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Leslie Chats with Erica Downs on China's Energy Strategy, Iran, and Competing Energy Narratives
71 Plays10 days ago
Has the Iran war validated China’s decades-long approach to energy security?
In this episode of Energy Vista, Leslie Palti-Guzman sits down with Erica Downs, Senior Research Scholar at Columbia University’s Center on Global Energy Policy, following her recent trip to China.
Together, they explore how Beijing weathered the Iran war, why China proved more resilient than many expected, and what this means for global energy markets and the intensifying competition between Chinese and American energy models.
The conversation examines:
• Whether China’s reduced LNG and crude purchases helped stabilize global energy markets
• China’s balancing act between Iran and the United States
• Whether de-dollarization remains more narrative than reality
• Whether the Iran war could revive Russia’s Power of Siberia 2 pipeline
• The growing competition between the United States and China to power the AI economy
A wide-ranging discussion about energy security, geopolitics, maritime trade, and two competing narratives of energy power
🎧 Listen to the episode on YouTube, Apple Podcasts, and Spotify.
📰 Subscribe to Leslie Palti-Guzman’s analysis on energy geopolitics and global gas markets:
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Transcript
Introduction to Energy Vista Podcast
00:00:10
lpaltiguzman
Welcome to Energy Vista, a podcast on energy issues where we make experts great again and contribute actively to the public debate and po policymaking around commodities, the geopolitics of energy and trade. I'm your host, Leslie Pelti-Guzman. It's July 10, 2026.
00:00:29
lpaltiguzman
and time for a new Energy Vista episode.
Guest Introduction: Erica Downs
00:00:32
lpaltiguzman
Today my guest is Erica Downs, a so senior research scholar at the Center for Global Energy Studies at Columbia University, SIPA, and focusing on energy markets, Chinese energy markets and geopolitics. Erika has more than 20 years of experience working in the public and nonprofit sectors. And we actually briefly overlapped at Eurasia Group and have continued to cross paths at energy and Asia policy conferences events over the years.
00:01:05
lpaltiguzman
And Erika has just returned from China, so I couldn't think about a better time to get her perspective and expertise on Chinese energy policy, China's role on the geopolitical energy chessboard.
China's Energy Strategy During the Iran War
00:01:19
lpaltiguzman
And actually, while the Iran war remains unresolved, um I'm very curious to to hear from Erika. So hi, Erika.
00:01:29
Erica Downs
Hi, Leslie. Great to see you. Thanks so much for having me.
00:01:33
lpaltiguzman
Thank you so much for coming to the Energy Vista podcast. So let's dive right into the topic of the day. So China had long standing strategy of diversification, all the above energy, and it seems that it had been it has been vindicated during the Iran war.
00:01:54
lpaltiguzman
So what I mean is that you know we've seen that in know China has put a lot of efforts in domestic energy production, reducing its dependence on one single exporter or maritime route, building strategic storage, diversifying imports. So do you feel that this strategy has paid off? And more specifically, how did the Chinese economy fare during the war? Because we heard a lot you know in Europe, in Southeast Asia, in the US, prices of electricity, gasoline prices. like
00:02:29
lpaltiguzman
How did the Chinese consumers or industries experience this price volatility?
China's Energy Mix: Coal and Renewables
00:02:36
Erica Downs
So happy to make a few comments on those issues. I 100% agree with you that the conflict in the Middle East and China's weathering of it absolutely vindicates pretty much everything they've done to enhance their energy security for over 20 years. This includes the building you know ah and and filling of strategic and commercial oil reserves, constructing cross-border pipelines to deliver oil and natural gas from Central Asia and Russia to China, and then a strong emphasis on diversification, diversification of energy suppliers, diversification of import routes,
00:03:27
Erica Downs
And of course, there's also been the push to electrify everything, especially road transport.
00:03:27
lpaltiguzman
Mm-hmm.
00:03:37
Erica Downs
And the big bet that Beijing made on EVs, it has certainly paid off in that China has been able to avoid future oil demand growth and therefore imports.
00:03:53
Erica Downs
by the increasing penetration of EVs in China's vehicle fleet. And of course, because
00:04:01
lpaltiguzman
and And between parenthesis, like those EVs are powered by what kind of electricity? Coal?
00:04:09
Erica Downs
I think it depends. i I would say it's a mix that there is coal involved, but also renewables.
00:04:19
lpaltiguzman
So it's domestic coal and domestic renewable.
00:04:22
Erica Downs
Yes, I would say that it's largely powered by domestic energy sources, both fossil and non-fossil.
00:04:29
lpaltiguzman
Yeah. Okay. So at home, how did did they feel the war or they didn't really feel the war?
Impact of Iran War on Chinese Industries
00:04:39
Erica Downs
So i think the war has been felt, but differently by different parts of the Chinese economy. For example, if we talk about natural gas, There are some industries in China that are highly dependent on gas because of the heat content. So if you're a ceramics producer in China or a glass producer in China and you don't have you know the flexibility to so to switch to other fuels, then the higher prices for for gas are certainly going to you know hit you harder than you know perhaps you know a a a power plant in Guangdong province that
00:05:19
Erica Downs
you know if it needs um you know and If it needs fuel for peak demand, you can switch from you know um coal from natural gas back to coal.
00:05:30
Erica Downs
And in terms of one of the most interesting things for me has been you know what's been going on in the oil space.
00:05:30
lpaltiguzman
Thank you.
00:05:37
Erica Downs
um We did see at the start of the war, you know China sort of adjust its oil prices downward. So There wasn't a complete pass through of what the refiners were paying on the international market.
