasingly, we see volumes of US crude now being exported. Of course, we have WTI Midland, that key US grade of crude oil now that is reflected in the dated brand basket that is the S&P Global Commodity Insights, Platts data brand assessment. This is the key market for international oil trade, something like $1.2 trillion worth of derivatives use this market as a price benchmark. So incredibly important.

And you now have WTI Midland as part of that. That wouldn't have happened if you hadn't had this massive increase in US production. So it's an incredible story, and we're only at the start of it because there is a monumental battle for market share that is only starting to develop between these two huge forces in global oil politics and production.

Nathan Hunt: Help me understand because this is one of just my fundamental areas of confusion, the OPEC+ countries as they cut production, the US increase production, and so they're losing market share. So they're losing in a sense some of their influence over oil markets and oil prices. Why continue? Why continue with the cuts? Why not look into a different strategy? What am I missing that they are seeing?

Andy Critchlow: So the key driver to this is Saudi Arabia. And fundamentally, Saudi Arabia is driven by the economics of producing crude in Saudi compared to everywhere else in the world, which means that it can afford to suffer lower prices because it has lower production costs, producing crude onshore in Saudi gigantic fields. They have the goal field. The world's largest onshore oil field makes the vast majority of their production. It's very cost effective. It's $1, $4 a barrel depending on who you speak to, to produce oil in Saudi Arabia.

Their fiscal breakeven is somewhat higher because it's a high spend economy. They're developing gigantic real estate projects, NEA, huge amounts of investment. They need an oil price to balance their books in Saudi Arabia, in theory, around $80, $85 a barrel, maybe a little bit higher, but they have huge reserves, sovereign wealth funds, investment assets and so forth.

So they can weather the storm. And ultimately, they have these low production costs. So they can basically afford to buy market share, buy themselves into markets if things really get tough. The same is not really the case in the US.

And again, you've got to remember that so much US crude, the majority of the US oil products, crude, it's consumed within the US. World's largest economy, still world's largest consumer of hydrocarbons. It's kind of very close with China now, but still the world's largest. So it has this huge domestic market on its doorstep.

But because the industry in the U.S. is structured differently, because it's funded by shareholders, publicly listed companies. The profit and loss has a much bigger impact. So US production is very sensitive to weaker oil prices, and that's when we had the big crash in oil prices a few years ago, then it really started to hit the Permian. It really started to hit West Texas.

And that's because as well, a lot of that drilling was levered. It was debt financed. And then when you get financing costs going up, that's a problem, right? And that gets us to the next side of the story, which is kind of all the M&A that you signed to see in the US.

But the Saudis don't have that problem. The UAE, they don't have that problem. The problem that they have is this fiscal breakeven issues that we have these high spend economies. They're heavily dependent on oil exports. They're heavily dependent on hydrocarbons despite all these huge investments despite the great efforts over the last 30, 40 years to diversify their economy.

Saudi Arabia is still 60% dependent on crude exports for its foreign currency earnings. All of these countries that we're talking about, they peg their currencies to the US dollar. You take that peg away, then their currencies are just proxy for a rising and falling oil price, so incredibly volatile. So the US has disadvantage in that game.

Nathan Hunt: Before we get to the M&A situation among the oil majors, particularly in the U.S., I want to dig in a little bit more on OPEC+ because at the heart you have the Saudis and you have the Russians, right? This is sort of the two poles of OPEC+. Do you think at this point in time, their motivations are fundamentally aligned or misaligned?

Andy Critchlow: It's a very good question. And if you were to have spoken to me in 2015 about the longevity of this alliance with Russia, I would have said this will last months. I remember speaking at the time to the former Qatari Minister. I've all have been Mohammad Al Attiyah about this.

And the idea of expanding OPEC and actually bringing Russia into OPEC wasn't a new one. They talked about this in the '80s, and it was actually Kuwait had promoted the idea. And again, the motors are exactly the same. It's like we need to have a bigger market share, bringing our competitors in, it's more effective.

They could see at that time that actually Russia was losing the cold war and they were worried at the time that if you had an opened-pushing economy, you had more investment, the Russians would go gangbusters to produce more oil and that would squeeze their markets.

So we thought, well, let's bring them in, but it never happened. And there was always this distrust politically. So anyway, we want things forward, 2015. We have this declaration of cooperation, and it's sustained. And so you took OPEC from having about 30% of the global oil market now to having 45%, 46.7, 48% of the global oil market.

