Energy Security Is Shifting From Just-in-Time to Just-in-Case

The disruption around the Strait of Hormuz has not produced the oil-price spike many expected. Fatih Birol put oil at roughly $85 a barrel and identified several buffers that have held prices there: inventories accumulated before the conflict; a historic 400 million-barrel release by the International Energy Agency; alternative export routes developed by Saudi Arabia and the United Arab Emirates; and higher production from the United States, Brazil, and Kazakhstan.

The IEA release alone was equivalent to 2.5 million barrels per day entering the market, Birol said. But the mechanisms that have limited the immediate shock are finite. Stocks are being depleted. Countries that have already raised output cannot necessarily add much more in the short term. Saudi and Emirati pipelines can bypass Hormuz, but they cannot replace the full volume normally transported through the strait.

The cushioning is real, but uneven

Meghan O'Sullivan added another, less obvious source of resilience: China reduced its demand for oil traded on global markets by almost 4 million barrels per day. It stopped buying oil for its strategic stocks, imposed export controls on refined products, and made domestic policy changes that reduced demand. Those actions helped the market accommodate the disruption, O’Sullivan said, but they are not a dependable substitute for supply in a future crisis.

The United States has also weathered the shock differently from many import-dependent economies. O’Sullivan cited a Dallas Federal Reserve exercise asking what a disruption equal to 15% of global oil supply would have meant in 1980, in the aftermath of the Iranian revolution. The model estimated a 5.6% decline in U.S. GDP then; under current conditions, she said, the effect would be less than half a percent.

Part of the difference is that the U.S. economy is less oil-intensive than it was. But the country’s position in the market has also changed. The United States is a major producer and, during the disruption, became the world’s largest exporter of oil and natural gas. When globally priced fuel becomes more expensive, American consumers still pay more, but a substantial share of the resulting transfer goes to American producers rather than foreign suppliers.

That is not how the same price is experienced everywhere. Birol stressed that $85 oil can be acutely destabilizing in Africa and developing Asia, including countries such as Bangladesh and Pakistan. An oil price that looks manageable from an economy with domestic production, reserves, and fiscal capacity can create serious political and economic pressure for countries with limited ability to absorb it.

Resilience is now being repriced

Five years ago, Birol said, the global system had two principal energy arteries: pipelines running from western Siberia to Europe, and oil and gas flowing from the Middle East through Hormuz to Asia and the rest of the world. Both have now been disrupted. Governments are reconsidering suppliers, trade routes, technologies, and partnerships in response.

The old calculation favored the cheapest available supplier and efficient delivery. The emerging calculation gives greater weight to political reliability, spare capacity, inventories, alternate routes, and the ability to keep supplying energy when a crisis interrupts the normal market.

Birol’s shorthand for the shift was a move away from “just in time” energy systems toward “just in case” systems. In a lower-trust environment, countries pay in advance for redundancy: more storage, more infrastructure, more suppliers, and more contractual or political assurance that fuel will arrive when it is needed. That makes energy more expensive, he said, because resilience is not free.

O’Sullivan expects the strategic value of Hormuz itself to diminish over time, though not immediately. Gulf countries are already considering ways to move more exports through routes that do not pass through the strait. Within a year or two, she suggested, more energy resources may leave the Gulf through alternative channels. That would reduce, rather than eliminate, the leverage that a single maritime chokepoint provides.

Countries outside the main chokepoints could become more attractive suppliers as a result. O’Sullivan pointed to Latin American oil producers, including Guyana, which can present themselves as less exposed to Hormuz and similar routes. She also argued that security concerns will strengthen the incentive to electrify economies and produce more energy domestically where possible.

That does not create a uniform climate outcome. Electrification powered by renewables or nuclear can support lower-emissions energy systems; electrification supplied by coal can move in the opposite direction. The common security logic is not decarbonization as such, but reducing dependence on imported fuels, vulnerable routes, and distant suppliers.

O’Sullivan also raised the possibility that China could become a form of “swing consumer.” Saudi Arabia’s influence has rested not simply on its oil production, but on its capacity to raise output quickly when markets are disrupted. China’s sharp reduction in demand helped the world absorb the recent loss of supply. If it can reduce purchases at scale in future shocks, O’Sullivan asked, that could create a geopolitical role analogous to that of a traditional swing producer.

Electricity—not energy in the abstract—is becoming the binding requirement for industrial capacity and AI. Daniel Poneman placed the Hormuz disruption alongside a surge in power demand, particularly from data centers. U.S. data centers require roughly 25 gigawatts of electricity today, he said, and could require 70 to 80 gigawatts by 2030.

That increase represents the output of multiple very large generating plants. Poneman’s answer was not that existing fuels can be discarded. The system will still need oil and gas, he said; coal remains in use, and some coal closures have been halted to support rising demand. But he argued that nuclear power must play a much larger role if countries want to reduce their exposure to hydrocarbon geography and disruptions at routes such as Hormuz.