00:05:53
Erica Downs
But Chinese consumers also showed a lot of flexibility. ah There's data out there that indicates that EV charging, EV use went up during the war. And that makes sense, right? That if you ah you know have if you're a Chinese household and you have an ICE vehicle and an ev you know, why not? And prices at the pump are, you know, high enough that it's not something you want to pay, you know, why not? Why not use your EV ah during the May, you know, holiday week at the beginning of the month, you know, there were there was an increase in in EV rentals. You had a lot of Chinese ah citizens riding on the high speed rail network, which is something that China you know also has been building out for many years and ah and allowed it to avoid oil demand growth. So overall, in China you know has been pretty resilient in the face of this crisis.
China's Motivations in Global Energy Markets
00:06:48
lpaltiguzman
And should Europe, Southeast Asian countries say thank you to China because in a way China helps stabilize the global energy market? And more importantly, was it intentional?
00:06:59
lpaltiguzman
So like if I'm thinking about LNG imports, for example, was it intentional that China didn't pull, you know, cargoes of LNG g and as a result, you know, left them available to the markets that needed needed it the most?
00:07:03
Erica Downs
Yeah.
00:07:16
lpaltiguzman
or it was just because demand was weak actually, or they had other alternatives and it was not intentional.
00:07:23
Erica Downs
I would say a mix, and if it depends on what energy product we're talking about. So, you know, for and and all of this is driven by China's energy, you know, supply security.
00:07:36
Erica Downs
And I'll start with refined oil products. One of the first things that China did after the start of the war was to, you know, urge refineries to cut back on the export of refined products, diesel, gasoline, jet fuel, to ensure domestic fuel supply. So this was a move driven, you know, first and foremost by China's energy security concerns.
00:08:00
Erica Downs
And it's consistent with China's past practice in that, you know, how much, you know, of any given oil product they they export, you know, largely depends on what's going on in the domestic market.
00:08:11
Erica Downs
However, so while energy security was the the most important driver here, it wasn't the only driver. And I say that because there was never e complete ban on oil product exports. You know, we didn't see them go down to zero. And there are two other factors that explain that. One, of course, is, you know, China's refineries and the big so state-owned refineries wanting to export ah products so they could you know cash in on the the higher margins.
00:08:40
Erica Downs
But there was also a bit of what I would call you know good neighbor diplomacy involved in that China did continue to export to countries, especially in in Asia, where they were really feeling the pain of these shortages.
00:08:40
lpaltiguzman
Mm-hmm.
00:08:57
Erica Downs
you know In the case of Australia, we did see you know some lobbying to make sure that Australia would you know continue to get the the jet fuel that it had imported in large quantities.
00:09:08
Erica Downs
So with refined oil products, there's a mix of motives. When I think looking at LNG and looking at crude oil, again, I think this was really ah driven, you know, primarily by the, you know, importers, you know, preferences that there was you know, that they simply decided that they would, you know, prefer to buy less than, um you know, to sort of pay higher prices to source alternate supplies, especially ones that, you know, wouldn't necessarily be a perfect substitute for the, you know, the crudes they get from the Middle East. And so to the extent that we saw China you know, not buying oil, you know, not buying um as much LNG and therefore making these supplies, you know, available to other other consumers. You know, i don't see this being driven by altruism, although I'm sure, you know, China is sort of happy to to take the credit, um you know, to be able to ensure enhanced domestic, you know, energy supply security, you know, while at the same time, you know, painting, um you know, these efforts, this, you know,
00:10:19
Erica Downs
these purchases that China was not making of of crude oil and LNG is something that you know China was doing to you know support the global energy markets and to make supplies you know available to you know consumers that found themselves in you know perhaps a more difficult situation.
00:10:40
lpaltiguzman
Yeah. So in a scenario where we are going to have those on and off disruptions around the strata formals and continuous cycle of violence, um eventually there might be some greater competition, do you think, between China and the other importers?
00:10:58
Erica Downs
I think there, well, let me back up for a minute. One of China's you know greatest tools that it's recently started to deploy in managing the supply disruptions through Hormuz has been you know its vast oil inventories. At the start of the war, China had about 1.4 billion barrels of oil in storage. And i calculated that that oil, now that volume of oil would you know provide China with you know about eight months of oil import coverage from the Middle East at the 2025 level.
00:11:40
Erica Downs
you know So if you know China got zero barrels from the Middle East you know for this whole period of time, they could just continue to draw down supplies from their oil inventories.
00:11:40
lpaltiguzman
Okay.
00:11:52
Erica Downs
Now, I don't think China wants to get down to zero. And it's also worth pointing out that China's china's oil imports from the region you know never fell to zero. i mean, if you look at you know Kuwait and in in Iraq and you know countries that only the only way of exporting you know was through the Strait of Hormuz, China's imports from those countries obviously have really plummeted, but you know from from Saudi Arabia and the UAE, which you know have non-Hormuz ways of exporting, you know and of course, Iran was letting its crude oil flow.
00:12:25
Erica Downs
uninterrupted until you know until the U.S. blockade. I think that
00:12:30
lpaltiguzman
So but China right now is going to be focused on refilling its storage, which could create some competitions with other importers.
00:12:42
Erica Downs
think it's fair to say that. On the the refill issue, i think China is going to certainly be looking at oil prices to see You know, are they at a level where, ah you know, they think it makes sense to refill?
00:12:55
Erica Downs
But again, China has the luxury of time that they have, you know, as I mentioned before, you know,
00:12:59
lpaltiguzman
right.
