The Iran war’s energy impacts are just beginning

0:00A nation isn't just built. It's powered by people like us. In 2024, Chevron increased its US production nearly 20% to help keep energy reliable. Since 2022, we spent $44 billion with local suppliers supporting good jobs across all 50 states. And this year, we're planning to invest about $10.5 billion in American energy projects to help build the future right here at home. We put in the work because America depends on it. Learn more at chevron.com slash America. Hey, welcome back to the Politico Energy Podcast, where we explore the stories and people shaping energy and climate policy. I'm Nirmal Millicle, your Wednesday and Friday host, an executive producer of the show. President Donald Trump used his address to the nation Wednesday to outline the next phase of the war with Iran. Since then, oil prices have jumped, and policymakers have reacted, based on what he said, and maybe just as importantly, what he didn't say.

1:00As we know, the war has already shaken the energy world, and the idea of more weeks of conflict adds a new layer of uncertainty, both here at home and around the globe. So today, I want to bring in Politico's James White callus and Ben LaFave to talk through what this next phase of the war means for energy in the US and abroad. It's Friday, April 3rd. All right. Ben and James, welcome back to the show. Appreciate your time. Always glad to be here. Good to be here. So the president gave his address to the nation Wednesday night. It's been more than a day now for things to develop. So what were the biggest takeaways from the president's speech? And you know, what have we learned since then? The biggest takeaway I thought was that instead of being kind of a clear, sharp message that we will be winding down our military action in Iran,

2:04and that, you know, we have a plan for her moves. Some of the things that had been signaled, you know, coming out of the White House before the speech, that the speech itself was very mishmash. It was very cluttered. It was very, we are victors. We are done everything we can to destroy Iran, but we're going to escalate. And the idea that the Straight of Hormuz is not our problem, which led to me to like the, you know, one of the key. The biggest thing. What? That's probably the biggest surprise. And the idea that Europe needs to, and this is not the exact quote, but it's pretty close to it. It's like needs to grab it and to cherish it when it comes to a waterway, the one of the key waterways for the transit of oil and gas. Europe and Asia. Yeah. Yeah. Anyone who uses the straightly, but that also, it doesn't matter to us. Hormuz doesn't matter to us, which is not true. I mean, as we've seen, you know, Hormuz has been setting the price

3:05of oil around the world since it's all started. And to say that it doesn't affect the US industry at all or US consumers is kind of proven alive by the fact that during the speech, you can see in a real time the oil market reaction, which is that prices went from like $99 or so to like more than a hundred. And James can speak to that in a minute, but one thing I did want to mention is that the biggest takeaway from the speech I would think is that the market oil trader is kind of bumping up against, you know, $99, $100 a barrel for oil. But then, you know, the administration would come down and do something to jawbone it back down and say, well, we're almost done right here. The market kind of like saw the speech or heard the speech yesterday and decided, no, there's no plan. The jawbone is not going to work at least to bring it back under a hundred. And you would see the climb just as long as the president kept talking, the price kept going up. As soon as he finished, the price jumped. I think it had been like around 104 by the time he finished talking, like up five bucks, it went to like 114. It was just like, there is no plan that we can consider a plan.

4:11And this is just going to keep going. Yeah, I feel like something he mentioned too was like this two to three weeks timeline. And I'm curious, James, what does that mean for the oil markets, both in the short term, not just yesterday, but also in that time frame he gave? Yeah, I mean, the message that Trump delivered in many ways was kind of the worst of both worlds for the oil industry, because it indicates that the hostilities in the region are going to continue, at least for a few more weeks, that could lead to continued impacts on production facilities in the region, as well as the continued effective closure of the street of Hormuz. But at the same time, the US was sort of abdicating responsibility to deal with the street, as you mentioned, Ben, to other countries, saying it's not the US's problem. I think that was what we saw in the oil market reaction, jumping up on Thursday to over $110 a barrel, which is approaching some of the highest