Nuclear fission can contribute in the nearer term, Poneman argued, while fusion offers a larger potential change over the longer term. Fission’s strategic appeal is that it can make power supply less dependent on the location of oil and gas basins and less exposed to maritime interdiction.

Fatih Birol made the same point through the scale of the demand shock. A medium-sized data center, he said, can consume as much electricity as a town with 100,000 households, and facilities now being built are often much larger. In his view, the AI race will favor countries able to provide large quantities of cheap electricity.

For the preceding 15 years, electricity demand in the United States and Europe had been flat, Birol said. It is now rising sharply, with AI as the main driver. The question is not only whether countries can build new power plants, but whether they can deliver their output to homes, factories, and data centers.

Constraint one: generation cannot outrun the grid

O’Sullivan pressed the central timing problem: data-center demand is arriving now, while small modular reactors remain several years away. Poneman agreed that nuclear deployment is not moving fast enough. But the timing problem extends beyond nuclear. Natural-gas plants that could once be built in 18 months can now take five, six, or seven years, he said, as demand and infrastructure requirements have risen.

Poneman contrasted China’s construction record with that of the United States: 37 nuclear plants built in China over the past decade, against three in the United States over 30 years. He pointed to regulatory reform, four executive orders on nuclear power, and a $17.5 billion Department of Energy financing mechanism for large reactors as evidence that the United States is trying to accelerate deployment.

One executive-order target called for three reactors to go critical by the Fourth of July marking the country’s 250th anniversary. Poneman said the target was met despite skepticism that it could be done. His argument was not that emergency mobilization solves the structural problem, but that the United States has shown it can move faster than its recent record suggests.

The grid remains the less discussed bottleneck. Birol contrasted China’s grid-development timeline of roughly two years, including permitting and construction, with an average of eight years in the United States and Europe.

New generation does not meet new demand if transmission cannot deliver it. A country can approve reactors, gas plants, solar projects, or wind facilities and still fail to supply the loads driving demand growth.

Poneman did not suggest that the United States or Europe could simply reproduce China’s system for siting and building infrastructure. If major transmission projects require eight to 10 years or more, he argued, countries should also consider locating generation nearer to demand. Distributed sources could include geothermal, nuclear, and other localized generation. In Africa, he suggested, countries need not replicate the hub-and-spoke grids developed in Europe and the United States if generation can be brought closer to populations and industrial demand.

Constraint two: nuclear exports require state-backed competition

A nuclear power program creates a long relationship with its supplier: Poneman described roughly 10 years of planning, 10 years of construction, 60 years of operation, and another decade of decommissioning. The choice of vendor therefore determines more than equipment. It helps determine whose financing, training, safety standards, fuel arrangements, and nonproliferation rules shape the program.

Russia and China, Poneman said, are highly active across Africa, while the United States is less present than it should be. He argued that Washington should engage countries early, rather than treating cooperation as something available only after prospective partners have accepted a fixed set of American conditions. Competition is already active among France, Russia, South Korea, China, and others, and prospective buyers have alternatives.

Finance is central to that competition. Poneman called for greater use of the Export-Import Bank and the Development Finance Corporation, arguing that competitor states have long treated nuclear exports as a strategic instrument and backed them accordingly. He cited a Russian overseas nuclear order book of $200 billion, compared with a U.S. order book that fell to zero after Westinghouse completed projects in China before Canadian projects raised it to $7.7 billion.

Constraint three: reactors need an independent fuel cycle

Uranium may be found in many places, Poneman said, but converting it into usable reactor fuel is a chokepoint. He said the United States had held 85% of the global enrichment market when he began work in the first Bush administration, but that its share had dropped to 25% by the time he became deputy secretary of energy. Domestic enrichment production had fallen to zero, while Russia held 46% of the market.

Congress and the administration have begun responding, he said, through legislation supporting domestic enrichment, $2.7 billion in deployed funding, and a requirement that the United States move away from Russian supply by 2028. Europe is pursuing similar efforts. But a nuclear strategy without fuel capacity, export finance, and trained institutions remains incomplete.

Taiwan illustrates how these constraints meet a security problem. Asked about preparation for a possible maritime quarantine or blockade, Poneman said Taiwan’s reconsideration of nuclear power was at least part of the answer. Nuclear generation, in his view, offers power less dependent on fuel flows that China could interrupt.

Fatih Birol argued that critical minerals are too often treated as a narrow issue for electric vehicles, solar panels, and wind turbines. They are inputs across the economy: for defense, AI, cars, chip-related technologies, manufacturing, and clean-energy equipment.