00:13:03
Erica Downs
vast quantities of oil in storage, and they can afford to wait until you know prices you know the price is right for them, essentially. And so I expect they will do that.
00:13:11
lpaltiguzman
yeah
00:13:12
Erica Downs
And I a also expect that you know they'll want to stay under the radar you know to the extent that they can when it comes from refilling, because they don't want you know people to say, oh, China's refilling and having you know and have that put upward pressure on oil low prices and sort of you know defeat their their plan to buy when and supplies are, when prices are lower.
00:13:37
lpaltiguzman
So in May, President Trump and President Xi Jinping, they met in Beijing.
US-China-Iran Diplomatic Dynamics
00:13:43
Erica Downs
Mm-hmm.
00:13:43
lpaltiguzman
I'm very curious to them, what did they really discuss regarding the Iran war? Because so China has been the largest importer of sanctioned Iranian crude, but at the same time, Beijing doesn't want
00:13:53
Erica Downs
Mm-hmm.
00:13:59
lpaltiguzman
ah nuclear Iran. Also, they are favoring an open and free Strait of Hormuz. And at the same time, also, we know that China has helped Iran with some sharing of intelligence, also some kind of dual use technology and really you know gives a certain military support to Iran.
00:14:10
Erica Downs
Mm-hmm.
00:14:22
lpaltiguzman
So many contradictions in a way in Beijing's objectives with Iran. How do you read it and how does it impact also the future um access of China to Iranian oil and gas?
00:14:37
Erica Downs
So China has been trying to balance its relationships with the United States and with Iran. ah The relationship with the United States is clearly the more important one. But, you know, that doesn't mean that China is going to sort of completely disregard, um you know, its its ties to Iran. I mean, you're absolutely right. China does not want Iran to acquire nuclear weapon. It wants to see the free flow of you know commerce through the Strait of Hormuz.
00:15:12
Erica Downs
And we have seen, China's willing to play ah you know a role in the background. It's willing to be a facilitator, a promoter, a champion of negotiations between the United States and um you know and Iran.
00:15:31
Erica Downs
I'm not sure I see China doing much more than that. But, you know, and if you look at the original, then the run up to the the initial date for the Trump-Xi summit, which you know I think was March 31st to April 2nd, I do recall hearing that ah China's sort of efforts in in the background to encourage Iran to negotiate with the United States, you know, did go over. well with Trump.
00:16:02
Erica Downs
And then fast forwarding to when the summit actually, you know, did occur. um We know that the Iran conflict, you know, came up.
00:16:14
Erica Downs
I feel like the, you know, the most detailed comments that came, you know, from from the U.S. side, that after Trump boarded, you know, Air Force One to return to the United States, he talked about you know, encouraging how he said to Xi that, you know, that China should should buy more U.S. oil to reduce its dependence on the Strait of Hormuz. I think there were reports that this is something China expressed interest in. Of course, you know, expressing interest is cost-free. But, you know, I think that Trump went in sort of clearly, um you know, sort of wanting some help from China. i don't think it was the only goal, but um you know it's it's not surprising that you know the you know basically what we got from from China on this issue is wanting, yes, they want to resolve the war. you know Yes, they want the free flow of of commerce through the Strait of Hormuz, but they're limited in you know in in what they're going to do.
00:17:20
Erica Downs
um And you know i wasn't expecting them to you know, sign any new energy contracts or agree to any new deals with, you know, with with the United States at this summit.
00:17:34
Erica Downs
You know, perhaps that will, you know, happen happen down the road is when this, you know, board of trade gets, they've been talking about gets gets fleshed out. But, you know, at the end of the day, yes, China is hurt by the war. It wants it to end. But, you know, it's it's not their war.
00:17:50
lpaltiguzman
Yeah. So it's, in a way, Beijing is very happy to have the US strategically occupied and kind of depleting some of its resources, being busy with Iran in a way.
00:18:03
Erica Downs
mean, I guess that, and think it's fair to say that that is a benefit for China, ah but I do, and ah you know obviously in general, you know I think you can make the case that you know if the US is distracted by some other issues, some other part of the world, you know maybe it gives China some breathing breathing room, but you know I do think this is a conflict that they would like to see end sooner rather than than than later.
00:18:32
lpaltiguzman
And actually, so in 2023, China brokered normalization deal between Saudi Arabia and Iran. And so China was probably already concerned about the stability in the region, the access to the Strait of Hormuz.
00:18:49
lpaltiguzman
But also, i think Saudi arab Arabia is the main supplier for oil to China. Correct?
00:18:57
Erica Downs
Yes. So if you look at what Russia is the top
00:18:58
lpaltiguzman
Yes.
00:19:00
Erica Downs
russias the the tough
00:19:00
lpaltiguzman
So i mean there are there are different interests for China to have this kind of stability ongoing and um promoting de-escalation in the region.
00:19:10
Erica Downs
Yes. And so on on the import issue, Russia's actually, you know, was China's and still is China's largest, you know, oil supplier. Saudi Arabia has, you know, was number two, you know, for 2025 and certainly at the beginning of this year.
00:19:25
Erica Downs
And Saudi is China's largest supplier in the Middle East. Looking back at the 2023, you know, ah Israel, Saudi Arabia discussions, I think that's sort of a great example of the type of role that you know China likes to play in some of these you know peace negotiations in the United States.
00:19:45
lpaltiguzman
and You're on Saudi arab Arabia. yeah you Yes, yes.