So having a big chunk of it, right? And it's all Russia. Are their political and economic futures aligned? Well, both heavily dependent on oil revenues, oil rents in every sense. A lot of the alliance with Russia was based on Russia's intrusion into the Middle East as well, which came out of the war in Syria. It came out of the destabilization of North Africa after the Arab Spring. You had the Wagner Group setting up military camps all over the region. You have Russia setting up a base for the first time since the Cold War in the Mediterranean, the Syrian Coast. And so the kind of oil strategy went with that. Now interestingly, it's not just about OPEC+, it's actually about the bricks.

Actually, the bricks look more like OPEC because remember, China not only is a big consumer of oil, it's a big producer as well. And so I think that their economic and political motives are becoming more aligned because they all see an interest in having a multipolar world. The bipolar world dominated by the US, dominated by Western sort of liberal capsulism maybe didn't work for them.

And we could get into a whole debate about the benefits of democracies versus autocracies, but actually having this multipolar world where they can have relationships with partners on a production level but also partners who are the major consumers of crude now, China, India, other countries in Asia, for example, is really beneficial, especially if those markets, you're competing for those markets with some of your partners like Russia.

So it's that multipolarity where they definitely see an advantage. They don't want to be tied to the US anymore, although it's really interesting when you look at the Red Sea because who's guaranteeing security of the Red Sea.

If the Biden administration certainly says, "Well, we want our aircraft carriers to sell back to the US. We're not going to fund this anymore." Is China going to step in? Is India going to step in? I find that hard to see at the moment.

Nathan Hunt: Let's talk about Russia some more. Talking about sort of the desire for multipolar world. On the other side of this, we have the NATO countries that attempted to create this balance, right? They wanted to starve Russia of oil revenues after the invasion of Ukraine. And yet they wanted to keep oil markets well supplied. And so they applied this price cap on Russian oil. Has this worked?

Andy Critchlow: No. It's the bottom line. That's definitely -- you can call the White House and they'll say the complete opposite. But the price cap has been not -- well, has it been enough to fail? No, it actually has worked because it depends what the objective was.

If the objective was to squeeze Russia, force Russia to the negotiating table, force them to withdraw from the territory that they've seized in Ukraine, then it's totally and utterly failed. If it was designed to crimp Russia's capacity to fight the war, to fund the war and not tank the oil market because remember what they really wanted to avoid here was a repeat of 1973.

And the oil shock of 1973, which led in the '74, changed the world, fundamentally. I mean, here, sat in the UK, I mean, this is the anniversary of what we call the Winter of Discontent, 1974. It was a -- this country was absolutely battered economically by the oil shock and it triggered mass inflation, master unemployment, interest rates had to go to 13.5%, really terrible.

So they've avoided that. So actually, it's been a tremendous success to sort of been able to tamp down on Russia's ability to export globally, although they still are, and they're using various means to do that, some nefarious some within the constraints of the sanction system.

But they haven't triggered this huge tanking of the global economy. If you look at gas markets in Europe now, we're now back down to like well below pre-Russian invasion of Ukraine, which is phenomenal when you consider that 60% of Europe's pipeline gas used to come from Russia.

And the speed at which supply was diversified, the speed at which policy acted has insulated Europe and made it far more energy secured. So you didn't have that catastrophic economic event, which I think we all feared back in 2022.

And of course, if you look at the oil price chart, if you look at [indiscernible], we can kind of spike up to $130 a barrel. I think it was in March after the invasion. The invasion was 24th of February, right?

So it succeeded in that sense, but it hasn't knocked out Russia's ability to export. And so Russia's still a major player. And what we've seen is Russian exports heading away from Europe. Russia was not only exporting gas into Europe. It was exporting it [indiscernible] into Europe. This was the bread-and-butter of all the European refineries. That's now shifted. That's going into Asia.

And it's really interesting what that's done to that relationship within OPEC because I thought this was going to really pull OPEC apart. You certainly have all these Russian supplies diverting into Asia, surpassing Saudi Arabia in key markets like India and China, and it hasn't caused as much friction internally as we thought.

Is that sustainable long term? I think that's the key question because a lot of this happened at a time of really rapid rebound in the oil market as we came out of lockdown, as we came out of COVID. That's all now washed out. And although we're still forecasting, I think, 1.6 million barrels a day of growth in the oil market this year, we're seeing it slowing after that.

