Welcome back to Dry Powder. I’m Bill Cohan.

Few minds are better attuned to the vicissitudes of the energy market than my friend Dan Yergin, the world-renowned energy consultant and Pulitzer-prize winning author. In today’s issue, an inside look at the potential effects of the U.S.-China decoupling and why “nuclear is back on the agenda.”

Curious about this price escalation, I turned to my friend Dan Yergin, the world-renowned energy consultant and Pulitzer-prize winning author of The Prize, and of the recent book The New Map: Energy, Climate, and the Clash of Nations. Dan, who is also vice chairman of S&P Global, understands as well as anyone the ever-changing vicissitudes of the energy market, its role in the 2024 presidential race, and the politically-charged topic of climate change, which feels especially important this summer, one of the hottest on record.

High gas prices, after all, are more than just a local concern. Around a year ago, it was expected that oil would be priced as high as $120 a barrel. (It is about $80 a barrel today.) “All those forecasts have come down,” Dan told me. “And the number one reason they have come down is not about anything in the oil market directly: it’s because of China.” The expectation had been that China would come “bounding back” out of Covid, but that did not happen.

“It’s been a pretty tepid recovery,” he continued, especially in China’s manufacturing sector, which can affect the price of nearly every commodity, including oil. When he is asked about the direction of gas prices—as often happens—Dan answers with a question of his own: “Tell me about G.D.P. first. If we start to see demand strengthening, plus the production cuts, then we will see prices going up.”

One of the more surprising things he learned at Davos this year was that some 95 percent of the U.S.’s orange juice comes from groves in China, not Florida. He also discovered, to his surprise, that China has been the largest exporter of cars around the world in the past year, not Germany or Japan. “Partly because the cars are cheaper,” he said. Now, the by-word among C.E.O.s is no longer “decoupling” from China, but rather “de-risking” the relationship with China, especially with Chinese suppliers.

But just as many economists and politicians are starting to declare victory in the war on inflation and claim a “soft landing,” the price of some commodities are heading back up. The reality, Yergin said, is that oil demand has started to pick up, and along with oil production cuts by OPEC and non-OPEC countries (led by Saudi Arabia), oil prices are moving up again, too. And the Chinese economy, and our interaction with it, has slowly started to pick up again in the wake of recent high-level visits to China by both Antony Blinken, the Secretary of State, and Janet Yellen, the Treasury Secretary, as they try to begin to repair the damaged relationship between the two countries. Whether that level of interaction with China can be maintained remains to be seen.

Dan said this latest round of “rebalancing” the relationship is a good thing. “The lack of communication really increases the dangers,” he said. He recalled moderating a recent seminar on geopolitics at Columbia where the conversation started getting particularly dismal. “At the end, all I could think to do was to say, ‘It’s time to reread The Guns of August by Barbara Tuchman. And afterwards I realized that most of the people in that room had not only never read it, they didn’t even know what I was talking about.” The book, of course, is about the origins of World War I.

Yergin isn’t alone in his preoccupation with geopolitical risk. All across the world, economies have been retrenching and reshoring in response to the war in Ukraine and rising tensions with China—all of which is raising costs and sustaining inflation. For decades, greater integration between the U.S. and China, in particular, has lowered the prices of consumer goods. Now, Yergin noted, we seem to be exiting the era of globalization and entering a new era where national security issues dominate the thinking behind supply chains.

He recounted a recent conversation with a C.E.O. in Asia who said that he was planning to build a plant in the U.S., but that it would cost the company six times as much as it would to build the same plant in China. “There’ll be a security premium in the economy that wasn’t there,” Yergin said. He also cited a recent speech by Jake Sullivan, the national security advisor, at the Brookings Institute, where Yergin was once on the board of directors, marking perhaps the end of the era of open globalization. Sullivan’s message, he recalled, was blunt and far-reaching: “You need to be more nationalistic in industrial policy.”

In fact, Yergin continued, the Biden administration has embarked on a new industrial policy “on steroids” in the form of the Inflation Reduction Act, the infrastructure bill, and the CHIPS Act, among other legislation. He cited recent data from S&P Global that some $220 billion of capital investment projects have been announced as a result of the I.R.A. “It’s so attractive” to make these investments because of the incentives provided by the new law, the effects of which he predicted will be “flowing over the economy for the next several years.” To wit: The tax credits in the I.R.A. will encourage the manufacture of wind and solar energy until “at least 2043,” Yergin said, which has been deeply upsetting to the Europeans. “They thought, ‘Oh, we’re ahead on climate,’” he continued. “And suddenly the U.S. leapfrogs over them with the I.R.A., with the kind of resources that Europe can’t muster.”

Of course, Yergin remains excited by the promise of nuclear energy and hydrogen fuel, both of which he addresses in the appendix to The New Map, in a discussion of Biden’s ambitious climate-reduction goals. And he is encouraged by recent developments in nuclear energy, in particular: Dow Chemical has pledged to build a nuclear reactor at one of its industrial sites along the Gulf of Mexico by 2030. The first newly-constructed nuclear power unit in 30 years has just opened in Georgia. And more venture capital money is flowing into fusion technology than fission technology. “Nuclear is back on the agenda,” he said.

But any new nuclear plants will take time to get built and to receive regulatory approval. And while “everywhere you go” people are talking about hydrogen and working on hydrogen projects, Yergin wonders what the market will be. The tax credits in the I.R.A. make some hydrogen projects “extremely economic,” but that doesn’t mean there is yet a market for hydrogen or practical uses for the substance. The “big use” for hydrogen is “industrial heat” to replace natural gas, he said, and many think that the U.S. will become a global supplier of hydrogen. But then the question becomes: How do you transport it? “In Japan and Korea,” he continued, “what they want to do is transform hydrogen into ammonia, ship it as ammonia, and then use it and co-burn it with coal, for instance. There’s just lots of different things that people are trying hard to do at the same time. And there are a lot of huge incentives for technological innovation.” He said we’ll know more about the efficacy of hydrogen as a fuel source in two years.

In the meantime, Yergin concluded, people are also talking a lot these days about biofuels, and in particular used cooking oil, or U.C.O. “The United States,” he said, “is currently importing used cooking oil from China to make jet fuel.” He said he was just back from a conference in Kuala Lumpur, where he was talking with a woman who is the C.E.O. of a major Asian energy company. Did she know what U.C.O. was?, he asked her. Of course she did, she said: “I’m also a housewife.”