00:19:49
Erica Downs
Sorry, yes. Yeah, sorry, my mistake. Iran, Saudi Arabia. and My understanding is that um a lot of the heavy lifting had initially been done by Oman,
00:20:04
Erica Downs
Iraq played a role. And so China stepped in really at the the last moment when you know a lot of the heavy heavy lifting had already been done. And you know they were able to you know present this and present themselves as a a peace broker, as a source of stability in in the region. But they didn't have to do anything, or they apparently did not have to do anything that you know sort of jeopardize their relationship with either Saudi Arabia or Iran.
00:20:39
lpaltiguzman
I mean, it seems to me that China is not ready to play a like um a big role on the global stage in terms of being the policeman of the world and you know ah happily leaving the US, being this kind of step like trying to stabilize security energy security globally.
00:21:01
Erica Downs
Yeah, I think there is a reluctance to be a global policeman on the part of China. There was not any interest and still is not any interest in you know using um its you know its military power to open the strait. I think ah even though China does have a military base you know sort of in the region in in Djibouti, but For China, you know, i think they've made clear from the start that this isn't something they they wanted to do. i don't know if you recall sort of earlier in the conflict, you know, there were calls from people in the U.S. administration for, you know, for China to open the strait, you know, and and and that was was never going to happen.
00:21:49
Erica Downs
I don't think it's it's something that China is. It's, you know, for my earlier comment, you know, it's not something that China wants to do. They don't want to be the policeman. They don't want to be responsible for. global energy security in that way. But also, let's look at who, you know, who who initially closed the strait. It's Iran. And Iran, you know, up until the U.S. blockade, was willing to allow, um you know, its tankers to flow through uninterrupted. You know, China's the buyer of last resort for Iranian crudes. And so, you know, China, even after the war started, China was still getting, you know, its its usual volumes of supply from Iran. And of course, you know, in you know recent weeks, as Iran has been, you know, sort of lulling over, um you know, imposing a fee for ah ships passing through the strait, it did make a comment about how, you know, these were going to differ depending on, you know, how friendly, you know, a a country was to ah to Iran. So in that sense, you know, China, you know, if Iran does do this, you know, you know, China would presumably, you know, be one of the countries that, you know, is not paying so much for, you know, tankers of of of energy destined for China.
00:23:06
lpaltiguzman
I mean, that's very interesting because this is like one of my scenario where we could end up with two competing parallel shipping systems inside the Strait of Hormuz where you know We have on one hand, the Iran approved routes with a tool or friendly tools to its allies.
00:23:25
lpaltiguzman
um So it would de facto become kind of an exclusive route with geostrategic interests.
00:23:30
Erica Downs
Okay.
00:23:33
lpaltiguzman
And you know you can have Russia, Iran, China, all using that route. And then like a more Western affiliated, US s approved, protected routes with you know through the Omani passage And it would end up kind of what we had for a while in the Red Sea where, um you know, the Houthi accommodated their allies. And we know there were backdoors agreements,
00:24:00
lpaltiguzman
and you know, between the Houthi and non-Western allies, and namely, again, China, Russia, Iran. um So those actors were able to use without any concern for their security at that shipping lane.
Geopolitical Shifts in Shipping and Energy Markets
00:24:15
Erica Downs
Yeah, no, um i think that's a great example. If we look back at you know what was going on the Red Sea, ah you know especially in 2024, there were calls you know from you know people in the United States for China to use its influence over Iran to get Iran to restrain the Houthis, you know, from from making these attacks.
00:24:38
Erica Downs
And that's not something that we saw. You know, instead, we saw China, and I think Russia might have done this too, basically, you know, brokering, you know, sort of an arrangement with the Houthis so that they could, you know, sail through unscathed. um And there were, you know, Chinese, you know, ships at one point, i think, you know, maybe military vessels, um but like,
00:25:02
Erica Downs
I'm not 100% sure on that, but the barter point is that you did have Chinese, because China had this, you know, basically safe passage through the Red Sea, you know, there were actors in China that, you know, decided that they wanted to capitalize on that. And there, you know, I was able to sort of find ads on the internet where they were saying, if you want to sail, you know, safely through, you know, the Red Sea with a Chinese escort, you know, sign up here.
00:25:26
Erica Downs
ah So, you know, that's an interesting, you know, sort of example. as well. And then looking at your point about sort of, you know, moving towards like a dual shipping system um through the Strait of Hormuz made me think about, you know different ways we' we're so we we're seeing global energy markets bifurcate, you know, especially since ah the start of the war in Ukraine, right? Like we have two different
00:26:00
Erica Downs
ah you know, shipping systems, if you will, right, there's the dark fleet, and then there's, you know, the not dark fleet, and the sanctions that the United States, you know, has put on Iran and Russia, then of course, you know, there are EU and, ah you know, UK sanctions on Russia as well.
00:26:06
lpaltiguzman
Yeah.
00:26:20
Erica Downs
You know, this has really, you know, shifted energy flows, you know, especially from you know, from Russia, you know, from, you know, West to to East.
00:26:32
Erica Downs
And so, you know, that's another bifurcation that is you know is is taking place.
00:26:36
lpaltiguzman
Right.
00:26:38
lpaltiguzman
Well, in a way, um you know, what happened in Venezuela and what could happen in Iran, if we see a lifting of sanctions you on those both countries, there may have been, there will be as as an end result, less dark vessels, dark fleets and dark cargoes.
00:26:56
Erica Downs
Yeah, and it has some interesting implications for China because ah the main buyers of sanctioned crude in China are are the smaller independent refineries known as teapots. you know Teapots operate on thin margins. They're always looking for a bargain. They're highly opportunistic crude importers.