5:16level since the conflict began. And there's not been any indication that that's slowing down, over the next, a lot of analysts we've spoken to said that they expect that price to continue ticking up over the next couple of weeks. And if the president does follow through on his timeline of escalating over the next two to three weeks, that could lead to Iran retaliating even further on other production oil infrastructure around the region, which just sends prices even higher. Yeah, I wanted to mention too, right after the conflict started, oil bumped up to like 120. And then, but the White House, at that point, I think, still had the trust of a lot of traders, and they were able to say, well, this is just going to be a few weeks. We're going to be done, and the line we've been hearing, add nauseam, as soon as the fighting stops, prices are going to go back down. So we saw prices shoot up to 120, and then it came back down. This time, I think it's different, because now we're looking at, it's just going to be a set going away. Exactly. And I think now they're like, well, you've been saying, you know, I think the oil market is remembering that

6:21President Trump's one of his favorite phrases is in a couple weeks, something's going to happen in two weeks. And I think they're remembering that that usually means there's no timeline. So I think that's why prices have got up to 110, and I don't think there's much they can do to bring it back down before it goes further up. So let's say that does happen. I mean, what is the impact for Americans at home? What would we see selfishly? What would I see at home? Yeah, the price of gasoline is just continuing to tick up on Thursday. It reached $4.08 a gallon, according to AAA. And the price of diesel and jet fuel is continuing to go up as well. I think one of the interesting dynamics to track is that, you know, well, a lot of the immediate impact on the disruption in the straight was occurred in Asia and Europe, which rely more heavily directly on those flows out of the street of Hormuz. That's going to start catching up to the US soon in the next couple of days and weeks, because we're going to start the shipments

7:26that we're expected to come into the US, where are not going to be reaching the US. Important to note, despite what the president sent in his speech, the US remains a net oil importer. Despite record oil production here at home, we still do rely significantly on imports of these various, you know, fossil fuels. Got it. I'm curious with all this, what tools does the Trump administration actually have to manage this situation from an energy perspective? If the conflict does go on for a couple of weeks and how likely are they to use them? They don't, I mean, they only have really one tool and that is to lay out a stable kind of concrete exit plan to say, and that's what the market really wants. The market really wants them to come out and say, you know, as of three weeks, we're going to bring back the Marines that we sent out and we're going to wind things down. That's the only real thing they have, but that's probably the only thing they can't really tell

8:29the market right now, either because they don't know or maybe they don't want to signal to Iran, what they're going to be doing, but it's basically the market wants to have a clear plan of what's happening. Everything else that they may propose would be a short-term fix if that would, you know, like we've already seen, we're going to get rid of sanctions on Russian crude, on an Iranian crude, all that crude on the market now, they can't do it again. There's not much else. I don't know, James can think of anything, but that's the only thing I can think of. Yeah, I mean, they have deployed a lot of the tools they had in the toolbox. We saw on Wednesday, DOE sent out a solicitation for another round of strategic petroleum reserve releases for 10 million barrels, which won't really have a significant impact long-term. The one other tool, you know, that I can think of that they haven't pulled out yet is a gas tax holiday, you know, if they're worried about demand for gasoline going down, that could be something that they could look at. The problem is you need Congress to do that. And it's with the Held East days, it's probably a difficult sell.

9:35Yeah. Well, there's another reason. I mean, it's been explained to me as a gas tax holiday, you may remove the gas tax. At the oil companies have to pay you, or the gasoline stands have to pay you. That's not a guarantee they're going to pass that all along to the gas buyer. It might just be like, what is the gas tax now? I think it's like 18 cents something your local retail station may say, well, we don't have to pay 18 cents to the gallon to the government anymore. We'll pass long nine cents in the way that gasoline prices are going up. A nine cents pause would be like swept away within a couple days. Gotcha. Well, so we've talked about markets, Americans at home, what the Trump administration can do. But what about the rest of the world? I mean, you both have mentioned this already that kind of the closing of the state of Hormuz has really hurt Asia and Europe, but a couple more weeks of this conflict, what does that mean for them? A couple more weeks are getting screwed, basically. I mean, to find what you mean by that, Ben. They're going to be paying higher prices no matter what happens. I mean, right now with the president basically wiping