So in 2025, for example, that figure drops down to 1.1 million. You just had the IEA come out with our forecast they knocked I think, almost 20,000 barrels a day of their near-term forecast for 2024. So they're lower at about 1.2 million for 2024. So as the oil market demand picture starts to tighten, then we'll see whether this relationship in OPEC sustains.

Nathan Hunt: I suppose it's a lesson almost in unintended consequences that the price cap on Russian oil could be considered a donation in kind to the Modi reelection campaign because obviously, Russian oil, cheap Russian oil flowed into the Indian economy and the Indian economy for a variety of reasons has experienced this period of tremendous growth.

Andy Critchlow: Absolutely. I mean it's -- in many respects, the price cap has been the greatest gift to that economics. India's incredibly hydrocarbons intensive and being able to get more volumes of cheaper Russian oil, incredibly valuable. And I think it's a really good point to make because we're heading into a year of elections, right? Two billion people are going to go to the polls this year.

Oil and everything that we're just talking about here, that's going to be a key thing in driving it all the way through to November and we get into the U.S. elections because we all know, very difficult to get elected in the U.S. if gasoline prices are at a certain level, right?

Nathan Hunt: All right. Let's talk about the IEA. Their latest projection says peak oil demand globally coming in 2030, peak oil demand in the U.S. and Europe much sooner, but 2030 globally. Do you agree or disagree? And what might happen to shift that data around?

Andy Critchlow: It's already happened. The news that shift that data has already happened, and that news Volkswagen, turning off some of their production lines in Germany to produce EVs and converting them back to produce internal combustion engine vehicles. And you're seeing this now all the rush, the major power lifters in the world of automotive manufacturer, the Fords, the Volkswagens, they're all now converting their production lines back to producing internal combustion engine vehicles.

And what's promoting that? Well, actually, if you look at the policy situation, in the U.K., we had a government here that had committed to a ban on the sale of ICE vehicles from 2030. That can has been kicked down the road to 2035. And coming back to the election story, which is global this year, certainly, in the U.K., if it's an example, a lot of the green policies that the incumbent government here had previously used as flagship policies have been rolled back on, and the ICE vehicle ban is just one of them.

If governments aren't going to ban the sale of these vehicles, then car manufacturers are definitely going to keep producing them and selling them, especially when you consider the economics now on producing EVs and access to rare earths, access to copper, access to battery metals, it's expensive. So I think it's already happened, the news that is starting to undermine the credibility of those sort of forecasts. So I think that we're going to see more of that this year.

And interestingly, with the U.K. election, which might come around the same time as the U.S. one, the labor party, which is very much tipped in the poles to take over government, their flagship green policy, GBP 28 billion worth of incentives for green investment, that's all been moved back. Completely done away with almost. The narrative has definitely shifted. And if we see more policy changes away from a more rapid energy transition, then I think that those outlooks for peak oil are going to have to be revised.

Nathan Hunt: I keep thinking about peak oil when I read about the M&A activity with the oil majors, particularly big players in the Permian region in Texas. Occidental is buying again. Always fun to see them in the market. Chevron gobbled up Hess. Do you think the consolidation we're seeing is related to these peak energy -- or sorry, peak oil scenarios? Or is there something else driving this?

Andy Critchlow: I think there's something else driving it and actually emerged last year at CERAWeek in the S&P Global event. The 2024 CERAWeek coming up next month. Big theme last year at CERAWeek and they were all there, all the U.S. CEO, Chevron, Exxon, Oxy, Vicki Hollub, they're all there. The key theme was investment, where is the investment coming for new projects? Not just internally in the U.S. but externally.

Because although you have the IEA and you have different forecasters saying, well, peak oil is only on the horizon, we still need to produce another 10 million barrels a day to get to that peak oil period on top of what we're producing. Where is that going to come from? And there was a lot of concern. Especially in producers outside the kind of core OPEC producers, producers outside the U.S., in places like Africa really struggle to get investment.

They've got the resources, but again, it's a higher risk environment for capital to be deployed. So this key theme was where is the investment going to come from to produce this new oil? Well, if you can't get the investment -- and remember, if you're in the U.S., you have a large amount of resource on your doorstep in the Permian, in Texas, elsewhere, the incentive to go out and go and do deals in the Middle East, where it's tricky, right, because you're never going to own the resources, you're only going to be renting those resources off a national government and you have to pay them a fee and that fee is basically all your profit. Do you want to do that? No.

