How the war in Iran is impacting global energy markets

0:00Let's shift our focus now to the war's impact on the global energy market. Oil and gas prices spiked today, as the regional conflict escalated, and shipping was disrupted in the state of Ormuz. About 20 percent of the world's oil and liquefied natural gas flows through the street every day, making it one of the most crucial oil supply routes on the planet. William Brangham joins us now with more. I'm not at least five tankers have been damaged in the vicinity of the street since Saturday and traffic slowed dramatically there over the weekend. Separately, Iranian drones continue to attack energy infrastructure in different Arab Gulf states. Today, those attacks damaged in oil refinery in Saudi Arabia and halted the production of liquid natural gas or LNG in Qatar. So to help us understand these impacts and implications, we are joined by Dan Pickering. He's the chief investment officer at Pickering Energy Partners, which is a financial services and advisory firm that is focused on the energy industry. Dan, thank you so much for being here.

1:05Let's pick apart some of these different impacts first on the markets. What happened with oil prices today? Yeah, William, we had a strong rally and it will price up 7 percent. WTI, the US benchmark was about $72 a barrel. It was actually up less than many people expected. So the markets did better. The broad stock markets did better and oil didn't rise quite as much as expected, but still up strongly. And we mentioned the importance of the state of our moves and the attacks and the trickiness of what's going on there right now. What do we know is the latest happening in the strait? Now, the latest is essentially tanker traffic has slowed to almost nothing. Some vessels, primarily Iranian vessels are continuing to move through the strait, but because it's dangerous, because there have been attacks, there's not a lot of oil moving through there. And as we know, it is a big choke point for global

2:07supply. 20 percent of global supply comes through the straits and it's essentially shut down right now. I mean, obviously, this is the main route. That's why everyone has been using it for so many years. Is there, or are there any alternate routes to get that oil to market? For oil, there are some other pipeline export routes, maybe five million barrels a day. So remember, 20 million through the straits, perhaps five million of it can get to market other ways. So 15 percent of supply is trapped behind the straits on the gas side of the equation. There really is no other output for guitars, liquefied natural gas. And so that is that is kind of 100 percent blocked right now. Do you have a sense of what Iran could do to both increase the pressure on the limited traffic that's going through? And what might the Americans or allies do to alleviate that choke point? When we think about what could happen from here, if Iran wants to

3:14ratchet up the tensions, it probably wouldn't be in the straits of Hormuz where they've already had a big effect, slowing traffic. It would be lashing out at the energy infrastructure of the other Gulf states. So attacking Saudi Arabia's capabilities, attacking Kuwait, Oman, the United Arab Emirates. So I think that the actions that the U.S. and the allies would likely take will be to try and safeguard the straits, whether using it doing that militarily with escorts and or aerial support and potentially creating a financial backstop that would allow tanker traffic to move through without fear that the damage would be uninsured. Right. I mean, you mentioned some of these other potential attacks. We have seen some of those already. What does this say about the state of the conflict that Iran is is right now reaching out to trying to attack those other other states

4:16and other refineries? I think it says this is clearly different than what we saw in June. Obviously, a much bigger conflict in one in which Iran is prepared to fight back and fight back aggressively. I would say that the first 48, 72 hours are very important and no significant infrastructure damages happen across the Middle East. And so I think we have to feel good that that there hasn't been more damage or more impact. And my expectation is we'll probably fix the straight support moves within the next 10 days. And so this is absolutely a flash point in time but one that is probably going to ease in terms of risk as we move through the next week to two weeks. I want to ask you about this one. There was one attack on an LNG facility, a liquid natural gas facility in Qatar. And European gas prices surged quite dramatically after that.

5:17How significant is the loss of that one facility or an attack on that one facility? Yeah, Qatar. They're 20% of global LNG supply and it all flows through the straits. And so when you take 20% offline, which has happened now, not damage to the facility per se, but just forced to shut in because they can't export their gas. 20% is a big impact. So European prices escalated. A lot of that LNG goes to Asia. And so those shortage will be felt in the next call a month or so. But European prices react because the whole global market has now tightened not a lot of excess LNG capacity around the world to offset those shut-ins. I mean, I know we are in early days and all of these things are predictions at this point. Do you have any sense as to whether or not and when American consumers might feel the ripple

6:19effects of this conflict? Yeah, I think we're very lucky here in the United States from the perspective that because of the shale revolution, because of the fact that the US has become the world's largest oil producer at 14 million barrels a day in a very significant gas producer. We're pretty self-sufficient here. And so we should be relatively insulated from what's happening. Global prices will impact US prices, but oil in the 70s gasoline prices should stay relatively muted. So unless things escalate from here, we should see relatively little impact in the US, unless things escalate. All right, that is Dan Pickering of Pickering Energy Partners. Thank you so much for being here. Glad to be here.