The security issue is not only access to mines. It is access to processing and refining. Birol used oil as the analogy: crude oil has little practical value until it is refined into gasoline, diesel, LPG, or other products. The same is true of mineral deposits. A country can extract lithium, copper, cobalt, rare earths, or other materials, but without refining capacity it does not necessarily have usable industrial supply.

For Birol, that degree of concentration is a larger emerging risk than a single maritime chokepoint. “If we have one Hormuz,” he said, the critical-minerals system could create “three Hormuz” problems. The concern is not the identity of the dominant country, he stressed, but the scale of the dependency. No country should have so much influence over materials used throughout the global economy.

He cited China’s export restrictions on rare earth elements as an example of the effect that processing dominance can have on manufacturers. He also pointed to the loss of helium supplies from Qatar, which he said had accounted for 35% of global helium supply, and to Chinese restrictions on helium exports. Helium matters in medicine, chips, and other advanced technologies. The broader point was that constrained supply chains can be affected by multiple disruptions at once.

Meghan O'Sullivan described Chinese leverage over critical minerals as actual rather than hypothetical. China’s export controls, she said, put sufficient pressure on the United States that they became the principal reason the administration backed away from some trade measures. Energy security now extends beyond oil and gas to a connected industrial system: fuels, mineral inputs, grids, transmission, technology, manufacturing, and markets.

The United States has important resources within that system, O’Sullivan said, but cannot secure all of it alone. She pointed to the Western Hemisphere as a region containing much of what would be needed to construct a more secure energy and manufacturing system. Investment in Latin American partners could help build corridors linking mineral production, processing, manufacturing, and end markets.

The obstacle is time and policy consistency. Critical-mineral projects require investment horizons of 20 years or more. O’Sullivan credited efforts such as capitalizing the Development Finance Corporation and encouraging development of partners’ mineral resources. But uncertainty over trade policy, tariffs, Section 232 measures, and the future of USMCA can make long-duration investment harder to finance. Firms and partner governments cannot readily commit to durable supply chains if market access remains uncertain.

Birol’s argument was that the gap with China cannot be closed through market forces alone, and that no country can close it by itself. He estimated an eight-year difference between China and the rest of the world in critical-mineral capacity. The response, in his view, requires coordinated action among countries including the United States, Canada, France, Japan, and other partners.

A just-in-case energy system is capital-intensive. It requires reserves, refining plants, alternative export routes, stronger grids, fuel supply, long-duration contracts, and institutions that can sustain them. The countries most vulnerable to volatile prices and disrupted supply are often least able to finance those protections. Energy security is therefore a development question as well as a strategic one.

Zainab Usman framed the issue from the perspective of low- and middle-income countries in Asia, Africa, and Latin America. Their objective is not simply to avoid shocks; it is to secure enough reliable energy to industrialize, raise incomes, and become high-income economies. Yet many have faced restrictions on financing for nuclear, hydro, coal, and other technologies, followed by uncertainty over whether political transitions in the United States or Europe will reopen or close those options.

Birol responded that $85 oil may not look equally severe in every economy, but it can be extraordinarily costly for developing countries. He focused particularly on sub-Saharan Africa, where he identified two urgent problems: inadequate electricity access and dependence on traditional cooking fuels.

One in two people in sub-Saharan Africa lacks electricity, Birol said. Four out of five families cook with wood, agricultural waste, or animal waste. Because women disproportionately prepare food, he said, the respiratory burden falls heavily on them. Citing the World Health Organization, Birol said 800,000 women in sub-Saharan Africa die prematurely each year from respiratory diseases associated with those practices.

The contrast between Africa’s resource potential and its current energy access was central to Birol’s argument. Africa receives 60% of the world’s solar radiation, he said, yet Belgium generates more solar electricity than all of sub-Saharan Africa. Africa has more than 20% of the global population but receives only 2% of global energy investment.

Birol argued for concessional funding and against broad restrictions on technologies or fuels available to African countries. In particular, he opposed denying support for natural-gas development in Africa. The question, in his view, is not whether lower-income countries should reproduce the energy systems of wealthy economies. It is whether they can obtain finance and technology reliable enough to address electricity access, clean cooking, and industrial development.

Daniel Poneman made a parallel point about nuclear power in African countries such as Ghana, Rwanda, and Kenya. Before a reactor project, he said, countries need trained workers and safety regulators. Improving finance matters, and he cited the World Bank’s removal of its longstanding taboo on nuclear finance as an important change. But the first priority is institutional capacity to operate and regulate nuclear power safely.

The divide is not simply between countries with and without energy resources. It is between countries that can finance redundancy, processing, grid systems, fuel supply, and long-term infrastructure, and countries that remain exposed when prices rise or geopolitics interrupts supply. For wealthy importers, just-in-case energy planning is a strategic choice. For countries without dependable electricity or clean cooking fuel, it is also a question of development and public health.