There’s a reason why energy analysts see the conflict in the Middle East as “the greatest global energy security threat in history,” as Fatih Birol, the head of the International Energy Agency, told the Financial Times. Not only has Iran blockaded the Strait of Hormuz, through which a fifth of the world’s crude and natural gas normally passes every day, but it has also, along with Israel, damaged some regional energy infrastructure, reducing production. The price of Brent crude, the main benchmark for oil, is up by three-fourths this year alone. And as always, poorer countries are already suffering the most, with Pakistan asking its universities to go remote and Laos reducing school days from five to three.

How bad could the energy crisis get? What scenarios should countries prepare for, and what kinds of longer-term shifts should we expect once the war ends? On the latest episode of FP Live, I spoke with Jason Bordoff, the founding director of the Center on Global Energy Policy at Columbia University. Bordoff served in the Obama administration as a senior director on energy and climate change in the National Security Council. Subscribers can watch the full discussion on the video box atop this page or download the free FP Live podcast. What follows here is a lightly edited transcript.

There’s a reason why energy analysts see the conflict in the Middle East as “the greatest global energy security threat in history,” as Fatih Birol, the head of the International Energy Agency, told the Financial Times. Not only has Iran blockaded the Strait of Hormuz, through which a fifth of the world’s crude and natural gas normally passes every day, but it has also, along with Israel, damaged some regional energy infrastructure, reducing production. The price of Brent crude, the main benchmark for oil, is up by three-fourths this year alone. And as always, poorer countries are already suffering the most, with Pakistan asking its universities to go remote and Laos reducing school days from five to three.

How bad could the energy crisis get? What scenarios should countries prepare for, and what kinds of longer-term shifts should we expect once the war ends? On the latest episode of FP Live, I spoke with Jason Bordoff, the founding director of the Center on Global Energy Policy at Columbia University. Bordoff served in the Obama administration as a senior director on energy and climate change in the National Security Council. Subscribers can watch the full discussion on the video box atop this page or download the free FP Live podcast. What follows here is a lightly edited transcript.

Ravi Agrawal: Iran has effectively shut down the Strait of Hormuz. Why is this one passageway so important for energy?

Jason Bordoff: It’s by far the most critical chokepoint for global energy flows: 20 percent of the world’s oil and 20 percent of the world’s liquefied natural gas (LNG) goes through it. That’s not the full amount that’s been disrupted because we have figured out some workarounds, but still, there’s no real workaround or policy intervention that can cope with the loss of 20 percent of the world’s supply.

So this is, both in total volumes and as a percent of global consumption, the largest disruption in energy supply we have ever seen.

RA: And of course, a lot of the ships, for example, that were carrying crude out of the Strait of Hormuz before the war began are just reaching their destinations in Asia. And so we haven’t even seen the full effects of the ships currently stuck there and not reaching their destinations.

JB: That’s right. As we’re talking, Brent is about $107 a barrel. That’s not that high. Closing the Strait of Hormuz, war in the Middle East, missiles flying across Gulf oil-producing countries has been the mother of all nightmare scenarios that energy security policy wonks like myself have planned around for decades. And these are the scenarios with $200 oil prices.

So it is quite striking that oil is only at this level. There are a couple of reasons for that. One is that, at a certain point, the physical reality of the market catches up to the traded price of oil, which also reflects investor expectations. Right now, traders don’t quite know what to do with this situation. And second, the president of the United States has been pretty effective at so-called verbal intervention, commenting that this is going to wrap up any second now just before the market opens. And then people want to hedge their bets. The truth is, if this comes to a resolution, there has yet to be significant physical damage to most of the energy infrastructure in the region. So it’ll take some weeks or even a couple months, but supplies can come back. And before this started, the oil market was oversupplied. So prices could come down again.

But there’s only so long you can keep the Strait of Hormuz closed before the physical reality of the lost oil supply catches up. There’s nothing to replace those flows. And in some of the product markets—jet fuel, heating oil—you’re starting to see prices quite a bit higher than would be suggested by the current traded price of crude.

RA: You mentioned attacks on energy infrastructure. How damaging have those been so far?

JB: Israel’s strike on the South Pars natural gas field was the most significant instance of damaged infrastructure in........

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