Is China the Winner of the Iran War?

In the following excerpt, Derek and Alex Turnbull dig into one of the lesser-known effects of the U.S.-Israeli war with Iran: the energy crisis in the Pacific islands. 

Derek Thompson: Alex Turnbull, welcome to the show.

Alex Turnbull: Thank you very much, Derek. Good to be on.

Thompson: If an American television viewer or newspaper reader or podcast listener tunes into the Iran war these days, my guess is the first thing they hear is the price of gas. Maybe they hear something about the shock to global supplies of crude oil. They’re very unlikely to hear about the economic crisis in the Pacific islands, but there’s a way in which what’s happening in the Pacific right now might be the most important long-term consequence of this war. And so I want to begin there. Alex, what’s happening in the Pacific islands?

Turnbull: Well, first of all, in Asia, you now have a shortage of particularly heavier slates of crude, which would normally come from the Middle East, and just an outright shortage of crude. That is leading to a monstrous squeeze on diesel supply. And if you’ve ever been to one of these islands, whether it’s the boats or the remote power, everything runs on diesel. And these countries do not have a lot of other options in the short term, and so they are incredibly at risk.

Thompson: And what islands are these? What countries are you talking about?

Turnbull: These are countries like Tonga, Fiji, New Caledonia, numerous places which form an extensive littoral area which extends. But you just have the first island chain in the security parlance, which is Taiwan, the Okinawa and Ryukyu Islands. And then the second island chain is this extension of islands past there.

Thompson: So these Pacific islands are among the most exposed geographies on earth right now to the energy crisis. Now, why is this a China story?

Turnbull: Well, China’s already been quite active in seeking to pursue basing rights, pursue influence, particularly in places like Fiji. And these places are now horribly exposed. China has a very large crude SPR-extensive refining capacity, and they might be able to step in there to help them out. The question is: What’s on the other side of that?

Thompson: So let’s finish that sentence. What is on the other side of this? The U.S. has created an enormous pain point for these Pacific islands. They are strategically located in a way that China could extend its power across the Pacific. And here’s China saying, “Hey, maybe we can play good guy in this part of the world.” What’s happening next?

Turnbull: I think they’ll probably seek access to ports, maritime, military presence, the sorts of things we’ve seen them do in Sri Lanka, for example.

Thompson: And why don’t you go back and just answer that question with just a little bit more context?

Turnbull: Yeah, sure.

Thompson: As if we were talking on the phone a couple days ago. Just feel free to just be more ample in that reply, like, “Hey, look, here’s been the tension in this region. The U.S. has been doing diesel diplomacy, so they’re going to do their own diplomacy.” That sort of thing.

Turnbull: Sure. So often when countries in the region are stressed macroeconomically from a trade imbalance or energy shock—so, for example, Sri Lanka over an extended period of time, Cambodia—China has often traded assistance, financial or material, for the ability to place military assets in those countries to have port access rights. And I would imagine the pattern you’ve seen in those countries like Sri Lanka, like Cambodia, you will see copied essentially in the Pacific islands if they cannot source fuel from anywhere else.

Thompson: So if you’re the American State Department or the Pentagon, why is this concerning? Because maybe someone listening to the first five minutes here is just, like, maybe this sounds like sort of small beans. Like, OK, well, there’s a little bit of an energy crunch in the Pacific. Yeah, China has a little bit of exposure there. Maybe they can help these countries out with a little bit of diesel. Why do you think this could be a much more significant story in the next few years?

Host: Derek Thompson
Guest: Alex Turnbull
Producer: Devon Baroldi

This excerpt has been edited and condensed.