How China Is Quietly Winning the Iran War Energy Crisis

KUALA LUMPUR, 13 AUGUST 2026 —

This transcript was generated using AI and may contain errors. PATTERSON: The Iran war, which began on February 28th, shows absolutely no sign of ending soon. MALLABY: What have we learned since then? What should we expect the spillovers to be for energy markets, financial markets, shipping, and the world economy? MALLABY: So, Rebecca, we first discussed Iran on The Spillover quite a while back.

I think it was March the 4th, just a few days into the war, and it’s still going on. Five months in, it’s still going on. And, you know, there was this moment of hope in mid-June when there was a memorandum of understanding that was supposed to be the first step towards a peace deal. Didn’t happen, and we have no idea now how the fighting is going to end. PATTERSON: Yeah, that’s right.

Unfortunately, you know, hopes have definitely dimmed since the June memorandum. I think people thought it might lead us to a quick end of the war, but now here we are in August and energy prices are rising again. A barrel of Brent crude oil, the global benchmark, is getting close to $90 again as of August 11th.

And, you know, you compare that to around $70 a barrel we saw in early July when analysts, believe it or not, right then were saying we were on the precipice of a global oil supply glut. So, lots of whiplash back and forth on this. And then, of course, retail gasoline prices in the United States are staying above $4 a gallon, up from $3 or so when the conflict started.

And gasoline is, you know, one of those American products where everyone uses it. You know, the vast majority of us living here have our cars, some families, multiple cars. And for whatever reason, $4 a gallon is this psychological line in the sand. Anything above that, and you quickly hear about it in consumer sentiment surveys and in opinion polls, which obviously right now matter a lot going into the midterm.

I think, though, Sebastian, what has really struck me as this war has gone on and on and on is how the financial market reaction function has changed. You know, the strait has generally remained closed. We’ve had a few periods where more ships got through, but generally speaking, we’ve seen this, you know, the strait closure continue.

And yeah, energy prices are rising again, but the magnitude of the market swings has definitely decreased over the course of the war. The VIX index, which I know you know this, it’s just a measure of expected equity volatility in the short term. It spiked in March when the war started, and now it’s back basically to levels that we saw before the war began.

Brent, similarly, Brent crude spiked to nearly around $120 a barrel in March, hit about $126 at the end of April. But since then, I think as investors have processed all the ways that people are mitigating this crisis, both on the demand side and the supply side, prices have come down. So we keep having these periods of escalation, de-escalation.

The financial markets definitely welcome the de-escalation moments, but the escalation moments so far could change, aren’t getting as big a reaction as they were at the beginning. So I have to think there’s an assumption that people just assume both Iran and the U.S. need an end to the war, want an end to the war. It’ll happen sooner rather than later.

And in the meantime, we’ve learned how to mitigate at least some of the risks. I am not as sanguine as the market, but I understand the logic. And I lost my earpiece. Here we go.

MALLABY: So the question is, you’re very calm in the face of losing your earpiece, but why are the markets calm in the face of, you know, what is actually a renewed war with a lot of the uncertainty, the stop start, the is there a ceasefire, isn’t there, you know, escalation, de-escalation, blockade, et cetera.

I mean, we’re kind of back to where we were almost just in, if you look at the geopolitics of it, and in fact, you can see this, the geopolitical risk index created by two Federal Reserve researchers shows that the level of, this is kind of based on news mentions, but the level of geopolitical turmoil is not quite up to where it was in the first three months of the war, but it’s, it’s pretty high.

So it’s, it’s almost, it’s almost there. But as you say, you know, the VIX is way calmer. So there’s, there’s been this divergence between the geopolitical risk index and the VIX on the other hand, and you can sort of dramatize that by comparing a couple of different days. There was this point in early March when the war escalated and sure enough, the Dow Jones is down 2%.

But then you look at it today, more recently, like July 13, when President Trump announced he was reinstating the naval blockade on Iran. That was enough to make the oil price, the Brent oil price jumped by 9.5%, but the Dow hardly moved. It was down like 0.3%. You know, so you look at this and say, are equity investors just inured to the war? You know, are they desensitized?

Are they tuning it out? Are they high on AI? I mean, what’s going on, right? MALLABY: Yeah. High on AI is actually a good explanation for most stuff which is happening in the moment. It’s true.

But look, I think that the issue is, you know, is this a temporary calm and, you know, in a month’s time or something, we’ll be talking about the renewed volatility or is it something about the way that the markets have watched the, the world process these shocks and has learned something about the ability of the global system to absorb… (AI-assisted rewrite, based on the original source)

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