Do you want to go and try and talk to -- well, that's off the table now, and will be off the table, I think, for the long foreseeable future. And look what happened to previous companies that have done that. BP was left, hasn't ended well. Do you want to go into some of these emerging markets like Guyana and Brazil and some of the sub-Saharan African new basins that are being developed potentially, but high risk?

Or do you want to go and talk to our bankers and let's get a deal together and let's go and buy Hess, let's go and buy Diamond back, let's go and buy some of the other companies that are out there available and going to buy that production going forward? And then you can deploy all the things that actually no one does better than U.S. international oil companies, which is economy of scale.

Because actually, if you look at the foot of the Permian, I talk to people all the time in the industry in the U.S., and they compare Permian drilling actually to farming because it is all about the number of holes you drill in the ground, and it's about the amount of fluid you put into those holes. It's about the amount of technology you can deploy. It's about the logistics. And if you can do that all at scale across the vast area, then you're going to make more money and you're going to raise production ultimate.

That's actually been the response to the U.S. industry, which I find fascinating. And I think we'll see more of it going forward. Because as long as we still have that sense that there is a growing oil market, which there is, beyond 2035 and 2040, however, things start to get more challenging, perhaps, but that's a long time away at present.

Nathan Hunt: Have we seen the last of the big acquisitions for a while in the oil sector? Or do you think there's more to come?

Andy Critchlow: Well, there has been so many classic books written on this, the history of the oil industry, obviously, our own, Daniel Yergin. The price, a large part of that is devoted to the amalgamation of international oil companies and the creation of the modern oil industries we see it today in these titans like Chevron, like Conoco, like ExxonMobil, BP, Shell. Before the pride people talked about a book called the 7 sisters because it was about Shell, Standard Oil, these titans of the oil industry, which dominated everything.

And of course, regulators broke that up to a certain degree. We haven't had a mega merger in the oil industry now for quite some time. But if you go back, Shell bought BG Group in the U.K. for something like $36 billion. You have BP in the U.S. buying Amoco. Again, multibillion-dollar deal, transformative for the oil industry.

Of course, BP itself has been a company that has been under a lot of scrutiny over the last couple of years, some of it internal because of management issues that they faced. Some of it operational because of situations that are out of their control, like what's happened in Russia and their investment in Rosneft. There's a lot of logic behind another big deal happening in the oil industry, and that's basically -- I explained the rationale for that.

Because if you don't -- if the investment environment in all these countries that own the assets is so risky and so high risk, what are you going to do with the capital because all the companies are still generating huge profits? You're going to go out and buy it somehow. But again, a major M&A deal that would involve 2 of the major international oil companies like a BP or a Shell or Total or an ENI or an Exxon or so forth, the issue is always to do with regulation and the regulators and is it too big to contemplate.

So I think that certainly, a lot of bankers would love such a deal to happen. M&A generates a lot of fees, generates a lot of buzz in the city, certainly here in London. But whether it would happen it's difficult to see it with the regulators and all the different moving parts.

Nathan Hunt: So the U.S. majors have M&A. Venezuela seems to be taking a slightly different approach to mergers and acquisitions. What do you make of their ambitions in Guyana?

Andy Critchlow: A very good question. Is it entirely motivated by Guyana being this new hot bed for oil investment? I'm not so sure because Venezuela itself, if you look at the stats, if you look at the EIA stats in the U.S., tracking global reserves, Venezuela still has the largest proven oil reserves in the world. Most of them held under the Orinoco Basin.

Yes, it's heavy oil, a lot of it hard to extract. Certainly, the oil majors would love to go in there and have the chance to do it, but in the current political environment, never would. The risks are far too high to fund that, to get the investment, et cetera. But do I think that they're doing this to just acquire more oil assets? I question that because Venezuela has more oil than he knows what to do with already. And so I think that that's a reach.

Although in the Machiavellian world of global oil politics, we've seen this before, right? Because Saddam Hussein invaded Kuwait, a big part of that story in 1990 was the five disputed fields in what is now known as the Neutral Zone, an area called Raudhatain on the border between the struggles 3 countries, Kuwait, Saudi Arabia and Iraq. So we've seen that before. Saddam seized Kuwait because he wanted the oil.

And then when he was being pushed out, he set fire to all the oil wells. So if I can't have it, you can't have it. Again, the Iran-Iraq war in the 1980s, most of that war was fought over literally in oil fields, on the border. Khorramshahr, this huge slaughterhouse battle, which defined the war, that was also a massive oil field as well. And the disputes between those 2 nations over shared fields will certainly be a factor in the future.