10:39his hands of Hormuz, that is basically seated Hormuz to the Iranians. And with the president saying, well, why doesn't Europe or Asia just take it and cherish it? I mean, you're basically saying, hi, we have the, you know, we have the strongest military in the world and we're not doing it. You guys take care of it. I mean, it's just a disconnect. It would take a lot of diplomacy or a huge military action that no one really wants to do to do it. What that's going to mean is that as we've seen reports out of already that Iranians are charging a toll. They're basically saying, you want to get through, you're going to pay us in Chinese yuan or in cryptocurrency. And we'll let you through. If you don't, well, we might have, you know, a few missiles on the back of a toy with a tundra that just happened to get loose and fly at your tanker. So that's an added cost. And to be clear, they, they weren't controlling it before. It was considered open. Yeah. And that was a thing. Before this started Iran, charging a toll through Hormuz was considered a threat that

11:40was not quite carried through. It was like, it was something they could do if they, if you riled up the hornet's nest. Now we riled up the hornet's nest and they're doing that because basically that they're thinking is we can't, I mean, we have proven that we can start doing this and there's no one who's going to be able to dislodge us yet. So that's an added cost. That is, if your tankers decide to go through because some I think is still not worth the risk because we're going through a military zone. There's the toll and there's also the cost of higher insurance to go through a military zone that is going to be passed on to the consumer. That's for tankers that actually go through other tankers. I heard from a colleague out of Europe that there are some tanker companies who are thinking, this isn't worth it. We're just going to like have to either cut down on shipments or find workarounds of some sort. So you're going to see deliveries either paused or canceled altogether. So basically, everyone's costs are going to be jacked up. Even if you're like, as James said, even if you're the United States and we have plenty of oil of our own,

12:43your oil is set by a global price. So if we keep saying Brent oil go up, we're going to keep saying WTI go up to. And in some ways, you know, this is kind of a strategic win for Iran knowing now that they can control the straight of war moves. They have a tremendous amount of leverage. I mean, they've shown that despite intense bombardment by the US and Israel, they're still able to keep control of the straight. And as talking to an analyst, you said, you know, I think some countries are just going to take a look at the writing on the wall and say, they've shown they can do this. And that means they probably can do it again in the future. So I probably have to cut a deal, pay the tolls or, you know, some other mechanism and that's a big win for Tehran. Yeah, exactly. So, you know, you get to this point of like for the administration, this is already causing a lot of panic for midterms for Republicans having to go in the midterm of like, we started a war, we're spending billions of dollars. And so far, the big takeaway is Iran might

13:44be set back several months or maybe a couple of years under nuclear ambitions and everybody else has to pay a toll to go through hormones. That's going to jack up a lot of prices worldwide. Right. All right. I think we'll leave the conversation there Ben and James. Thanks for your time. Always happy to be here normal just for you. Thanks. Also, some news from the week you might have missed. Federal regulators said on Wednesday that the Golden Pass LNG facility, a natural gas export plant in Texas, is free to export LNG that's produced during its commissioning phase. That project represents a major new source of LNG coming online. And senior Trump administration officials declared that all oil and gas activity on federal waters in the Gulf of Mexico is exempt from protections through the Endangered Species Act. All right. That's it for Politico Energy. For more news on energy and the environment, subscribe to our free newsletter power switch at politico.com, backslash newsletters, and subscribe to Politico Pro to read our morning energy newsletter.

14:48Ejo Shen is the show's video producer. I'm the show's executive producer and co-host. Debra Khan, Matt Daly, and Saisanesky are the editors of the show. Our theme music was made by Pran Bandi. Please subscribe to Politico's YouTube page if you like our content and follow our show on Apple, Spotify, or wherever you get your podcasts. I'm Nirmal Malikal and we'll see you back here on Monday. A nation isn't just built. It's powered by people like us. In 2024, Chevron increased its U.S. production nearly 20% to help keep energy reliable. Since 2022, we spent $44 billion with local suppliers supporting good jobs across all 50 states. And this year, we're planning to invest about $10.5 billion in American energy projects to help build the future right here at home.

15:53We put in the work because America depends on it. Learn more at chevron.com slash America.