Jordan Blum, editorial director, Hart Energy: We are here at CERAWeek by S&P Global 2025. I'm joined by Paul Gruenwald, the S&P Global Ratings’ global chief economist. As a chief economist, there are a lot of moving parts right now,

We have the moving goalposts of tariffs. We have now global recession fears. So I just wanted to get your take on what you're most focused on, what you're maybe most concerned about right now.

Paul Gruenwald, global chief economist, S&P Global Ratings: I think what's happened over the last couple of weeks is we've really had this rise in policy uncertainty in the U.S. There's actually an index I discovered from the Fed, but it's only spiked three times. Once was [during the] global financial crisis. Second was COVID-19 and the third one was last month. So I think just a lot of the back and forth on tariffs, whether you agree with them or not, that uncertainty seems to be driving a wedge between what we call the soft data and the hard data. So the soft data are based on survey sentiment, et cetera. Those have tended to go south over the last month or so. The hard data is hanging in there, but what that means to us is there is a risk that with all of the uncertainty around policies, firms may pull back on investment, households might pull back on some of the discretionary, durable goods spending, and we could work ourselves into a slowdown. We haven't changed our baseline yet. We're still in the soft-landing camp, but I think the risks of a harder landing based on the uncertainty of recent.

JB: So do you feel like recession fears are kind of growing by the day?

PG: That seems to be the consensus. I read the paper. So it seems like more firms are coming out. They haven't again changed the baseline call. I think everyone still sees a lot of strength in the U.S. economy, but a lot of forecasters are moving up the recession probability or the downside risk scenario.

JB: When it comes to tariffs, what's the bigger concern right now? Just the tangible impacts of tariffs or the back and forth of whether they're going to be implemented or not.

PG: Well, there is a justification for putting on tariffs. So if you're exporting to me and you're subsidizing your manufacturers and my domestic industry is getting hurt, I'm perfectly within my rights in the World Trade Organization to put what we call a countervailing duty on to level the playing field. That's totally okay. When tariffs are used for multiple purposes, let's say inadequate defense spending or to stop the flow of illegal drugs or whatever, it tends to confuse people. And then the timing, the back and forth, I think it's confusing people as well. So you've got this one instrument that's typically pretty well-defined on what it should be doing, but it's turned into this kind of utility knife of policies trying to fulfill these multiple objectives and then again, the back and forth, and I think that's just causing this kind of pullback in sentiment.

JB: Very good. And regarding the impacts on oil and gas specifically, we've been talking a bit more about just economically, but what are the thoughts on how things could impact specifically oil and gas and then the energy supply chain as well?

PG: Right. Well, our analysts have written about this. We know there's a lot of refining that happens in the Midwest from Canadian crude, so it's more of a Canada thing than a Mexico thing. I'm not an expert here, but I can share the highlights. One is, first of all, it's going to be more Canadian imports into the U.S. The refineries are in the Midwest. The analysts don't seem too concerned about the midstream, but it's really the margins. And then how much of that's ultimately going to be passed on to consumers versus being absorbed in profit margins. Historically, that's been roughly 50-50. So that's really the risk they're seeing: some margin compression on the producer side, then the higher prices and then kind of the inflationary impulse from that.

JB: Moving beyond tariffs a little bit, I wanted to get your take on global demand. Obviously global demand has been pretty strong, but is there growing concern that we're moving toward a slowdown there?

PG: We kind of divide the world into three regions. The three big ones are U.S., Europe, and China/Asia. The U.S. has been hitting the ball out of the park for the last couple of years, right? Outperforming on growth, productivity boom, investment boom, partially fueled by the IRAs [Inflation Reduction Act]. So that's been looking pretty strong. We discussed the soft lending versus hard landing a minute ago. Europe is kind of slow and gradually recovering, but the big one is China. China is the biggest consumer of oil and gas. Growth there finished a bit stronger than we thought last year, and we're kind of looking low 4% GDP growth this year. The Chinese government is trying to put the economy on a more sustainable path. It's been kind of, historically, dependent on manufacturing, and that's where their levers are in terms of policy, and they really need to boost the consumption sector. But if China comes in kind of low fours, again, we may get a moderation in global growth, but not a big slowdown. And then some of the big emerging markets like India are doing quite well. So we may have some redistribution, but not really a big kind of down leg in growth and demand.

JB: Is China longer term more of a concern in terms of more rapidly adopting EVs [electric vehicles], growing in renewables, et cetera?

PG: Well, not a concern for them. I think they're doing quite well, and part of that's because of the energy transition, and part of it is because they want more energy security. We've been talking a lot here at CERAWeek about the energy trilemma, that's one of the legs of the trilemma. For countries that are competing with China in those spaces and electric vehicles, I think Germany is probably case A or exhibit A, yeah, that's going to be challenge. So the Chinese have put a lot of public resources into developing the EVs. They've got some very large number of EV firms, now they're consolidating. We've got companies like BYD, Build Your Dreams, opening up shops all over the world including in Europe. So this could potentially spur more innovation in the industry, but it's definitely a disruptor, right? I spent a lot of time in Asia earlier in my career, and it wasn't that long ago that China was exporting textiles, clothing and footwear. And here we are 20 years later doing top of the line electric vehicles competing with the Germans. So it's a disruptive force for producers, for consumers. You get high quality cheap electric cars, so good for them.

JB: There you go. The only other thing I wanted to touch on too was the evolving role of OPEC or maybe say OPEC+ and with the new Trump administration or Trump 2.0, whatever you want to call it, reaching out to the Saudis again on production controls, that kind of thing.

PG: Yeah. First of all, the U.S. getting energy independence is a game changer. And we know that the marginal producer has moved from being the Saudis to the U.S. So the U.S. has a good hand of cards, if we can use that metaphor. That's been used recently. But yeah, that puts the U.S. in a strong position. If there is any change in non-U.S. supply, the U.S. could potentially offset that. We have this 3-3-3 idea of our new treasury secretary. The last three is an increase in crude production. That may not come to pass, but the U.S. has that in their back pocket if we need to do that. So I think if I take off my macro hat and put on my geo strategist hat, the U.S., in terms of energy security and the ability to increase supply, put fracking and probably that bucket as well, puts the U.S. in a good space. The U.S. is trying to work with the Saudis and OPEC+ to, I think, calibrate oil production. The prints kind of slip below this sweet spot. I always thought the sweet spot was kind of $70 to $85. We're a bit below that now, but we shall see how this all plays out.

JB: We will indeed see. Again, thank you so much for joining us here at CERAWeek. I really appreciate it. To read and watch more, please visit online hartenergy.com.

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