00:27:21
Erica Downs
And the sanctions that we know that we're on venezuein on Russian, on Iranian crude, ah you know, sort of facilitated, you know, discounts on these crudes because a lot of people that would have bought them in the absence of sanctions didn't want to touch them. And even within China, the big national oil companies didn't want to touch them. You know, so if we see, you know, we move to a world where, you know, there are no sanctions on, you know, Iranian, you know, Russian, you know, Venezuelan,
00:27:54
Erica Downs
um crude, then you know if those three suppliers you know are no longer um you know seller under sanctions, then what happens to you know these these teapot refineries? um you know And does this actually sort of facilitate Beijing's you know longstanding plans to you know consolidate the country's refining sector in these large integrated you know refining petrochemical plants along the Chinese coast?
00:28:25
lpaltiguzman
And, you know, coming back to the U.S. blockade, did it put pressure as potentially anticipated on China and altered China's, you know, behavior in some ways related to the war?
00:28:28
Erica Downs
Mm-hmm.
00:28:41
lpaltiguzman
Or as you mentioned earlier, you know, China has the luxury of time didn't work to apply any pressure on China to do anything about applying its own pressure on Iran.
00:28:44
Erica Downs
Mm-hmm. Mm-hmm.
00:28:57
Erica Downs
think what we've seen from China is, you know, sort of great flexibility, right? So I would say they have, you know, in response to this question, I'd say they have the luxury of time, but they also have the luxury of flexibility, right?
00:29:12
Erica Downs
That they were, you know, instead of, you know, scrambling to buy oil at whatever the price, you know, from other suppliers to make sure that they, you know, had the same volumes of crude flowing to China, um as before the war, you know, ditto for, um you know, LNG.
00:29:12
lpaltiguzman
you
00:29:31
Erica Downs
Instead, we just saw, you know, for example, in in in the crude oil space, we've just seen China um import a lot less crude. um And I think they the de-stocking also had stopped at in May.
00:29:43
Erica Downs
Like in April, it looks like they put about half a million barrels per day into storage. But, you know, looking at the data that's available for May, it looks like they drew down, you know, from their inventories by about um you know, 500,000 barrels per day.
00:29:54
lpaltiguzman
Yeah.
00:29:56
Erica Downs
But they, you know, so they had the s SPR flexibility, you know, had they had the electrification of, you know, of transport so people could drive their EVs, they could ride on high-speed rail.
00:30:07
Erica Downs
And so, you know, we just saw China, you know, being able to make do for, you know, with with with less. And so, you know, in that sense, this the crisis really hasn't been the disaster that many people certainly outside of China and you know inside of China might have expected on February 28th, given that you know up until that point, China was buying about you know half of its crude oil and you know almost a third of its LNG from producers in the Middle East with you know the bulk of that transiting hormones.
00:30:38
lpaltiguzman
Yeah. there has been a lot of discussion about the data polarization. um And, you know, this kind of, for me, I think this narrative is a little bit overstated.
00:30:53
lpaltiguzman
that debt But there is this idea that if the US is no longer a security guarantee for the Gulf countries and especially with Saudi Arabia and that the you know this arrangement historical arrangement that um we were pricing oil on US dollars because of the security arrangement between the US and Saudi Arabia and if the petrol dollar system is weakened,
00:30:59
Erica Downs
Mm-hmm.
00:31:07
Erica Downs
Mm-hmm.
00:31:11
Erica Downs
Mm-hmm.
00:31:20
lpaltiguzman
Does that um ah reinforce you know put potential show yen settlements for all transactions? And we know you know China had worked on that before, um but do you think it's gaining more traction?
00:31:36
lpaltiguzman
And like for me, there are still no alternative to the US in terms of credible alternative to the US in terms of security guarantor in the region.
00:31:41
Erica Downs
Mm-hmm. Mm-hmm.
00:31:48
lpaltiguzman
um And also, I think that, I don't know if the data is like you know up to date, but I think the Chinese yen only accounts for 3% of global foreign exchange reserves right now. So how do you see this debate on the de-dollarization, especially for energy transactions?
00:32:07
Erica Downs
So I would agree with you that, you know, if we, you know, look at at the world right now, like you said, that if you look at global trade settlement, you know, Chinese currency is, you know, just accounts for, ah you know, a few percent. There is no, you know, sort of market as, you know, sort of large and and and liquid, you know, as that of the United States. And so that makes, you know, settling, you know, for Gulf producers and elsewhere, settling in in dollars attractive. you know There's also something sort of known as the network effect. So the more our currency is used, the more people want to use it. That works in the dollar's favor. you know And of course, with China, you know they have a you know it's a fairly tightly controlled capital account. So if you're a producer in you know in the Gulf or somewhere else, you can't necessarily count on being able to you know
00:33:03
Erica Downs
ah pull out your money when you want to do that. So I think there are a lot of of factors that, you know, that, you know, explain why, you know, the dollar is the dominant currency for energy trade settlement, you know, and, you know, will continue to be for some time.
The Role of the US Dollar in Global Energy
00:33:20
Erica Downs
You know, that being said, China does want to, you know, gradually, you know, it promote the greater international use of its currency for trade settlements.
00:33:33
Erica Downs
I'd say it's probably had its greatest you know success ah with with sanctioned suppliers, you know especially Russia, that you know after the Russian invasion of Ukraine, you know we did see China-Russia energy trade settlements shift you know away from dollars and euros to Chinese and Russian currency.
