The energy shock imposed on the global economy this year has been substantial. But many experts expected crude prices to go even higher than they have so far. After all, the shuttering of the Strait of Hormuz blocked off a fifth of the world’s oil and natural gas from reaching its destinations. So, what happened?

I put that question to Daniel Yergin, the foremost energy guru and historian. Yergin is the author of The Prize, which won the 1992 Pulitzer for general nonfiction, and the vice chairman of S&P Global. He also organizes CERAWeek, the energy industry’s premier annual event.

The energy shock imposed on the global economy this year has been substantial. But many experts expected crude prices to go even higher than they have so far. After all, the shuttering of the Strait of Hormuz blocked off a fifth of the world’s oil and natural gas from reaching its destinations. So, what happened?

I put that question to Daniel Yergin, the foremost energy guru and historian. Yergin is the author of The Prize, which won the 1992 Pulitzer for general nonfiction, and the vice chairman of S&P Global. He also organizes CERAWeek, the energy industry’s premier annual event.

According to Yergin, Saudi and Emirati pipelines were able to bypass the strait to get some of their oil on the market. But the biggest surprise came from China, which was not only able to suppress internal demand but also drew on what is widely believed to be the world’s biggest reservoir of crude reserves. Has Beijing become the world’s main shock absorber for energy? What will that mean for the future of the trade of energy and related commodities?

I spoke with Yergin on the latest episode of FP Live. 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 condensed and lightly edited transcript.

Ravi Agrawal: The expert community has been saying that the Iran war is a seismic event for the energy markets. The head of the International Energy Agency says it’s the biggest crisis ever. Let’s just start there. Why is this such a big deal?

Daniel Yergin: The Middle East is so central. Twenty percent of the world’s oil and liquefied natural gas (LNG) flows through the Strait of Hormuz. And it turns out it’s not just an energy crisis—it also involves helium, fertilizer, the products that will not be made because of the crisis, and agriculture. So, this is a seismic event not only for world energy, but for the world economy.

RA: But I have to say, Dan, as we’ve been covering this story, it strikes me that things could have been much worse, right? Crude prices peaked around $120 a barrel. Even in the last week, they touched $100, but then they came down quickly. And these are not historic highs for the energy market. The sky hasn’t fallen exactly. So at least in terms of crude prices, why has this crisis not been as bad as many analysts were predicting a few months ago?

DY: You’re right. The oil hit roughly $120 a barrel in 2008, and if you adjust for inflation, that’s a higher price. But that wasn’t really based upon any disruption. Obviously, what you’re looking at here is the number one maritime choke point in the world economy: the Strait of Hormuz.

Why it hasn’t been worse is because the disruption has not been quite on the scale that people thought it would be a month or two ago, when they were talking about $150 or $200 a barrel as inventories got drained. Some supplies did get through. The Saudis built a pipeline system in the 1980s in response to the “tanker wars,” so they could move about half their supplies out. The United Arab Emirates has a pipeline that can move half of its supplies out. There are government-controlled stocks—in the United States, it’s called the Strategic Petroleum Reserve. Some oil was released from there.

Two other factors stand out. One is the dramatic change in the position of the United States as an........

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