You look at gas in the Persian Gulf, cater shares, territory rights over the world's largest offshore gas field, the North Field with Iran. In Iran, they call the North Field South Pars. Again, another potential area of huge friction, and it has been an area of friction. And we've seen it on a smaller scale with countries that are now very much allies like the UAE and Saudi Arabia, where they have definitely locked on over these resources. And it all comes back to fiscal breakevens. It all comes back to how dependent these economies. Venezuela, especially are on the hydrocarbons, the resources that they can sell.

Nathan Hunt: So speaking of the Machiavellian geopolitics of world oil markets, the attacks by the Houthi rebels in the Red Sea, generally, the understanding is that they are supported by the Iranians, certainly would not be taking these actions without at least the tacit support of Iran.

I find it hard to believe that Iran is motivated strictly by religion and what is happening in Gaza right now, but maybe I'm wrong. Is there a play here that is more Machiavellian that relates to, say, the price of oil?

Andy Critchlow: Some of it has to do with internal politics in Iran. You have an election coming up there in Iran. The supreme leader Khamenei's not getting any younger. Certainly, in his mid-90s now. We've had -- I won't say regime change, but we've had definitely aging leaders in the Middle East. They die and they get replaced.

There's a great deal of uncertainty of what comes after Khamenei in Iran and whether you get a more hard line regime that is just a further reflection on the very Islamasized country, which is, again, hasn't really shifted a great deal from 1979 and the revolution.

And there's a Harvard professor who has this theory on revolutions. I think his name is William Bullitt and the revolutions that promulgated by young men and the young men get old. And their zeal and their enthusiasm for political change diminishes and it's not followed because the political cocktail that created that has gone. And in a way, this -- you can see elements of that now in Iran. The young men that created the revolution, they've either died or they've been killed. Soleimani is a great example of that, right?

So what comes after? What do the Gen Z of Iran wants? Do they want another Islamic Revolution 2.0? Do they want just permanent war with the U.S. and its allies? I question that. And so you have this huge internal tension now that is in Iran and we've seen reports around this, whether it's demonstrations on the streets of Tehran, whether it's some of the economic situation that Iran faces itself in with inflation.

And you don't have to gaze very far across the Persian Gulf to the huge success story that you've seen in places like Dubai. And for young Iranians, they see that as that's the life that they want, and they're not being allowed to have that. So having this political turmoil in the region, having this proxy war that is ongoing in Yemen, in the Red Sea, having this proxy war that is actually ongoing in Gaza at the moment, does it serve the purposes of hardline elements in Iran to sustain the regime? To sustain that cause to keep fighting? I think it does.

So I think that there is definitely more to this than just supporting proxy allies in the region against a different political system, against the U.S., an enemy that you've seen that you've opposed historically. Very interesting how Iran leading up to this was trying to build bridges with Saudi Arabia, was trying to restore diplomatic relations, trying to create a bridge.

Was that the U.S. behind that? Certainly, in Iran, they could see the trajectory, the Abraham accords and the success that have been created by that, bringing together Israel and the UAE specifically. I was in the UAE recently in November. One of the things that really struck me then was how many Israelis we're in the UAE? How many Israeli businesses were quite obviously in the UAE? Tourists coming to Dubai. You've never seen that before, ever. And I've lived there for 11 years as a reporter.

So there was a real piece benefit that was being felt in the UAE, and I think that, that was being reflected in the wider region. It's very interesting now what you're seeing reported around some of the negotiations and some of the proposals from the Biden administration to can we do just grand pack, two state solution, deal with Saudi Arabia, that brings together Israel and Saudi. Saudi's defense guarantees, defense sales. Israel gets a partnership with the most powerful Arab nation in the Middle East, Saudi Arabia and Iran gets further ostracized. It's very interesting.

Nathan Hunt: Well, Andy, there's obviously so much more that we could get into, but we'll have to leave it there for today. Next time, I'll definitely get to my questions about Nigeria, which I was looking forward to, but we don't have time today. Thank you so much for joining me today.

Andy Critchlow: A pleasure, Nathan. Always a pleasure. Great to talk to you.

Nathan Hunt: The essential podcast is produced by Patrick Marone. At S&P Global, we accelerate progress in the world by providing intelligence that is essential for companies, governments and individuals to make decisions with conviction. From the majestic heights of 55 Water Street in Manhattan, I am Nathan Hunt. Thank you for listening.

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