00:33:59
Erica Downs
And I suspect that's probably you know, mostly Chinese currency, you know, so, but I don't see that as a near-term threat to ah the, you know, the role of the dollar um as, you know, the currency that, you know, is most widely used for trade settlement.
00:34:05
lpaltiguzman
Thank you.
00:34:21
Erica Downs
You know, however, I think sort of the space is sort of definitely worth watching over the longer term because, excuse me, U.S. sanctions and arguably the overuse of U.S.
00:34:31
Erica Downs
sanctions, you know, which I think, you know, is an argument that lots of countries around the world would make, um you know, does make, you know, settlements in currencies other than the U.S.
00:34:42
Erica Downs
dollar um ah attractive. And I think countries will work, you know, well, you know, that, you know, some the countries will, you know, want to take steps to, you know, sort of reduce their, you know, their their vulnerability, know.
00:34:57
Erica Downs
But you know, I guess bottom line is right now, you know, the China's currency, you know, doesn't pose a threat to the ah dominant role of the U.S. dollar for energy trade settlement, but certainly worth worth watching over the longer term.
00:35:16
lpaltiguzman
And it's not just you. And I mean, it can be crypto and especially like for shadow financial networks. Yeah. um
00:35:24
Erica Downs
And one thing, ah sorry, was going to say one thing that I was,
00:35:25
lpaltiguzman
Go ahead.
00:35:27
Erica Downs
I've been interested in is, um you know, when when Xi Jinping went to Saudi Arabia in December 2022, I think he made some comments about, you know, settling, you know, energy trade in China's currency.
00:35:43
Erica Downs
And, you know, in addition to the reasons i I gave before for why, you know, this isn't happening right now, um you know I think for a lot of the producers in the Gulf, if you're Saudi Arabia, there might be some concerns, for example, about you know saying, okay, China, you can you know you can you know settle in in in the renminbi because then does that sort of create a domino effect where you know you have other major buyers you know wanting to you know settle trade with with Saudi Arabia um you know or other suppliers in their their own currency?
00:36:16
Erica Downs
But you know China has been playing a really big role, excuse me, losing my voice, um
00:36:23
Erica Downs
in the development of and renewable energy technologies in Saudi Arabia. and So that sort of raises the question of, okay, if you know if if we have you know buyers in Saudi that are using, um you know that that need to pay China for um you know solar components, for example, um you know, and and, you know, does that sort of, you know, sort of create a situation when there might be a willingness to, um you know, settle some trade, you know, a small portion of trade, you know, in in China's currency, because that, you know, makes China happy. And then, you know, they do have, you know, and, you know, since they are importing stuff from China, um you know, especially for their, you know, their clean, you know, clean tech build out, you know, again, I don't see that as, you know, as anything that's going to,
00:37:11
Erica Downs
ah you know, results anytime soon and in, you know, Saudi Arabia deciding, okay, you know, well, you know, we want to, you know, we're happy to have China, to you know, pay for its oil imports and in Renminbi, but it's sort of one of these changes at the margins that, you know, is worth watching.
00:37:24
lpaltiguzman
Yeah.
00:37:26
Erica Downs
Mm-hmm.
00:37:28
lpaltiguzman
So another way to hedge also is you know pipelines versus seaborne commodities. And do you think this war is going to give back another impulse and a boost behind the power of Siberia too?
00:37:47
lpaltiguzman
This is a project we've discussed for many years. And, you know, I think it's always more for strategic and geopolitical reasons rather than commercial and economic drivers.
00:37:59
lpaltiguzman
What's your take on the latest for this pipeline?
00:38:01
Erica Downs
Yeah, always happy to talk about um power of Siberia too. I mean, I think the conflict in the Middle East makes pipeline more attractive.
00:38:12
Erica Downs
I don't know at this point if it's made it um attractive enough that um Beijing is going to give it the green light, you know, but certainly looking at this from Russia's perspective, um you know, the Middle East war, it you know, was a gift in that it sort of created the best, you know, sort of international context that Russia has had in years for, you know, making its case to to China that, this pipeline, you know, is something that they should go ahead with, that it will enhance China's energy supply security because it's over land, it doesn't change it. And, you know, that's, you know, what, what, you know, Putin, um that was the message, you know you know, that, you know, Russia was prepared to deliver when Putin met with Xi, you know, the week after ah Trump had been in Beijing to, to meet with xi But I think that um one of the issues here is that, sorry, that's going off. um
00:39:14
Erica Downs
I turned off my phone, but not my watch. But I think that, sort you know, but I think one of, you know, so, so you know, the the the context for, you know, for Russia being able to sell power of Seviery, you know, was, you know, arguably better than ever.
00:39:28
Erica Downs
But, you know, i think that for China, you know, one of the lessons that they're, you know, taking away from this conflict, it's actually not really a lesson. It's sort of like, you know, sort of another vindication um is that, you know, do they really want to be dependent on ah external sources of energy,
Future of Pipeline Projects
00:39:49
Erica Downs
you know, and.
00:39:49
lpaltiguzman
and I think that if they were to import um gas from the Siberia pipeline too, plus what they have currently from Russia plus LNG, their dependence share on gas imports from Russia will reach like something like 40%.
00:39:53
Erica Downs
Mm
00:39:57
Erica Downs
hmm.
00:40:00
Erica Downs
Mm hmm.
00:40:08
Erica Downs
Yeah, and it was already 30% in 2025, if you look at pipeline gas and LNG combined. And then, of course, as you know, 10 BCM Far Eastern route pipeline you know is scheduled to come online next year.
00:40:26
Erica Downs
ah We did see you know Putin, or China and Russia um you know within the last year agree to increase deliveries through power of Siberia One. um you know So you have you know a number of you know so extra gas coming through there. you know And so you know to your point, um you know I agree with you. I mean, I think for China, um you know they don't want to become too dependent on any one supplier. Yes, you know, Russia, you know, right now probably looks more attractive than, you know, Qatar um as a, you know, a gas supplier, again, because it's overland um or, um you know, even you know, the LNG cargoes that Russia sends to to China, um you know, you know, through the Northern Sea Route, for example, when it's open, those obviously aren't passing through the Strait of Hormuz, but
00:41:19
Erica Downs
um you know I'm not sure that we're at a point yet where China feels that the benefits of getting 55 BCM through power of Siberia to outweigh the risks of becoming too dependent on any one supplier. and Then I will also add you know from from the Russia side of things, i mean I also think for China that in order for them to you know green light power of Siberia,
00:41:47
Erica Downs
you know, they would have to get conditions that I'm not sure Russia would agree to, right? That I think they want a price that's even lower than what they're paying for ah gas from power of Siberia one. And I think they'd want a lot of flexibility in terms of how much gas, you know, they're obligated to take at any one time, you know? And so I think that, you know, when I try to think of like what would make China a green light power of Siberia two, you know, it would be a really low place price and it would basically be able to use
00:42:17
Erica Downs
um the power of Siberia to, you know, pipeline as as a hedge, as a backup supply that, you know, if if there's, um you know, a disruption, you know, of of other gas supplies to China, then they can, you know, ramp it up or demand increases in China.
00:42:30
lpaltiguzman
Right. Give them even more optionality.
00:42:32
Erica Downs
they
00:42:34
lpaltiguzman
Yeah.
00:42:34
Erica Downs
Yeah, but I'm not sure I see the Russians agreeing to that. um So, you know, I don't want to say I'm 100% certain it's not going to go forward.
00:42:37
lpaltiguzman
Right.
00:42:42
Erica Downs
But I think, it's probably more likely not to happen than it is to happen, um you know, for it for the reasons I've just said.
00:42:49
lpaltiguzman
Yeah. Yeah. And of course, these days we cannot not talk about AI and data centers. So it seems that China has many advantages when it comes to power its AI economy compared to the US. So it's a centralized planned economy, state owned companies, one long term direction.
00:43:13
lpaltiguzman
So that helps to when it comes to build transmission lines, pipelines, large scale infrastructure. And there is no social backlash, as far as I know, regarding data centers in China.
00:43:27
lpaltiguzman
So where do you you feel like, um what do you think of about this competition between the US and China in terms of powering data centers and AI? Like, is there a race and is China winning?
00:43:43
Erica Downs
So i would add to you know some of the issues that you just mentioned, you know another advantage that China has over the ah United States is really sort of this all of the above approach to um you know its electricity mix, whereas you know in the United States, you know certainly under you know, the current Trump administration, you know, there's, you know, a hostility, you know, if you will, towards, um you know, renewable energy. And so I think, you know, if you're China and you are, you know, willing to, you know, rely on, um you know, a wide array of fuels, you know, to to meet electricity demand, you know, and you're able to build, you know, new capacity quickly, um you know, that I do think that gives China
00:44:38
Erica Downs
um you know, a you know ah in that area, i do see China as, you know, as having an advantage for sure. Mm-hmm.
00:44:46
lpaltiguzman
I mean, I would make the argument that the US has also some kind of all the above energy, but a different mix and with you know the sturdy backbone of oil and gas, but increasingly you know one day it might be nuclear.
00:44:59
Erica Downs
Mm-hmm.
00:45:01
lpaltiguzman
And there is still many renewables, even if you know there is less investments being made today.
00:45:04
Erica Downs
Mm-hmm.
00:45:06
lpaltiguzman
I think you know when you go to a state like Texas or other, there there are there is still a lot of you renewable infrastructure.
00:45:10
Erica Downs
Yeah.
00:45:14
lpaltiguzman
But I think the US has a competitive advantage when it comes to use its abundance of oil and
US and China's Energy Strengths and Resilience
00:45:21
lpaltiguzman
shell gas and um and not becoming dependent on what makes Chinese competitive advantage, which is you know all this ah renewable tech and equipment that they are selling to the world.
00:45:21
Erica Downs
<unk>
00:45:36
lpaltiguzman
right It's like trying to find way for the US to keep its competitive advantage.
00:45:46
Erica Downs
Yeah. And I mean, i think that basically what we're seeing, you know, China and the U.S. do broadly is, you know, capitalizing on these comparative advantages and energy, right? Like the U.S., you know, speaks about energy dominance and that energy dominance is based on fossil fuels, um you know, both used domestically.
00:46:06
Erica Downs
And, um you know, as well as for export, you know, as as, you know, a tool for leverage in the world. And that makes sense because, you know, the U.S. has a lot of oil and gas, you know, whereas for China, um you know, they don't have, you know, the oil and gas abundance that that China does, you know, certainly on a per capita basis.
00:46:24
Erica Downs
But they, you know, made a big bet on, you know, on clean tech. And so when China talks about, you know, being energy, you know, an energy
00:46:29
lpaltiguzman
Thank you.
00:46:34
Erica Downs
powerhouse, you know that is you know based in part on you know this view that they have that um you know that the what constitutes energy security in the world is you know it's shifting you know it's shifting you know away or they see it increasingly shifting away you know from control of things like oil and gas you know and and coal to these these clean technologies. So I do think when we sort of look at China and the United States and, ah you know, the geopolitics of energy and, you know, with the the country's respective advantages and disadvantages, you know, it's sort of ultimately rooted in, um you know, what what energy resources, if you will, you know, do they have a lot of, do they control? And for the U.S., you know it's fossil fuels. And for China, it's these clean technologies.
00:47:25
lpaltiguzman
isn So does it make the Chinese energy model more appealing globally? And do you see, um you know, also some kind of risk of dependence, like if you think about Europe, right?
00:47:40
lpaltiguzman
Like they want to become more um autonomous and have their own sovereign and, you know, energy and, you know,
00:47:42
Erica Downs
anyone
00:47:50
lpaltiguzman
relying more renewable batteries, but will that make them more dependent on China?
00:47:58
Erica Downs
I would say yes and yes. And let me elaborate on that. So if we look at how China has been able to weather this energy crisis to you know promote this you know this calmness and confidence you know despite yeah the the high prices and you know some of the physical supply shortages, then that's something that i you know suspect that countries, you know especially in Asia, would be interested in emulating, right? That if you're hard hit by the current, you know the supply disruptions that we've had you know through Hormuz since February 28th, then sort of building a ah more self-sufficient and independent energy system ah is going to be attractive. And certainly China is hoping that. I mean, I think there's sort of a hope, you know, among clean tech companies and others in China that, you know, other states will look at how well China has weathered this crisis and decide that they want to um You know, that they want to, you know, invest in more clean tech. They want to expand the use of non-fossil energy and, you know, rely on China to help them do that.
00:49:11
Erica Downs
But at the same time, you know, I think there are concerns um in, you know, that that vary you sort of in their sort of intensity, um you know, around the world about becoming too dependent on Chinese clean tech.
00:49:25
Erica Downs
You know, for example, ah you know, one sort of high profile example was the decision, you know, in the UK, you know, not to allow, you know, sort of equipment and built by a Chinese company, um you know, to be installed in in offshore wind farms, you know. And so i do think that there are countries around the world that have, you know, concerns either because they see, you know, from certain technologies, a national security risk, or they see, you know, opening the door and rolling out the red carpet to, you know, Chinese EVs or solar panels will, you know, sort of destroy, you know, sort of, you know, their companies that um are in this space or, you know, that they're hoping hoping to develop, right? Like, so one of the reasons, you know, for example, that you know, the Biden administration, you know, and it had tariffs on, um you know, sort of Chinese clean tech products is because I think there was a recognition that if there were no tariffs, if, you know, Chinese, you know, and American consumers were, you know, free, you know, that that that would make Chinese EVs, Chinese solar panels more attractive, you know, to su consumers in the U.S. And that would basically prevent the United States from, you know, developing the these industries. So I think there are concerns, you know,
00:50:43
Erica Downs
ah in some countries, I think there are other parts of the world where these technologies um you know are really attractive and they don't quite have the same concerns. And so it does sort of, again, going back to this issue of bifurcation um you know and and then splits and in global energy markets that we talked about, you know are we going to see um you know a world in which you know advanced economies, um developed economies stay, sort of shy away a bit from Chinese clean tech, but you know, sort of emerging economies that, ah you know, for whom, um you know, harnessing their non-fossil, their their, you know, their sunshine, their wind, um you know, to, you know, have more, enhance its access to energy, to have more affordable energy, to have more reliable energy, you know, they might go down that route. And I also suspect there there might be a different, ah you know, there might be differences with respect to different
Global Competition in Energy and Technology
00:51:37
Erica Downs
technologies. But, you know, yeah I am sort of looking to see um you know will we you know see bifurcation in the space?
00:51:45
lpaltiguzman
There are increasingly more voices like policymakers, cybersecurity researchers that are looking into suspected Chinese influence um and bot networks, especially on social media to kind of stock this anti-AI sentiment in the US.
00:52:06
lpaltiguzman
And can you comment comment on the role maybe on china of China in fueling this kind of anti-American sentiment, opinion in the United States? And and also, you know, it goes along like this anti-capitalist movement that we see and, you know, communism is cool again.
00:52:25
Erica Downs
So I have looked closely at the issue you just raised. um I will say sort of stepping back and you know looking at this from a very high level view based on you know some work I've done at different points in my career, looking at sort of Chinese messaging abroad, ah looking at you know different tools China has used you know to put out narratives that um you know, that ultimately benefit China. um You know, I do see this as being, you know, consistent with that.
00:53:02
Erica Downs
But again, it's not something that I have investigated.
00:53:08
lpaltiguzman
Yeah, I think it's worth watching. And of course, it's not the only reason why, you know, some millennial Gen Z generation or whatever they are called now or would be attracted in communism or protest again against AI center, data center.
00:53:27
lpaltiguzman
But I think it's worth investigating the role that China may have. Because at the end of the day, it's a competition, right? Like there is a competition between energy model, between economic models, and you know the the strength of the different businesses in each country is going to to matter there.
00:53:36
Erica Downs
Thank you.
00:53:52
lpaltiguzman
yeah The technology companies behind the AI revolution, and louis is the strongest and so on. um Good. Well, Erika, it was a pleasure to discuss. We had a long conversation. So thank you so much for sharing your insight. And I'm looking forward to to have you back and exchange again very soon.
00:54:14
Erica Downs
Thanks for having me, Leslie. This was fun.
00:54:26
lpaltiguzman
This is Leslie Peltie-Guzman saying good day and good luck. The episode was recorded on July 10, 2026.